Economic Sanctions and Cryptocurrencies
Should the focus of cryptocurrencies be on having them work as currencies or as a store of value? Are there any real-world use cases beyond speculation? It appears North Korea and Venezuela cannot be bothered about these debates because they have their own reasons for using cryptocurrencies. It has been alleged that these two countries are using cryptocurrencies to solve some of their problems arising from sanctions imposed on them by the United States.
North Korea’s Involvement with Cryptocurrencies
North Korea has not only been alleged to be using cryptocurrencies to circumvent U.S sanctions and keep their nuclear program alive. There have also been allegations of hacks. There have been reports of the regime using its hackers to access private information of organizations and holding them to ransom. Bithumb, one of the largest South Korean Exchanges came under such an attack in June 2017 and had personal information of over 30,000 accounts leaked. Yobit, another South Korean exchange lost about 17% of its assets in a December 2017 hack that is suspected to have been orchestrated by the North Korean Regime. Hopefully, the use of decentralized exchanges would catch on and help avoid such problems in the future.
The isolated state is also said to have been engaged in cryptojacking. A term referring to the use of other’s computers to mine cryptocurrencies without their knowledge. In this case, the cryptocurrency secretly mined was Monero. Monero’s untraceable nature makes it suitable for this purpose.
The Venezuela Case
In Venezuela, the government also attempted to circumvent U.S sanctions. In this case, the strategy used was the creation of an oil-backed state-owned cryptocurrency known as the Petro. This was the first time a State was going to create its own token. As expected, the president of the United States was swift to ban any dealings with the Petro.
Of course, there were concerns that a government-owned cryptocurrency would be no different from the traditional state-backed currencies. Beyond these concerns, reports from citizens on the ground showed that there were no actual signs of the existence of the Petro. All the tokens still sit in the original wallets and there are no known ways of buying them either. The reality is that with the Petro, it has been all talk and very little action. The explanation for this delay in the use of the Petro is that government institutions were being given time to adjust and prepare to use the cryptocurrency.
With the country experiencing hyperinflation, citizens have turned to cryptocurrencies to secure their wealth. Venezuelans are not waiting on the Petro but are buying up cryptocurrencies and mining them as well. Here, the use of cryptocurrencies has become more of a means of survival. It is unclear whether the Venezuelan government is actually achieving its aim of going around sanctions by creating a cryptocurrency. The citizens are, however, successfully using them to protect their wealth.
How this Affects the Effectiveness of Sanctions
Sanctions have often been preferred to wars when it comes to the United States’ dealings with countries unwilling to play by their rules or that of the international system. However, most sanctions in recent years have proven to be ineffective. Countries like Iran, Russia and North Korea have been targets of U.S sanctions for years without necessarily having to alter their actions to have the sanctions removed.
With cryptocurrencies, North Korea and Venezuela, have new ways to go around the economic sanctions imposed on them. This renders the already toothless sanctions even weaker and less effective. How events unfold in Venezuela and North Korea would give us an idea of the extent to which cryptocurrencies would be useful or effective in this area. For now, means other than sanctions should be examined as a way of controlling the actions of ‘rogue states’.