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In the past two weeks, the cryptocurrency news circuit has featured two head-turning stories relating to sanctions. First, there was the Ukrainian shipping firm that has begun accepting payment in bitcoin. That company’s founder was quoted as saying:

“Paperwork for transactions is a complicated issue with banks, and bitcoin payments will help solve that by being faster. It could also help solve payment problems in countries like Pakistan, Russia, Sudan, Yemen, and Qatar, which have safe companies but are victims of sanctions being imposed against their governments.”

Then, there was Venezuela. On December 3, the country’s president, Nicolás Maduro, made waves when he announced that his government would be issuing Petro, a cryptocurrency backed by assets (including oil). According to him, the move (which some opposition politicians contend will not ultimately come to pass) will “advance monetary sovereignty, as it will help to overcome the financial blockade” of sanctions.

And while it’s old news by now, North Korea has also garnered a reputation as a bitcoin-thirsty state, allegedly demanding the cryptocurrency in various ransomware attacks, as sanctions have slowed the flow of capital into the country down to a trickle.

The Corporate Angle

Are the actors mentioned above correct in their assumption that cryptocurrencies can effectively undermine sanctions? Let’s start by addressing the question as it applies to companies.

Say a firm decided to do business with a party that is under sanction and is now left holding digital assets. In most cases, the blockchain will attest that these were sent from an illicit actor’s wallet. There are exceptions to this rule, however: if the parties transacted their deal using a highly anonymous cryptocurrency, this would not really be a problem. The Monero blockchain, for instance, is architected in such a way that a given token’s history is hidden, unlike on the bitcoin blockchain, which, generally speaking, contains a record of every transaction that a coin has been involved in from the moment it was minted. Parties using such a digital asset would not be out of the woods yet, though, as I explain below.

Assuming that the virtual currency in question is more transparent, there are a few basic options facing the new owner. One is to simply leave it untouched in a wallet, where it would be visible to the public, although the wallet owner’s identity would be kept secret.

In today’s payments landscape, however, one must convert cryptocurrency to fiat in order to buy nearly any commodity or service, so if the company wanted to actually use these funds, it would have to cash them out in one of two ways. The most common method for those with nothing to hide is to use a licensed cryptocurrency exchange. In patronizing such a service, the holder is necessarily subjected to the platform’s know-your-customer policies, meaning that they would essentially have to unmask themselves before the platform’s operators. Exchanges typically keep customer information private, but as the recent Coinbase verdict has demonstrated, government agencies can, at times, strong-arm them into releasing records.

The other option is to cash out through an over-the-counter exchange, a process whereby the actor possessing the virtual currency agrees with another party, usually a stranger with whom they connected over the internet, to trade their crypto holdings for cash. So long as the party with whom they have contracted is not an undercover agent of some sort, this method promises to be anonymous, but of course, the threat of theft is ever-present in such a scenario, and a person robbed while trying to exchange ill-gotten funds would have no legal recourse by which to recover them.

Assuming that the actor successfully converts his or her cryptocurrency into fiat, one challenge, which is arguably the greatest of them all, remains: how to benefit from owning the money while keeping tax collecting agencies in the dark as to its origin. At this stage, the party holding the cash would have to resort to whatever prevailing money laundering methods are available.

If we are indeed moving toward a future in which all commodities and services may be purchased with cryptocurrency, and all cryptocurrencies have incorporated anonymity-enhancing features along the lines of Monero’s, this may change. But theorizing that scenario is a job for another day, if not another year or decade. In brief, I’ll suggest that as more vendors of goods and services begin to accept payment in virtual currency, the value stored in illicitly-acquired digital assets may become washable through the practice of transaction laundering.

State-Issued Crypto

For Venezuela’s part, it is hard to imagine how its centralized, state-issued virtual currency could ever come to be widely traded. It may get away with paying down some of its debts in Petro, but it would take nothing more than for the US, or any powerful entity intent on levying sanctions, to expand these so that they include punishments for actors caught trading in the cryptocurrency for most legitimate companies to lose their taste for the stuff overnight.

How can Venezuela engage in Petro-based trade if the virtual currency becomes as toxic to so many states and multinational companies as its fiat? Perhaps it could do this by exchanging its own crypto for a decentralized digital asset, such as one with robust privacy features like Monero’s. This approach could help the country acquire a significant quantity of a valuable cryptocurrency, but only in the seemingly unlikely event that Petro’s value is propped up by the market’s faith in the country’s political stability and in the value of its oil (which appears to be falling as a result of the sanctions). And of course, if the global price of oil falls or remains relatively low, as it has generally done over the last four or so years, it will mean yet another impediment to the success of Maduro’s Petro scheme.

The North Korean Angle

It would seem, then, that the North Korean case is the only one out of the three I’ve discussed in which cryptocurrency stands any real chance at even slightly alleviating the pressures applied through sanctions. The isolated nation’s prospects at reentering the good graces of the international community within the current political paradigm are slim, to put it generously. Unlike Venezuela, the state is not trying to issue its own digital assets, but is simply accumulating cryptocurrencies with values that are more or less independent of its relationships to them. Given the regime’s lack of an obvious path into the mainstream of international politics, the Kim government’s alleged efforts to acquire bitcoin actually appear quite prudent, as preventing the country’s leadership from spending this money would be an impossibly difficult task for the bodies enforcing the sanctions.

Of course, there’s a sense that no amount of money is a worthy substitute for good standing and the attendant ease of doing business, but the money may be all the consolation that a country in North Korea’s position can hope for. As for companies trying to skirt sanctions, one imagines that they either expect to not face regulation at all or that they believe the reward they stand to gain by engaging with trade-starved markets outweighs the risk of punishment.