Fintech

Punish Russia by blocking its crypto wallets? It's complicated.

A Ukrainian official’s request for exchanges to block Russian crypto wallets is doable but hard to pull off, experts say.

The Russian flag on a coin chained up.

Two major exchanges say a blanket ban on crypto transactions is out of the question.

Illustration: Christopher T. Fong/Protocol

A top Ukrainian official’s call for crypto exchanges to block all wallets in Russia and Belarus has been rejected by two major exchanges. And although it can be done, pulling off such a move would be really hard, experts say.

Ukraine’s vice prime minister, Mykhailo Fedorov, on Sunday urged crypto exchanges “to block addresses of Russian users.” The move would be in addition to financial sanctions already in place mainly against top officials and billionaires identified as close allies of Russian President Vladimir Putin.

“It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” Fedorov said.

The Biden administration, which has joined allies in imposing sanctions against Russia, reportedly is asking crypto exchanges to make sure Russian individuals and organizations aren’t using virtual currencies to avoid sanctions, according to Bloomberg.

But two major exchanges say a blanket ban on crypto transactions is out of the question.

Coinbase will block accounts and transactions involving individuals or entities mentioned in the sanctions that are already in place. But “a unilateral and total ban would punish ordinary Russian citizens who are enduring historic currency destabilization as a result of their government’s aggression against a democratic neighbor,” the spokesperson said.

Binance also said it will block the accounts of Russian individuals targeted by the sanctions, but will not freeze the accounts of other users from Russia, according to a report.

Rob Siegel, a management lecturer at the Stanford Graduate School of Business, called Fedorov’s move a “clever play.” “He's trying to get more companies to line up against Russia — and this is but another way to cut them off financially,” he told Protocol.

And it’s certainly doable, said Mike Fasanello, director of Training and Regulatory Affairs at Blockchain Intelligence Group. “It absolutely is possible to freeze all accounts from certain geographic locations,” he told Protocol. “Mapping geolocational data on crypto wallets is tedious, but can be done.”

Chris Kline, chief operating officer and co-founder of Bitcoin IRA, agreed, saying there are “IP identification methods that could possibly be used to stop transactions.” But there are also “plenty of workarounds” for users “like IP masking, ghosting and imitation,” he told Protocol. “It would take a concentrated effort by several different entities both in the crypto and traditional finance sectors to coordinate something along what the vice prime minister of Ukraine is asking.”

Marco Bellin, CEO and founder of Datacappy, said crypto wallets are generally traceable, but there are ways to obfuscate transactions. “You can spoof your geolocation. So you can be in Russia, Belarus and pretend you're in New York,” he told Protocol. “If I'm in Russia, and I want to transact with somebody in North Korea or Iran, somewhere that isn't trying to deny you services, it's nearly impossible to stop.”

But he said the Russian officials and oligarchs who have stored big chunks of their wealth in crypto wallets do have a lot to worry about, especially with international hacking groups moving aggressively against them.

“If you can identify the wallet, there are sophisticated tools by which you can empty some of these wallets,” he said. He thinks Fedorov’s “call to action” was “more of a subtle call to action to hacking groups to try and identify the wallets and drain those accounts.”

“I assume any crypto accounts that have hundreds of millions of dollars are accounts that people are aware of,” he said. “Hackers, Anonymous, those guys have really sophisticated tools. The world hacking group is now actively cyber-attacking Russia … If I were one of the oligarchs, quite honestly, I would have one of my tech guys trying to figure out how to get the money out.”

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Benjamin Pimentel

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