Cryptocurrencies have no geographical boundaries and are not dependent on the policies of individual states. As a high-tech and productive alternative to the clumsy and costly traditional financial systеm, they continue to expand globally, erasing international borders and exposing weaknesses in the current legal, economic and political order of the world.

Year after year, the impact of cryptocurrencies on international relations becomes more and more obvious. The connection between cryptocurrencies and geopolitical processes is becoming clearer against the backdrop of the events that have shaken the world over the past decade.

Let’s try to analyze how cryptocurrencies and geopolitics interact, how digital currencies and international sanctions coexist, and how well cryptocurrency regulation issues are progressing internationally in this context.   

The impact of blockchain on geopolitics

The ubiquitous and barrier-free nature of blockchain predetermines its unique position in international financial relations. One of the main advantages of the technology is its potential to facilitate cross-border transactions: they are instantaneous and much cheaper than international payments in traditional financial systems. As a result, cryptocurrencies in the global economy are increasing the efficiency of financial interactions in all corners of the world where the Internet is available.

However, despite the distinctly positive role that cryptocurrencies play in international trade, fighting inflation, and increasing financial inclusion, they can also have negative consequences. The geopolitical risks of cryptocurrencies, such as their use to finance terrorism, evade sanctions, or undermine the sovereignty of countries around the world, are challenges that cryptocurrencies can pose to international security. These issues have been high on the agenda of the authorities of most states and intergovernmental organizations in recent years.

The impact of cryptocurrencies on state sovereignty

Digital currencies are not seen as a threat to the global financial systеm, but their significant impact on national economies is beyond question. 

Governments around the world are building reserves in cryptocurrencies and using them as safe havens in times of economic instability. The growing role of bitcoin in global politics can be seen here, and it is increasingly being used as a stabilizing asset. 

At the same time, developing countries are increasingly replacing national currencies with digital assets, mainly dollar-stable coins: they have a stable exchange rate and are easily convertible, unlike local currencies. However, such a substitution of national currencies with cryptocurrencies carries the risk of the state losing control over capital, which may eventually lead to the loss of financial sovereignty. Digital assets make significant adjustments in the process of maintaining monetary sovereignty, limiting the zone of influence of central banks, which had the prerogative to issue money. 

Cryptocurrencies as a tool to circumvent sanctions

Sanctions are foreign policy measures aimed at deterring an entity from committing acts that violate the norms of national and/or international law. They are used to stop or prevent international crimes, military conflicts, terrorism, and to strengthen security, democratic principles, and respect for human rights.

The list of countries by the number of sanctions imposed in the world is headed by the russian federation, which has been declared a state sponsor of terrorism. Before the full-scale military invasion of Ukraine in 2022, the number of sanctions against the rf already amounted to 2,695 (then the aggressor country was in second place after Iran), and from the end of February 2024, the number increased more than seven times.

Here are the top 5 “winners” of the ranking by number of active sanctions according to Castellum.AI monitoring:

The offending countries that top the sanctions lists and significantly restrict their economic and political activities are resorting to the use of cryptocurrencies to circumvent financial sanctions. Let’s take a look at the most prominent examples of how they do this.

Cryptocurrencies and terrorist financing in the rf

Chainalysis’ fall analytical report notes that russian authorities have recently “significantly deviated” from their previous policy on cryptocurrencies. If in 2022 the Central Bank of russia insisted on its total ban on the Chinese model, then in 2024 suddenly a number of laws were adopted, legitimizing some segments of the crypto industry. In particular, concerning the conduct of cross-border payments. 

The report states that the vector of regulation of the cryptocurrency sphere in rf today focuses on the evasion of sanctions. By the way, this was officially stated without the slightest shadow of embarrassment by both president putin, who called “not to miss the moment”, and the current head of the Central Bank Elvira Nabiullina, who noted the importance of legislative changes to mitigate the impact of sanctions and reduce dependence on the U.S. dollar.

Cross-border payments with cryptocurrencies have officially begun to be made through banks close to putin, and an experimental infrastructure has also begun to operate in Russia, giving approved companies access to international trade using digital assets. 

For domestic payments, the ban on the use of cryptocurrencies remains in place, despite the fact that russia is still among the leading countries in the global ranking for the adoption of digital assets, ranking 13th.

