The largest U.S. cryptocurrency trading platform, Coinbase (NASDAQ:COIN) announced blocking more than 25,000 crypto wallet addresses related to Russian individuals or entities suspected to have engaged in illicit activity. The blocked addresses make around 0.2% of Coinbase’s 11.4 million monthly transacting users. Instead of targeting all Russian-based users, the platform chose to implement selective safety measures.
Exchanges push back on bans
Following the start of the war in Ukraine and the resulting financial sanctions on Russia, the ruble hit an all-time low. As such, crypto trading volumes have already seen a spike. Russian citizens have moved their money into cryptocurrencies to protect it against the plummeting value of the ruble and Western financial sanctions.
Crypto exchanges are coming under pressure to block transactions with Russia, as the fear rises that cryptocurrencies might provide a back door for Russia to continue financial transactions despite the western measures to cut it off.
Mykhailo Fedorov, Ukraine’s vice-prime minister, called on “all major crypto exchanges to block addresses of Russian users”, saying it is “crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users”.
So far largest crypto exchanges are careful with announcing any bans, as to do so would be contradictory to the decentralized nature of crypto and sparks controversy. Brian Armstrong, CEO at Coinbase, wrote on his Twitter (NYSE:TWTR): “we are not preemptively banning all Russians from using Coinbase. We believe everyone deserves access to basic financial services unless the law says otherwise.”
A spokesperson for Binance, the world’s biggest cryptocurrency exchange, told CNBC that unilaterally freezing the accounts of Russian users would “fly in the face of the reason why crypto exists.”
Selective measures
Paul Grewal, Coinbase’s chief legal officer, wrote on the company’s blog that crypto exchange has banned access for sanctioned individuals and is using blockchain analytics to identify addresses potentially linked to them, which it also adds to an internal blocklist.
“Today, Coinbase blocks over 25,000 addresses related to Russian individuals or entities we believe to be engaging in illicit activity, many of which we have identified through our own proactive investigations,” Grewal wrote. “We shared them with the government to further support sanctions enforcement.”
Coinbase stated to stand with the governments to support the necessary sanctions. To be committed to building a safe and responsible financial system that promotes economic freedom worldwide, the company stated to implement selective measures.
Coinbase declares to check account applications during the onboarding process against lists of sanctioned individuals or entities and blocks access to sanctioned actors. On-going screening should detect evasion attempts, and a sophisticated blockchain analytics program should identify high-risk behavior, said the officer.
Could crypto enhance sanctions compliance efforts?
Grewal opinions that using cryptocurrencies could contribute to the sanctions instead of being a trojan horse. By contrast to fiat money, which is easily laundered, digital asset transactions are traceable, permanent, and public, making it easier to detect evasion attempts.
“Public blockchains offer unprecedented visibility into the details of transactions, including information about the date and time of each transaction, the type of virtual asset transacted, the amount, the wallet addresses involved, and the unique transaction identifier,” wrote Grewal.
Furthermore, any suspicious transaction can easily be traced, as transaction once recorded on the blockchain stays there permanently: “In many cases, law enforcement can trace the transaction history of a wallet from the very first transaction, follow transactions in real-time, and group transactions according to risk level based on interactions with other wallets,” advocates Grewal.
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