Blockchain in Politics: Using Crypto to Bypass Sanctions

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Applying Blockchain in Politics Using Crypto to Bypass Sanctions

For decades, major world powers have used crippling sanctions as a political weapon against countries they disagree with. Now, affected governments are applying blockchain as a solution. By implementing their own private crypto networks, North Korean, Iranian, and Venezuelan authorities could bypass longstanding economic restrictions.

Venezuela has already pushed citizens to adopt Petro, its state-backed cryptocurrency, while Iran is also testing out its own token. According to reports by cybersecurity firms, North Korean agencies are going further by stealing crypto through hacks and scams.

This raises an important question: Are economic sanctions still a legitimate political tool in 2018? Major powers such as the U.S. and the E.U. seem to think so: they’ve responded to the breach of sanctions by tightening regulations.

Bypassing U.S. sanctions – Iranian style

Since the 1979 Islamic Revolution, the U.S. has imposed strict economic sanctions against Iran. Tensions rose again in 2006 when the U.N. added its own sanctions in response to Iran’s nuclear activities. As a result, the Iranian people have suffered decades of isolation and economic hardship.

Now, the Iranian government is looking to bypass sanctions by turning to cryptocurrencies. Applying these solutions would lower dependence on the USD and give the country some economic freedom. On October 30, 2018, Brigadier General Gholam Reza Jalali said this about crypto:

Cryptocurrencies are untraceable in the financial and monetary system of each country, but internationally they can provide us with great opportunities.

The interview caused a stir within the market, leading to speculation that Iran was about to launch its own cryptocurrency. This came shortly after the Iranian government passed a bill in September that legalized crypto mining.

High Council of Cyberspace (HCC) Secretary Abolhassan Firouzabadi focused on the transferability of crypto technology. Firouzabadi said cryptos can help Iran establish closer ties with its economic partners and streamline exports and imports.

Empowering the Venezuelan economy through crypto

Although the Iranian Rial has suffered from sanctions, its instability is nothing compared to that of the Venezuelan Bolivar. With inflation having reached a ridiculous 13,000 percent, the Venezuelan government has begun applying blockchain as a solution.

In December 2017, President Nicolas Maduro announced the release of an oil-pegged state cryptocurrency, Petro, as a measure against the U.S. economic blockade.

To streamline Petro’s adoption, authorities have undertaken several steps domestically and internationally. Within its own borders, the Venezuelan government established Petro savings plans as part of the “Comprehensive National Cryptoasset Plan.” Abroad, Venezuela is pushing Petro as a unit of account for oil within the Organization of Petroleum Exporting Countries (OPEC).

The Venezuelan government is also interested in expanding its crypto network beyond Petro. The Ministry for Communication and Information announced on November 21, 2018, that it had approved a bill about regulating and applying blockchain. The government’s main aim is to increase the country’s resistance toward financial restrictions imposed by the U.S. This would allow Venezuela’s crypto exchanges to conduct foreign exchange operations using cryptos.

North Korea’s cyber wars

While Venezuela and Iran attempt to bypass sanctions by applying blockchain solutions of their own, North Korea is reportedly going rogue. According to Group-BI findings, many of the biggest hacks of 2018 are part of the regime’s cyberwar efforts.

Notorious group Lazarus is allegedly responsible for hacking over $571 million of crypto funds in 2018. According to the South China Morning Post (SCMP), hackers are now targeting personal accounts instead of exchanges. And it’s not just hacks; cybersecurity company Recorded Future claims North Korea’s government is making money by promoting crypto scams.

Since North Korea, like Iran, does not participate in the SWIFT network, applying blockchain solutions would allow cross-border payments. Indeed, it seems the North Korean government intends to involve itself even more in the crypto world. Recently, Pyongyang authorities announced plans to hold a blockchain and cryptocurrency conference in April 2019.

International experts in the blockchain and crypto industry will gather for the first time in Pyongyang to share their knowledge and vision, establish connections and discuss business opportunities.

The event is open to all blockchain experts, with the exception of those from South Korea, Israel, and Japan. Journalists are also banned from the conference.

According to several pundits, applying blockchain solutions in North Korea would help increase international settlements. Experts admit that undetectable exchanges between crypto and fiat currencies are possible at the moment. Thus, using crypto could help the world’s most isolated nation bypass sanctions.

Applying blockchain to bypass sanctions – the response

It seems U.S. and European authorities won’t just sit tight as rival countries try to bypass economic restrictions. On March 19, 2018, President Donald Trump banned U.S. citizens from buying Petro and exchanges from listing it. More recently, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced it would take an active role in regulating crypto markets.

In October, the U.S. Financial Crimes Enforcement Network (FinCEN) released a statement on crypto. In it, the network said: “virtual currency is an emerging payment system that may provide potential avenues for individuals and entities to evade sanctions.” Many analysts view the U.S. and E.U.’s recent tightening of regulations as retribution for avoiding sanctions.

Whether or not applying blockchain to bypass sanctions is a good thing remains up for debate. However, neither the countries facing sanctions nor the bodies imposing them seem prepared to back down.

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