NEW YORK - BY AMERICA INSIDER - Oct 17,2023

Bitcoin, which is the most prominent stateless cryptocurrency, has the potential to both bolster and undermine national power. In the current complex landscape of financial warfare, this decentralized cybercurrency can serve as a versatile strategic tool for statecraft in confrontational geopolitical situations. Although this topic has not received much attention, it is crucial to examine its implications for national security, foreign policy, strategic intelligence, high finance, and grand strategy. This article aims to provide a better understanding of the topic by incorporating strategic predictions that anticipate Bitcoin's potential utility in conflicts with real-world examples that support this view, thus enhancing situational awareness.

 

Bitcoin could potentially provide a lifeline for states under sanctions by offering alternative financial channels that are not subject to national state control. These channels could bypass sanctions that restrict cross-border transactions and transfers of wealth through conventional platforms anchored to major reserve currencies.

Decentralized virtual currencies offer the additional advantage of discretion, providing covert gateways to engage formal financial systems or avoid them altogether if necessary, making it difficult to determine if sanctions are being neutralized through cryptocurrencies like Bitcoin.

 

However, despite the benefits of using non-state cryptocurrencies like BTC to evade sanctions, they also come with drawbacks such as wildly volatile exchange rates. The implementation of unofficial virtual currencies as asymmetric equalizers to diminish or overcome sanctions imposed by an enemy with superior financial firepower requires sophisticated cyberwarfare know-how, investment, technological infrastructure, advanced hardware, vast amounts of energy, and technical expertise.

Encouraging a sanctioned state's population and business community to freely carry out transactions through cryptocurrencies comes with the risks of weakening the position of the country's official currency and the prospect of widespread economic instability. 

 

Some statesmen have identified the potential usefulness of cryptocurrencies like Bitcoin to diminish the impact of sanctions through arteries that bypass the US dollar. For example, one of the Kremlin's chief geoeconomic masterminds, Sergei Glazyev, argues that the Russian Federation has an "objective need" to rely on unofficial cryptocurrencies to circumvent Western sanctions.

However, BTC is not a "silver bullet" that can completely defuse enemy sanctions. Its limitations are also being acknowledged. Moscow is reportedly considering the possibility of accepting Bitcoin as payment for its energy exports to carry out international transactions that deflect American and European sanctions. 

 

As a result, Bitcoin and similar cryptocurrencies could operate as protective shields for states under sanctions and pose game-changing challenges for the effective implementation of sanctions as a tool of diplomatic coercion by the US and its allies.

Nevertheless, measures such as better regulations, collaborative information-sharing partnerships between governmental agencies and private entities, international cooperation, and increased oversight could prevent the evasion of sanctions through Bitcoin and similar cryptocurrencies.

 

The use of Bitcoin and other decentralized cryptocurrencies as a means for states to bypass sanctions has both advantages and drawbacks. On one hand, it offers a potential lifeline for sanctioned states to ensure the continuity of their international economic exchanges, as the decentralized nature of BTC makes it difficult for national states to control. Additionally, cryptocurrencies offer covert gateways to engage formal financial systems or avoid them altogether, making it difficult to determine if sanctions are being neutralized.

 

On the other hand, cryptocurrencies have drawbacks such as wildly volatile exchange rates, which could lead to economic instability if they become widely adopted. The implementation of strategies to use cryptocurrencies as asymmetric equalizers to overcome sanctions also comes with challenging caveats such as the need for sophisticated cyberwarfare know-how, large-scale cryptocurrency mining, and the risks of weakening the position of a country's official currency and causing widespread economic instability.

Overall, the use of Bitcoin and similar cryptocurrencies as protective shields for states under sanctions poses game-changing challenges for the effective implementation of sanctions as a tool of diplomatic coercion by the US and its allies. However, measures such as better regulations, collaborative information-sharing partnerships between governmental agencies and private entities, international cooperation, and increased oversight could prevent the evasion of sanctions through cryptocurrencies. 

These strategies have their own challenges and risks. The first strategy, cybercrime or ransomware attacks, is illegal and carries significant legal and reputational risks. It also requires sophisticated technical knowledge and resources, making it difficult for most sanctioned states to pursue this approach.

The second strategy, cryptocurrency mining, can be expensive and resource-intensive, requiring significant investment in specialized hardware and energy consumption. This approach also faces regulatory and environmental challenges, as some jurisdictions are cracking down on energy-intensive mining operations due to concerns about their carbon footprint.

The third strategy, encouraging the population and business community to use cryptocurrencies, carries the risk of weakening the position of the country's official currency and creating economic instability. It also requires a significant shift in public attitudes and behaviors towards cryptocurrencies, which may not be feasible in the short term.

Overall, while cryptocurrency can offer potential benefits for sanctioned states, it is important to consider the challenges and risks associated with each strategy before pursuing them. Additionally, it is important to note that the use of cryptocurrency in this manner may be subject to regulatory and legal risks, as many jurisdictions are taking steps to regulate or even ban cryptocurrency activities. 

