Is Russia’s Move Toward Crypto a Precursor to War?

by Thomas Hader

Illustration by Melania Parzonka

US intelligence currently estimates that a Russian invasion of Ukraine could take place between February 16th and the closing of the Olympics on February 20th, 2022. It is not yet clear whether Vladimir Putin has decided on an invasion, but over the last few days, the US and its allies have begun to sound the alarm more aggressively. White House officials are basing their suspicions on Russian maneuvers, including the gathering of 100,000 soldiers and advanced weaponry around Ukraine, the buildup of blood banks and medical supplies at the Russian-Ukrainian border, and the ongoing joint military exercise drills held by Russia in Belarus. However, officials have failed to take notice of Russia’s move to adopt and regulate cryptocurrency on February 8, 2022, another potential indication that Russia is preparing for invasion.

At the time of writing, neither the United States or NATO has offered Ukraine a guarantee that troops will be deployed to repel a Russian invasion. President Biden has, however, sent a clear message to Putin that if an invasion were to occur, Russia would be hit with devastating sanctions. It is therefore likely that the Russian government’s embrace of cryptocurrency last week is a strategic maneuver to thwart sanctions, comparable to North Korea’s strategy in recent years. It is also revealing that the Bank of Russia last month published a report suggesting that trading, mining, and the use of cryptocurrency should be made illegal. The timing of the Russian adoption of cryptocurrency should therefore not be ignored. Russia is likely planning to utilize cryptocurrency through laundering, hacking, and mining in order to evade US sanctions and supply their war effort.

The Central Bank of the Russian Federation in Moscow

The Democratic People’s Republic of Korea (DPRK) was the first nation-state to use cryptocurrency to evade U.S. sanctions. As early as 2018, the DPRK began developing plans to launder money and mine cryptocurrency with the help of a United States citizen. This was one of several utilizations of cryptocurrency by the DPRK and its affiliates. Starting in 2017, hacking groups referred to as Advanced Persistent Threats (APTs), controlled by the DPRK, began stealing from legitimate cryptocurrency exchanges. It is estimated that through seven separate attacks, they have stolen over $400 million USD worth of digital assets just last year. According to a UN Security Council report, those funds were then funneled into the DPRK’s nuclear and ballistic missile programs.

The threats showcased by the DPRK, while alarming, are negligible when compared to Russia’s cyber capability. Over the last two decades, Russia has become extremely sophisticated in its techniques and tactics within the cyber domain while conducting large scale operations. From damaging critical infrastructure, immobilizing supply chains, conducting disinformation campaigns, and engaging in covert long-term operations, Russian cyber group operations have become sophisticated and evolved into a catastrophic threat. Worse still, the Russian government colludes with cybercriminals to conduct these operations so that they can have plausible deniability and avoid the repercussions of their actions. 

Vladimir Putin meeting with Emmanuel Macron on February 7, 2022. Official Kremlin website

If Russia invades Ukraine and sanctions are enacted, Russia will be poised to sustain itself economically. Russia has now adopted a financial infrastructure through its central bank to support cryptocurrency to withstand US sanctions. The legalization of cryptocurrency also legitimized a $2 trillion USD digital asset class within its own economy. In the event of sanctions, crypto could also act as a method to hedge against inflation. Additionally, Russia will be able to avert US sanctions through laundering, mining, and hacking of cryptocurrency through their illicit network of cybercriminals without ever being held accountable. Furthermore, Russia is likely to use cryptocurrency profits to fund weapons development and production. Russia certainly has the cyber capacity to withstand US sanctions, and the decision to adopt cryptocurrency is yet another sign of their intention to invade, if not now, then certainly soon. 

Captain Thomas Hader (US Marine Corps Reserve) is currently detailed as a Senior Intelligence Analyst supporting Joint Task Force North’s transnational counter-cartel investigations. He is the Technical Advisor for a Department of Justice research initiative focused on dismantling human trafficking across dark web networks and is a Subject Matter Expert with NATO’s Defence Education Enhancement Programme (DEEP). He has published research articles and lectured on topics including online terrorist recruitment and radicalization, foreign fighter networks, the dark web, and the cryptocurrency-terrorism nexus.

Categories: Europe & Russia