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Kleptocracy, Oligarchy and Cryptocurrency
Editor’s note: A previous version of this article incorrectly stated that Coinbase and other exchanges were not abiding by sanctions, which they have been. The correction has been made.
The overlords of crypto have stepped up to protect Russians from having their assets frozen in their crypto exchange accounts, defying government requests to freeze accounts in response to Russia’s act of war against Ukraine. Here’s what Coinbase’s spokesperson said:
”At this time, we will not institute a blanket ban on all Coinbase transactions involving Russian addresses. Instead, we will continue to implement all sanctions that have been imposed, including blocking accounts and transactions that may involve sanctioned individuals or entities,” the spokesperson said in an emailed statement. “Our mission is to increase economic freedom in the world. 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. We remain vigilant as this invasion evolves and are deeply committed to playing our part.”
The CEO of Kraken, another crypto exchange, has said that a blanket ban goes “against Bitcoin’s libertarian values” and that crypto is supposed to be “a weapon for peace, not for war.” Crypto zealots like Anthony Pompliano have, of course, suggested that somehow Bitcoin is the solution to whatever the problem he thinks people are having in Russia.
One might believe this is the perfect test case for Bitcoin - a modern nation cut off from much of the world’s banking, with a tumbling currency, and a spike in Bitcoin’s price suggests to some that “Russians are switching to crypto.” This is technically true but missing the crucial word “some.” According to Vice, the trading volume between USDT (Tether, a cryptocurrency with its value tied to the US dollar that’s used as a store of value, that’s also likely extremely fraudulent) and the Russian ruble hit a record of $34.31 million on March 1.
Perhaps I’m wrong, but isn’t that…not a large amount of money? “Volume” in a crypto sense is how much money is transacted, so “volume” is not necessarily just buying crypto - it could also be holdings being sold for whatever reason. In any case, $34 million is not a large amount compared to Tether’s daily volume which is measured in the tens of billions of dollars. We are talking multiple decimal points below a single-digit percentage of the daily transaction volume of USDT (albeit in one currency), and it is being hailed as a significant movement.
What it is - to my best guess - is a sign that wealthy Russians are moving money into crypto as a means of holding it. There are around 300 businesses in Russia (according to Statista) that either offer crypto as a means of transaction or a crypto ATM on their premises. The Russian government itself has been hostile to cryptocurrency, “citing threats to financial stability, citizens’ wellbeing and its monetary policy sovereignty.” Russian bank Tinkoff has tried to enter cryptocurrency through a partner bank called Aximetria in Switzerland - except Switzerland has now frozen Russian assets as part of their sanctions. And while there are many that claim that “crypto will help Russia evade sanctions,” experts are doubtful that this is will actually happen:
“It is very difficult to move large amounts of crypto and convert it to usable currency,” Redbord said. “Russia cannot use crypto to replace the hundreds of billions of dollars that could be potentially blocked or frozen.”
Measures are also in place to stop the evasion of sanctions via crypto. On a blockchain ledger – where cryptocurrency exchanges are posted – every transaction and the address associated with it are viewable to the public.
In short, Bitcoin and other cryptocurrencies do not really help anyone in this scenario other than those who have the means to buy them as a store of value while the ruble settles. The average Russian is not, and I would argue will not, be transacting in cryptocurrency - because the majority of them require you to buy into them with money, in this case, money that is continually losing its value under the brunt of sanctions. Even Pompliano is couching his valuation of Bitcoin as “seizure-resistant” - because these assets can be tracked and traced.
That’s because cryptocurrency is slow, awkward, and bad at being a currency. It is an unstable store of value, even in the case of stablecoins, and requires more currency to move the currency. It has a horrific learning curve, is rife with scams, and, crucially, even if you receive it, turning it back into another currency requires a bank that’s able to provide that currency. Right now, you’ll need cash because Visa and Mastercard (who owns Maestro) have blocked services in Russia, meaning that you’ll need to go to one of the huge lines to get to an ATM. It isn’t just wonky and slow. It’s also astoundingly impractical - and doesn’t solve any of the woes that face the Russian people under these sanctions. I’m not even getting into mining - it just isn’t remotely viable for most people. Even if Russia somehow span up some incredibly large Bitcoin farm and made it the official currency of Russia, El Salvador has proven that is a terrible idea.
This should be crypto’s Super Bowl. This is the kind of situation where cryptocurrency is allegedly the solution - a country cut off from the world that “needs” a currency that cannot be blocked by a central authority. Except it doesn’t, because it’s not particularly good at doing any of the things that currency needs to do. While there are newer cryptocurrencies that are faster, they all face the same liquidity and educational issues (on top of the massive environmental problems they cause), and even in a perfect scenario where everything works perfectly, they’re still a significantly worse experience than using real money. And according to anonymous Bitcoin founder Satoshi Nakamoto, “the root problem with conventional currency is all the trust that's required to make it work,” specifically with regards to the central bank not debasing it - except instead of just debasing it, Bitcoin’s value is continually debased and inflated based on arbitrary conditions and market manipulation. How is that markedly better than a currency being debased by global sanctions?
It isn’t, because as I’ve said before, none of the people building and maintaining these systems are actually interested in building a currency. If the sludge of crypto hucksters actually had an ideology to speak of, they would be standing up here and offering anything other than empty rhetoric and cheerleading for their own investments. If their system worked in the way they’ve claimed it always would - that it would be part of a free, open and useful internet - the Russian people would be flocking to it.
Except cryptocurrency is as kleptocratic and oligarchal as the oligarchs and kleptocrats that the zealots claim to hate. If you want to generate Bitcoin, or Ethereum, or any other mineable currency, you’re required to own masses of hardware and, of course, the space and resources to power it. If you want to buy it, you need money. Those who have enough of it to matter to their lives either got in early or had the means to purchase it. Cryptocurrency is gatekept by having to already have fiat currency or having masses of computing power, and to act as if it’s an egalitarian force for an open internet is disgraceful.
Worse still, the idea that a cryptocurrency can’t be “debased” is wrong in and of itself. Crypto prices are horribly manipulated by - you guessed it! - those with the means to do so, which is about as close to the definition of a kleptocracy as you can get. And if you’re wondering how it’s an oligarchy, you should remember that 0.01% of Bitcoin’s holders control 27% of the supply, and people with large amounts of cryptocurrency can overwhelm and change decentralized finance products using their large amounts of centralized power - in this case cryptocurrency tokens.
The reason I am banging on about this is that for the last decade, cryptocurrency pioneers have been talking about this industry being “the future of money.” If anything, cryptocurrency has become the past of money - a clunky, ugly, easily-manipulated, easily-consolidated tool that’s predominantly useful for rich people that want to hide or store money in a place that isn’t a bank. Even if you were entirely operating in stablecoins, you’re still having to deal with network congestion and transaction fees that are - and people are happy about this - around $14 for things like “sending from one wallet to another.”
I’m sure some greasy pedant will turn up in my mentions to say it’s lower or that I’ve missed some minute detail - and I don’t care because it doesn’t change my larger point that cryptocurrency is useless to the average person, let alone a Russian with a debased currency that wants to live a normal life as their ghoulish leader throws them into a horrifying, pointless conflict.
Despite the cries that cryptocurrency defies geography and class, it has proven to be anything but, with large holders, including the identical boat billionaire Winklevosses and the FBI, and the associated cost with entering the system is prohibitive to most people, especially a country with an average wage of around $500 a month before sanctions.
If anything, this situation has proven that cryptocurrency isn’t catching on at all. The supposed perfect situation has arrived, and yet the cryptocurrency industry nor cryptocurrency itself has mostly been useless to the average person.