FDD Warns US Against International “Crypto Rogues”

The United States Foundation for Defense of Democracies cautioned the country against adversarial countries' use of crypto.

A new report by the United States Foundation for Defense of Democracies (FDD) entitled “Crypto Rogues – U.S. State Adversaries Seeking Blockchain Sanctions Resistance,” details current and future risks associated with the use of cryptocurrencies by US adversaries. More specifically, the report focused on countries who are or may eventually be issuing their own digital currencies, including Venezuela, Chian, Iran, and Russia.

The report also cautions against a scenario in which an adversarial country creates a digital currency wallet infrastructure that allows residents to hold and trade a cryptocurrency, as well as use it for transactions with local businesses.

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The cryptocurrency could be nationally issued, or could be an independent cryptocurrency that is simply adopted for widespread use within the country:

“An independent cryptocurrency such as Bitcoin [BTC] gains wide adoption in commerce and becomes more relevant to the global financial system. Then, a U.S. adversary begins to build significant reserves in the cryptocurrency. The state thus uses its holdings to gain more influence in the global financial system,” the report reads.

“We can settle accounts with our counterparties all over the world with no regard for sanctions”

The FDD warns that the issuance of a national digital currency by any of these nations may make sanctions much harder to enforce, particularly if the currency is tied to a major commodity, such as oil.

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While at first glance, the scenarios described in the report may appear to have an element of science fiction, the reality of the situation is not too far off.

Indeed, the Venezuelan Petro – which is supposedly tied to oil reserves, although the status of the project is dubious – has been decried by international regulators as a thinly-veiled attempt to evade sanctions and access international debt markets.

Iran’s exploration of a national cryptocurrency reportedly came in partial response to the blocking of some of the country’s banks from the international SWIFT financial messaging system. However, purchasing and selling cryptocurrency in Iran has since become an illegal act. On July 6, the Iranian Assistant Minister of Industry, Trade, and Supply publicly acknowledged the United States’ efforts to stop the country from accessing cryptocurrency and Bitcoin mining.

In early 2018, Sergei Glazev, an economic advisor to Russian President Vladimir Putin, said that the possible issuance of a CryptoRuble could be useful for the country with regards to “sensitive activity on behalf of the state.”

“We can settle accounts with our counterparties all over the world with no regard for sanctions,” he said. Most recently, the Russian government postponed the enforcement of its Digital Financial Assets (DFA) bill until the Autumn; officials within the country have not yet come to an agreement on what should be contained in the legislation.

China is reportedly exploring launching its own national cryptocurrency following the launch of Facebook’s Libra project. Previously, the Chinese government has taken a relatively harsh stance on the use of cryptocurrencies within the country; in late 2017, a sweeping set of cryptocurrency-related bans ended ICOs and shuttered cryptocurrency exchanges within the country.

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