The European Union (EU) has proposed new legislation that would shut down crypto wallet and custodial services for Russian crypto traders with more than €10,000 ($10,870) in assets in their accounts.
The proposal, put forward last week, specifically refers to “Russian nationals or natural persons residing in Russia, or legal persons, entities or bodies established in Russia.”
It would not apply to anybody who is a native of or holds a residence permit in any EU member state, a country in the European Economic Area, or Switzerland.
The proposed prohibition would also not apply to oligarchs who choose to download “self-hosted” wallet software and apps. The developers of most public blockchains have designed them so that the assets kept in self-hosted wallets cannot be censored.
Most of Europe has already imposed significant sanctions on Russia as a response to its invasion of Ukraine. These sanctions include cutting Russia off from SWIFT, the international bank messaging system.
Considerations for a Russian crypto ban
World leaders have expressed concerns about the possibility that Russian oligarchs could use crypto to circumvent wartime sanctions.
However, experts say that Russia faces challenges if it looks to evade these sanctions.
For starters, relative to the trillions at stake for sovereign budgets, crypto’s liquidity restricts any meaningful utility to Russia’s government.
There’s also the fact that public blockchains allow anyone to trace transactions. This naturally makes it less likely that someone could get away with using crypto for illegal activity. Chainalysis confirmed that by analyzing blockchain data to solve cases like the massive 2016 Bitfinex hack.
Meanwhile, crypto donations have poured into Ukraine to assist with its defense against the Russian invasion. Ukraine has used the donations to purchase materiel and supplies for its military. Some donors have even sent valuable NFTs to Ukraine.
A few donors, like Vitalik Buterin, have made large crypto donations without publicizing them. So far Ukraine has received more than $130 million in crypto donations.
Much of this was in the form of Ethereum, donated in early March as officials were promising crypto and NFT rewards via a governmental airdrop.
This airdrop, however, was eventually canceled. Ukrainian officials cited a high volume of profit-seeking behavior in the form of micro-donations as the reason. Donations dropped off sharply thereafter.
Despite the lack of concern about Russia among crypto insiders, the EU has expressed a desire to eliminate any possibility that Russia will use crypto to avoid sanctions by prohibiting the provision of crypto services for Russians.
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