Sanctions. 

Unquestionably a buzzword within cryptocurrency circles – alongside censorship, regulation and centralisation. 

This week has proven how big an issue this is – and the growing interest of law enforcement in cryptocurrency. The United States announced Wednesday the takedown of a Russian-Venezuelan network that used Tether (USDT) to move money around illegally. 

International sanctions were levelled aggressively against Russia after the invasion of Ukraine in February. That quickly brought up the topic of cryptocurrency, and its potential ability to circumvent such sanctions, into the limelight. 

Censorship-resistance is a pillar of crypto

On the one sense, censorship resistance is great. Indeed, it is one of the backbones of cryptocurrency. Through that seductive quality of decentralisation, individuals gain the ability to take control of their wealth and avoid the influence of governments and other central entities. 

This decentralisation and censorship-resistance offers all sorts of benefits. Think of those living under untrustworthy regimes, now with an avenue to gain some control over the wealth. Citizens seeing mass inflation via incompetent governments, who can now simply buy stablecoins with minimal effort, hence storing their value in USD. 

These advantages are more or less acknowledged by everybody. To me, they present some of the reasons I am so enthralled with this odd little industry. It helps to break down financial privilege, allowing citizens of developing nations the chance to preserve their wealth. Sure, bitcoin is incredibly volatile and currently grossly unsuitable as a store of value, but cryptocurrency also extends to stablecoins, less volatile coins – there is a whole raft of options. 

Is decentralisation also a disadvantage?

Many decry Tether for the fact it is centralised. Oh – you’re subject to the whims of the US government, they argue. And they’re right. Take a look at last month’s events with Tornado Cash, the cash mixer on Ethereum, to see this. 

The government can order Tether to freeze wallets whenever it wants, and Tether must comply. They are a regulated company – and that is how regulated companies are obliged to act. 

This is why I have argued for so long about how centralised Ethereum is. The entire ecosystem is so dependent on centralised stables like Tether and Circle. If the capital flowing through the system is centralised and subject to censorship, then how can Ethereum – or DeFi at large – be decentralised?

But we need to confront the disadvantages of decentralisation, too. As magical as it is – and for all the doors it opens up – there are also very significant drawbacks. The ability of actors to circumvent international sanctions is one. This is an ominous yet very real reality – decentralised cryptocurrencies do help this. 

What happened this week?

This week’s announcement – that the US Department of Justice was pressing charges against five Russian an d two Venezuelans accused of maintaining a global network of money laundering and trade with sanctioned companies – highlights how real an issue this is. 

The Department of Justice announced that the accused facilitated the trade of hundreds of millions of barrels of oil which were subsequently shippied to Russian and Chinese buyers. Additionally, members of the cohort were accused of smuggling military technology to Russia. 

As Russia continues to terrorise Ukraine, this paints a sombre picture of cryptocurrency aiding the war effort. According to The Block, one of the accused, Russian national Yury Orekhov, reportedly told an accomplice “no worries, no stress. As soon as we start berthing, we will immediately transfer. USDT works quick like SMS”. 

Pro-Russian paramilitary groups have also reportedly used cryptocurrencies to fund their activities. Having said that, Ukraine have leveraged the crypto donation angle significantly more – raising over $100 million following a plea from its vice-president on Twitter. 

And this is with a centralised cryptocurrency like Tether, meaning the potential concerns expand to all of cryptocurrency, rather than just decentralised coins. For the latter, however, the means for law enforcement to curtail the illegal activity is greatly reduced – both an incredible blessing but also a scary prospect. 

Is it worth it?

Like a lot of things, there is good and bad here. 

It comes to whether the positives outweigh the negatives. Does the power of decentralisation and all the good it can offer the world outweigh the potential for bad actors to transact more freely?

I believe it does, but we need to be careful about how we go about this, while not overlooking the very sinister things happening at the fringes of this industry. Law enforcement has a part to play too, of course, and the developments this week show they are beginning to do that more and more. 

To close this off, decentralisation is amazing. But it’s not perfect – and that needs to be acknowledged. Hopefully the good can continue to outweigh the bad. But next time you wax lyrical about a utopian future built upon a decentralised framework, consider the fact that there are also drawdowns.  

The native chain of the crypto exchange Binance was suspended Thursday after an exploit led to millions of dollars of crypto being exposed.

The incident obviously sent shockwaves through the crypto world, but for me it also highlighted the dangers of decentralisation.