It is clear that Bitcoin and other cryptocurrencies can provide an alternative financial system for states under sanctions, enabling them to bypass the traditional financial networks controlled by the US and its allies. However, this also opens up new challenges for the implementation of sanctions, as it becomes increasingly difficult to track and monitor transactions carried out through these decentralized networks.

There are concerns that the use of cryptocurrencies by sanctioned states could lead to increased cybercrime and ransomware attacks, as well as potential economic instability within these states. Moreover, the volatility of Bitcoin exchange rates poses a risk to the value of the assets held by these states.

On the other hand, there are potential benefits to the use of cryptocurrencies for international trade, including faster and cheaper transactions, as well as increased privacy and security. It remains to be seen how the use of cryptocurrencies by sanctioned states will evolve in the coming years, and how the international community will respond to this challenge to the traditional system of sanctions.

In summary, Bitcoin has been identified as a potential tool to bypass economic sanctions, hedge financial risks during times of geopolitical turmoil, and operate as a safe haven asset. Its decentralized and resilient nature makes it attractive for various actors, but it also has limitations, such as its volatility and unclear legal status in some jurisdictions. While it may not be a suitable replacement for hard assets like gold, Bitcoin's unique features may continue to make it an important factor in the global economic landscape.

While Bitcoin's potential as a weaponized instrument in statecraft is a concerning possibility, it is important to note that such scenarios remain hypothetical at this stage. The decentralized and pseudonymous nature of Bitcoin transactions, while offering potential advantages for offensive purposes, also poses challenges in terms of attribution and control. Additionally, the use of Bitcoin in offensive operations would likely invite retaliation from targeted states or international actors, potentially leading to a wider conflict or escalation of tensions.

Furthermore, it is worth considering that the use of Bitcoin as a tool of statecraft is not unique to this cryptocurrency, and many other financial instruments and technologies can be similarly weaponized. The use of Bitcoin in this context may be limited by the same factors that limit the use of other financial instruments in statecraft, such as political considerations, economic interests, and legal frameworks.

Ultimately, the potential for Bitcoin to be weaponized underscores the need for careful consideration of the risks and benefits associated with the use of this and other digital assets in the context of statecraft and international relations. It also highlights the importance of effective regulation and oversight of cryptocurrency markets and transactions to mitigate potential negative consequences.

 

It is important to note that the use of Bitcoin for illicit purposes is not unique to North Korea. Criminal organizations and other rogue actors have also leveraged Bitcoin and other cryptocurrencies for money laundering, tax evasion, and other illegal activities. However, it is also true that these illicit uses of cryptocurrencies represent only a small fraction of the overall transactions conducted using these digital assets.

The vast majority of users engage in legal and legitimate transactions, and many view Bitcoin and other cryptocurrencies as a promising alternative to traditional financial systems that are often slow, expensive, and bureaucratic. Ultimately, the impact of Bitcoin on the global financial system is complex and multifaceted, with both positive and negative aspects that require careful consideration and analysis.

 

The use of Bitcoin in the Ukraine War highlights the potential of cryptocurrencies as a means of funding military activities and supporting civilians in conflict zones. While Bitcoin has been used by the Ukrainian government to increase its pool of resources for the war effort, it has also been adopted by civilians as a non-traditional monetary item to carry out safe and quick transactions in a context of macroeconomic trouble and infrastructure destruction.

However, the use of Bitcoin in conflict zones can also raise concerns about corruption and misappropriation of funds. The involvement of private cryptocurrency trading platforms in the fundraising efforts can create opportunities for criminal behavior and harm the public legitimacy of the crowdfunding initiatives.

Despite these challenges, the use of cryptocurrencies in warfighting and crisis situations is likely to continue to grow as they offer a decentralized and direct means of financial exchange that bypasses traditional financial channels and restrictions.

It is worth noting that Iran’s utilization of Bitcoin is not without controversy. The country has been accused of using cryptocurrencies to evade sanctions and fund terrorist organizations. The US Treasury Department has designated certain Bitcoin addresses and individuals associated with them as “Specially Designated Global Terrorists,” alleging that they have received funding from the Iranian government through Bitcoin.

Additionally, some experts have warned that the anonymity of Bitcoin transactions could make it easier for Iran to engage in illicit activities, including money laundering and the purchase of illegal goods. The use of Bitcoin by Iran also raises questions about the role of cryptocurrencies in global politics and the potential impact they could have on traditional international relations.

 

It is important to note, however, that the use of Bitcoin for economic statecraft and warfare is not a one-sided phenomenon. While some states may use Bitcoin to bypass sanctions or manipulate the global financial system, others may see it as a threat to their own economic stability and security. As such, it is possible that Bitcoin and other cryptocurrencies may become a source of conflict between states in the future, with some countries seeking to regulate or even ban their use altogether. 

 

This could lead to a fragmentation of the global cryptocurrency ecosystem, with different regions of the world developing their own currencies and payment systems. Overall, the weaponization of Bitcoin is a complex and evolving phenomenon that will continue to shape the landscape of international relations and finance in the years to come.