Crypto security amid political turmoil

What measures can governments take to limit access to crypto?

Cryptocurrencies have played a role in many a contentious affair, carrying political overtones nearly from the start. It was Satoshi Nakamoto who first expressed concern after Julian Assange’s WikiLeaks had its payments blocked by a number of banks and credit card companies. At the time, Nakamoto argued that “WikiLeaks has kicked the hornet’s nest, and the swarm is headed towards us”.

In the end, Bitcoin saved Assange, who years later claimed that WikiLeaks had made close to a 50,000% return on the donations they had received, and Assange helped popularize Bitcoin’s key features, including resistance to government action.

Targeting the owners

The WikiLeaks case helped establish cryptocurrencies as a way to support organizations that experience financial oppression from their respective governments. By design, decentralized cryptocurrencies are immune to government-mandated crackdowns. To freeze, seize or otherwise lock up those assets, law enforcement has to resort to outright coercion.

That story played out in several countries across the world as political turmoil took hold. In Nigeria, the Feminist Coalition turned to crypto to support the 2020 End SARS movement, which demanded the dissolution of a brutal police subdivision known as the Special Anti-Robbery Squad. Feminist Coalition members claimed they were threatened and lost access to their bank accounts.

In Belarus, a non-profit organization called BYSOL used Bitcoin to support dissidents who faced repressions after joining protests against the rigged 2020 presidential election. The police targeted one of BYSOL’s founders, Mikita Mikado, by raiding the Minsk office of his US-based tech company. Four employees were arrested as political prisoners.

Trucker protests

On February 14th, Canada Prime Minister Justin Trudeau scandalized the crypto community by invoking the 1988 Emergencies Act to target the anti-vaccine trucker protests that had paralyzed Ottawa and important border crossings. The move allowed law enforcement to ban public assembly, remove protesters by force, and freeze bank accounts.

Since the protesters amassed approximately $1 million worth of Bitcoin, the order had to refer to crypto as well. After all, its objective was to defund the protests. In response, major centralized crypto exchanges such as Kraken and Coinbase admitted that they will have to comply, advising affected users to withdraw their assets.

The trucker protests drove home the uncomfortable truth that crypto assets entrusted to centralized organizations are as vulnerable to government crackdowns as fiat money stored in traditional bank accounts.

Ukraine

Weeks later, the crypto community was shaken by another politically sensitive case of account freezing after Vladimir Putin ordered a full-scale invasion of Ukraine. Western countries soon announced severe sanctions, but experts warned that Russia could reduce their impact through crypto.

Three days into the war, Ukraine’s Vice Prime Minister Mykhailo Fedorov called on “all major crypto exchanges” to freeze all Russian-owned accounts. Crypto companies were forced to walk a fine line, weighing the dominant crypto ethos against a spirited international disapproval of Putin’s actions. Some exchanges, including Binance and CoinGate, had already condemned the war and started fundraising campaigns for Ukraine. They were now called upon to go even further.

As of March 2nd, the only notable crypto companies that vowed to comply with Fedorov’s request were Zonda and the Ukrainian-born DMarket. Coinbase and Binance stated that they would freeze accounts tied to sanctioned individuals, but stopped short of blocking the assets of regular Russian citizens.

Kraken declined to block any Russian accounts without a binding legal requirement, citing libertarian values and the reluctance to punish ordinary people.

Going forward

While the clash of those politically-motivated orders with the crypto ethos is evident, their goal is to block the crypto assets’ value in fiat money rather than the coins themselves. After all, the recipients of crypto donations rarely choose to hodl.

Politically-sensitive crackdowns are different from regulatory initiatives that seek to control cryptocurrencies regardless of circumstances. Ultimately, the only way to keep authorities’ hands off assets is sticking to p2p.