Coinbase blocks access to over 25,000 Russian-owned cryptocurrency wallets

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This article is contributed by Sadie Williamson, founder of Williamson Fintech Consulting.

The war between Russia and Ukraine has once again put cryptocurrencies in the public spotlight. The Russian invasion of Ukraine has resulted in Ukraine imposing multiple sanctions from much of the western world. As the Russian ruble continues to fall at an astonishing pace, Russian citizens and organizations are turning to cryptocurrency as a refuge during this time of crisis.

Since the invasion began, the ruble (RUB) has lost more than half of its market value. In addition, Russia has been hit by multiple economic sanctions, including removal from the global payment system SWIFT. Prominent Russian citizens and organizations have been placed on the US Sanctions List, effectively prohibiting US companies from engaging in any form of business activity with them.

In that regard, Coinbase, one of the largest US-based crypto exchanges, has now blocked more than 25,000 crypto wallets belonging to Russian individuals and entities. According to Coinbase’s official announcement of March 7, 2022, the platform has implemented a multi-layered, global sanctions program to support government agencies in deterring unlawful aggression and promoting national security. This effort includes blockchain analytics technology, which identifies problematic registrations and anticipates potential threats.

Paul Grewal, Coinbase’s chief legal officer, responded to the exchange’s latest efforts, arguing that fiat currency remains the most appropriate means of laundering money through traditional financial institutions. In addition, he was quick to emphasize how crypto, and its innate transparency through public ledgers, can be more effective at establishing sanctions compliance. He notes how difficult it would be to make large block transfers of capital via the blockchain without being tracked, and he puts forward the idea that cryptocurrency could be a more effective sanction-enforcement mechanism than fiat-based measures.

Meanwhile, the Coinbase team has clarified that these blocked addresses are engaged in illegal activities, many of which were identified through the platform’s own protective investigations. In addition, Coinbase has also shared these addresses with the US government to underline their commitment and support.

Just three days ago, on March 4, 2022, Coinbase CEO Brian Armstrong posted a series of tweetsone of which read: “Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them are probably resisting what their country is doing, and a ban would hurt them too. That said, if the US government decides to impose a ban, we will of course follow those laws.”

In the same thread, Armstrong added:Coinbase does not preemptively ban all Russians of using the platform. We believe that everyone should have access to basic financial services, unless the law provides otherwise.” The series of tweets clearly indicated Coinbase’s stance on the sanctions. The move to block more than 25,000 accounts was therefore not unexpected, but it did raise a number of important questions.

While Coinbase has clarified that all blocked wallets are related to sanctioned individuals and entities and not ordinary Russian users, the sudden decision to block thousands of wallets in an instant is a stark reminder that cryptocurrencies may be decentralized, but the exchanges that control those assets , are not necessarily.

For a centralized exchange, decision-making power is retained by only a handful of individuals. And Coinbase CEO Brian Armstrong has done his best to strike a balance between aligning with sanctions and explaining how crypto cannot be used to evade sanctions, although this is his latest move. In the same series of tweets As of March 3, 2022, Armstrong laid out his views on the pending questions regarding the use of crypto to avoid sanctions and reiterated that Coinbase as a US company is bound by the US regulatory landscape.

Sadie Williamson is the founder of Williamson Fintech Consulting.

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