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Is Cryptocurrency Really Out of the Reach of the Government?

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#Cryptocurrency has been the topic of controversy and headlines since its inception in a 2008 whitepaper. Its introduction has been heralded by supporters as the start of a new and more inclusive monetary system. One of the major advantages of this new currency is its decentralization - something that has been absent from traditional fiat currencies and has been a cause for global concern for a long time now.

A current example of the disadvantage of centralization is the current situation of Russia. Russia has been slammed with a slew of economic penalties in the aftermath of its invasion of Ukraine, aiming at cutting it off from the international economic market.

The US has placed key Russian individuals and financial entities on a sanctions list that essentially prevents American companies from conducting business with them. Furthermore, the US, its European allies have delisted important Russian banks from the SWIFT interbank messaging system, limiting their access to the global financial industry. The Russian currency has plummeted as a result of the sanctions.

Similarly, on the other side of the world in Canada, the federal government asked banks and other financial agencies to avoid conducting business with any individual involved with the anti-vaccine mandate convoy occupying the nation's capital, using powers provided under the Emergencies Act.

All transactions that send money to protestors must be monitored and halted by financial institutions, a step aimed to cut off funding to a well-funded demonstration that occupied vast portions of Ottawa's downtown center. The directive went beyond just requesting banks to cease sending payments to protest organizers. Banks are being asked by the government to altogether avoid doing business with certain individuals.

These situations highlight a fundamental issue in the traditional Fiat system where the policy of a governing entity has put the financial security of individuals at risk and unable to access their hard-earned money.

The problem with fiat currency

Economic sanctions are among the most effective measures used by the United States and European countries for influencing the conduct of countries that are not considered allies. Since the dollar is the global reserve currency and is used in payments all across the world, the United States specifically can use restrictions on the dollar as a diplomatic instrument to punish any sovereign nation they have a clash with.

With a centralized system, a government creates a list of persons and businesses that its citizens should avoid in order to impose sanctions. Anyone found interacting with a member of the list will be fined severely. The global banking system, however, is the essential key to any effective sanctions policy.

Banks play an important role in enforcement because they monitor where money comes from and goes, and anti-money laundering regulations oblige them to prohibit transactions with sanctioned companies and disclose what they see to officials. However, officials in the United States are becoming more aware of the potential for cryptocurrencies to mitigate the impact of sanctions and are intensifying their monitoring of digital assets.

Banks must follow "know your customer" procedures, which require them to verify their customers' identities. Even though they are required to follow the same laws as banks, exchanges, and other platforms that allow the sale and purchase of cryptocurrencies and digital assets are hardly ever as adept at tracking their clients as banks are.

Running to cryptocurrency as a solution, is this working?

Many people believe that cryptocurrencies are the solution to situations like these due to the fact that cryptocurrencies are typically decentralized, which means they are neither issued nor managed by a central authority such as a central bank. When crypto is transferred to other users, it bypasses the regular banking infrastructure.

Unfortunately, this isn’t usually the case. First and foremost, blockchain, the technology that supports bitcoin, is a public activity record. As a result, it's simple to keep track of money moving from one account to another. This makes it an ineffective medium for evading sanctions.

One of the most common misconceptions regarding crypto is that it is completely anonymous and thus is mainly utilized for malicious purposes, which is completely false. The major issue Russian billionaires and businesses are facing is their inability to transfer their funds due to a lack of liquidity. Due to the fact that crypto liquidity is yet a small part of the global currency system, transferring big sums of money using crypto will prove to be challenging.

Furthermore, most cryptocurrency transactions are conducted on centralized exchanges and these exchanges a covered by the same laws all businesses located in a country have to live by, thus are powerless to go against these sanctions. This is why fintech companies in the USA check persons who sign up for their services against worldwide watchlists and ban transactions from IP addresses that may belong to sanctioned individuals or companies.

Unfortunately, it seems like this unilateral control is not limited to only centralized exchanges. Two significant participants in the developing "decentralized" internet space digital art marketplace OpenSea and Ethereum wallet MetaMask have verified that accounts situated in countries sanctioned by the US are being blocked and deleted.

These events have sparked unrest in the crypto communities like Cardano as investors wonder if they could lose their assets on decentralized exchanges if something similar happened to them. The answer however isn't exactly black and white; for example, if the servers of Yoroi - the Cardano based decentralized, wallet goes down in a particular location, users may not be able to get their assets back directly from the server but they can recover their wallet into some other wallet that on a server still connected to the internet with the seed phrase. Alternatively, they can recover into their own complete node.

How to protect your cryptocurrency in general?

The main places where your assets are at risk in crypto are the digital wallet and exchange provider. A cryptocurrency wallet doesn't really store your digital money, but it does include a private key that allows you to exchange cryptocurrencies over the internet. This private key serves as your digital identity on the bitcoin market, and anyone who acquires it can carry out suspicious transactions or steal your stuff.

When it comes to safeguarding your digital cash, securing your wallet is critical. Here are a few strategies for securing your cryptocurrency:

Use a secure internet connection Employ only a reliable internet connection and avoid public Wi-Fi networks while trading or conducting crypto transactions. Use a VPN even while connecting to your home network for further protection. Your IP address and location are changed using a VPN, which keeps your internet behavior safe and confidential from potential threats.

Invest in a Cold Wallet Cold wallets, unlike hot wallets, are not connected to the internet and hence are not vulnerable to cyberattacks. Keeping your encryption information in a cold wallet, also known as a hardware wallet, is by far the most secure option since these wallets are encrypted.

Keep many wallets You could diversify your crypto assets by using numerous wallets because there are no restrictions on wallet creation. Use one wallet for daily transactions and another for anything else. This will safeguard your cryptocurrency assets and reduce the risk of a security compromise.

Your protection is your responsibility

The cryptocurrency sector is not as decentralized as we hoped, thus it is solely your obligation to safeguard your cryptocurrency by safeguarding your wallet with necessary security features. Keep up with the most recent security news, attack methods, and defense measures.


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