Asking cryptocurrency exchanges to block the addresses of their Russian users last weekend, Ukraine’s Vice Prime Minister Mykhailo Fedorov said: “It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users” in the wake of the Russian invasion.
For the leaders of some the top cryptocurrency exchanges, that Feb. 27 plea was a step too far.
Changpeng “CZ” Zhao, the billionaire CEO of the world’s largest crypto exchange, Binance, said cutting off all Russian citizens would be “unethical.”
Brian Armstrong, CEO of the U.S.-based public cryptocurrency exchange Coinbase, explained on Twitter that “ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too.”
He added, “We believe everyone deserves access to basic financial services unless the law says otherwise.”
Both responses miss the point — Fedorov’s goal was to increase pressure on Russian President Vladimir Putin’s regime — and highlight the moral absolutism of much of the old-school crypto community, embodied perfectly by the response of Kraken CEO Jesse Powell.
Calling Bitcoin “the embodiment of libertarian values, which strongly favor individualism and human rights” in a Feb. 27 tweet, Powell compared the moral dilemma to the exchange account freezes order that was part of Canada’s crackdown on the Ottowa protestors last month, saying “crypto was the only financial rail left for those who opposed the regime.”
Referring to the Ukranian request later in his Twitter thread, Powell added, “The People’s Money is an exit strategy for humans, a weapon for peace, not for war.”
Armstrong, whose current Twitter bio reads in part, “Creating more economic freedom in the world,” added, “We believe everyone deserves access to basic financial services unless the law says otherwise.”
This does raise a valid point: The U.S., EU, and other countries sanctioning Russia have focused formal sanctions on the banks and other companies run by oligarchs supporting the Putin regime. The moves to cut off access to the SWIFT financial messaging system at the heart of international financial transactions therefore affected seven major banks, but not all of them.
The crypto community has also been quick to embrace the cause of Ukraine’s fight against the Russian invasion, with words and donations — including Binance, which donated $10 million in crypto on Feb. 28, four days after the Russian invasion was launched.
In total, $56.2 million in crypto has been sent to the Ukrainian government and an NGO providing support to the military, blockchain intelligence firm Elliptic reported today (March 4). That included a nonfungible token of the Ukrainian flag that brought the government $6.5 million at auction, $5.8 million in DOT tokens from Polkadot blockchain founder Gavin Wood and $250,000 from FTX exchange CEO Sam Bankman-Fried.
The Moral Calculation
There is no doubt that sanctions on Russia cause more economic hardship to average people who will have to tighten their belts than to oligarchs whose $600 million yachts are seized. And that will only intensify as the U.S., EU and other nations expand those sanctions beyond banks and businesses controlled by the oligarchs enriched by Putin’s regime.
Even Switzerland is taking sides, announcing on Feb. 28 that it is breaking with a policy of neutrality that dates back centuries to freeze the bank accounts and assets on Russian people and countries targeted by sanctions.
Beyond that, it’s important to note that modern sanctions, even when they are far broader like those on Iran, are not the starve-them-out blockades that date back at least to the Peloponnesian War (431-404 BC). Modern sanctions, by democratic nations at least, are quick to specify that basic food, medicines and humanitarian supplies are excluded.
There are other places where the rubber of crypto’s libertarian ideology hits the road of reality, most notably the fairy tale that mixing services and privacy coins that deliberately obscure bitcoin and other cryptocurrency transactions are for people who simply want to keep their privacy intact. They are to avoid government surveillance. When that obscurity helps people living under a dictatorship or enemy occupation, it’s good. When it helps drug dealers and human traffickers hide both their illicit funds and the proof of their crimes, it’s bad.
See also: PYMNTS Crypto Crime Series: When Privacy Counts, Crypto Users Turn to Mixing Services
Nor is Armstrong’s position too surprising: He stood firm in the face of widespread negative press when he told employees in the fall of 2020 that the company was instituting a policy of political neutrality when employees asked it to support Black Lives Matter at its height, going so far as to offer a generous severance package to anyone who disagreed, leading to a reported exodus of at least 60 staffers.
As for Powell, the final comment in his Twitter thread on the question of blocking Russian accounts was: “Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step 1 would be to freeze all U.S. accounts. As a practical matter, that’s not really a viable business option for us.”
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