Chainalysis analysts concluded that the aggressive country’s new legislative norms “consolidate control” over cryptocurrencies in the hands of the central bank. In addition, the rf Central Bank’s digital currency is currently being tested and is expected to be launched in 2025. 

As for trading platforms, the authorities are selectively targeting individual exchanges. For example, the turnover of the Garantex exchange, which researchers call the “central player” in the russian crypto market, has not been affected in any way by the US Treasury sanctions. 

This is in contrast to other non-sanctioned exchanges, where activity has declined significantly.

It is good to hear that analysts believe that large-scale evasion of sanctions restrictions is unlikely, as russia lacks the liquidity to do so due to low foreign exchange reserves. Also, according to Bloomberg, russian companies continue to face a growing number of international settlement problems, the biggest of which are related to trade with China. 

In any case, the terrorist country is making new developments and is actively trying to attract new intermediaries to achieve its criminal goals.

The situation in Iran

Iran is following the same path. In the face of global economic sanctions, Iran is also trying to regulate cryptocurrencies — today, instead of direct restrictions, it is planned to introduce additional rules. And like the rf, the central bank has been appointed as the body to regulate cryptocurrencies in Iran. Most of the country’s centralized exchanges are once again close to the authorities and actively involved in circumventing sanctions. Iran’s Minister of Economic Affairs and Finance, Abdolnasser Hemmati, does not mince his words when it comes to the states that have imposed sanctions on his terrorist country, bluntly stating that he sees cryptocurrencies as a tool for circumventing restrictions. It’s also worth noting that the Iranian government’s move to legalize digital assets came after it became clear that re-elected U.S. President Donald Trump was building a team of cryptocurrency supporters. 

Meanwhile, North Korean hackers continue to steal cryptocurrency for their state

According to Microsoft’s 2024 Digital Defense Report, North Korean hackers have stolen approximately $3.6 billion worth of cryptocurrency since 2017, nearly a third of which was stolen last year. Analysts say Kim Jong-un’s government has used the stolen funds to develop its missile and nuclear programs. The number of criminal groups from North Korea is growing in parallel with the level of professionalism and sophistication of their actions. Cybersecurity experts have concluded that the North Korean regime uses cybercriminals as a source of funding. That is, high-end hackers, born in a country where most of the population gets its news from newspapers and the Internet is a privilege, rip off cryptocurrency companies around the world for billions of dollars to bring money to their criminal government to develop state programs. 

The role of cryptocurrencies in U.S. and Chinese politics

These two giant economies have diametrically opposed attitudes towards cryptocurrencies and central bank digital currencies (CBDCs) in the context of geopolitics. The Chinese authorities are trying to cut off the oxygen to cryptocurrencies as much as possible in order to strengthen the digital yuan. The U.S., for its part, has all but derailed the development of the digital U.S. dollar and is now on the verge of introducing a regime of maximum accommodation for cryptocurrencies. 

The Chinese government and the People’s Bank of China have adopted a policy of total control over financial flows. Despite the fact that the country was once a leader in the turnover of cryptocurrencies and the development of mining, from year to year China is tightening measures against digital assets that are not related to the central bank. 

The authorities of the Heavenly Empire are strengthening the national currency in every possible way, while cutting off all financial alternatives. 

Why is it the other way around in the United States? Why does the dollar not see competition in bitcoin and America does not create its own CBDC? According to analysts it is because:

• The course for legalization was set 5 years ago, when bitcoin was recognized as an exchange-traded commodity and the authorities already got the taste;
• Institutional investors are investing in cryptocurrency assets, and they are having a huge impact on the country’s economy;
• Large companies are creating reserve funds from digital assets to hedge risks.

In other words, cryptocurrencies are already firmly embedded in the country’s economy, and the U.S. is now positioned to better capitalize on the cryptocurrency sector. Moreover, the very idea of isolating American society from a high-tech and booming sector seems utopian. Moreover, according to Donald Trump’s statements, the crypto market will be even more successful in increasing the wealth of US citizens under his keen leadership.

Conclusion

Blockchain technologies are playing an increasingly important role in international relations year after year. On the one hand, they enhance global interaction based on the principles of freedom and democracy. On the other hand, they play into the hands of regimes built on blood and war, for whom sustainable development, globalization and prosperity for all are empty words. 

We are currently witnessing a harsh confrontation between the entire civilized world and rogue states. Let us believe in the best and the victory of the first.

Thank you for your attention. Exchange safely and profitably!

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