Don’t get me wrong. Decentralisation is arguably the single biggest pillar of everything upon which cryptocurrency is built. It is a concept which has a genuine chance to upend all that we know about finance, money and the economy at large. It can make the world a better place.

But the Binance incident highlights that in this early stage of cryptocurrency – let us not forget that Satoshi Nakamoto only wrote his Bitcoin whitepaper in 2008 – that decentralisation also poses some very real risks.

What happened with Binance and what has decentralisation got to do with it?

An attacker targeted the Binance chance late Thursday evening, with initial movements on-chain suggesting that two million BSC tokens were in their crosshairs.

BNB Chain estimate that over $100 million of assets were moved, but confirmed that $7 million in assets had almost immediately been frozen, reducing the total losses.

The decision to halt the entire chain is a stunning move from Binance. As I said, blockchains are meant to be decentralised. This episode shows that BNB is quite the opposite.

Obviously, this throws up all sorts of issues. The crypto purists are up in arms about the fact that this is literally one company running the entire ecosystem – the exact same as Web 2.0 and what crypto is supposedly trying to combat.

They have a point. Then again, the ability of Binance to freeze $7 million shows that, despite going against the mantra of crypto, centralisation does have its perks too. $7 million may pale in comparison to the total size of the breach here, but it’s still a hell of a lot of money. And this is still early days – there might be more confiscated by the time you read this.

An exploit on a cross-chain bridge, BSC Token Hub, resulted in extra BNB. We have asked all validators to temporarily suspend BSC. The issue is contained now. Your funds are safe. We apologize for the inconvenience and will provide further updates accordingly.

— CZ Binance (@cz_binance) October 6, 2022

Will Binance’s reputation be harmed?

Binance operates from such a strong position in the market, as well as being marshalled by a highly popular CEO, that I actually believe this incident will be largely brushed under the carpet.

Binance even got hacked one time before. This is also technically a magical production of $100 million of BNB out of thin air, rather than a direct attack on consumers, an important distinction (although still terrible news for any BNB holders).

The previous time, Binance’s customers were targeted. In 2019, hackers stole $40 million in Bitcoin. Binance’s reaction was exemplary, immediately moving to assure customers that anyone affected would be compensated. And that is exactly what happened. They even kicked off an insurance fund since, with the aim of compensating customers should anything like this ever happen again.

With a nascent technology like crypto, these things are bound to happen, unfortunately. With companies like Binance, assuring customers that their funds will always be safe, that perceived risk is obviously mitigated.

But this is only possible with a degree of centralisation. In a fully decentralised world, an exploit like this would go unpunished. Indeed, I don’t need to be hypothetical here – customers have funds stolen from them all the time and there is rarely recourse.

As I said, decentralisation is a beautiful thing. But this episode is an unfriendly reminder that it also poses risks, and while the industry bootstraps itself up, innovates and figures things out as it goes along, customers need to bear that in mind.

Stay safe out there.

• Binance CEO Changpeng Zhao admitted that he doesn’t “get” meme tokens like dogecoin and shiba inu.
• But he told the Associated Press that these demonstrate the power of decentralisation.
• “We have a lot more meme coins. But guess what? For something to be valuable, you only need one other person to want to buy it,” he said.
• For more stories go to www.BusinessInsider.co.za.

CEO Changpeng Zhao admitted that while he doesn’t “get” meme tokens like dogecoin and shiba inu, these demonstrate the power of decentralisation.

“To be honest, I don’t get dogecoin. But this shows the power of decentralisation. What I think may or may not matter,” he told the Associated Press. “If a large enough number of people in the community values it because it’s cute because they like the meme, then it has value.”

Meme coins have emerged in popularity as retail investors direct their attention to newer and lesser-known coins, which have become popular for their sky-high gains compared to more established assets.

For instance, dogecoin has risen 4,936% year-to-date, while shiba inu has rocketed to 63,870,000%. By contrast, bitcoin has gained 108% since the start of the year, and ether is up 474%.

“Dogecoin has lasted so many years. It’s gone up and down, up and down, but it’s lasted,” the executive told the AP. “And now we have shiba, which is also a meme coin. We have a lot more meme coins. But guess what? For something to be valuable, you only need one other person to want to buy it.”

Dogecoin was founded in December 2013 in the hopes of becoming the “fun and friendly internet currency.” Shiba inu was founded in August 2020 with the goal of moving away from “rigid social structures and traditional mindsets.” 

Many view meme tokens as jokes but exchanges are taking notice by listing them. 

Crypto exchange Gemini, for instance, added shiba inu coin to its platform this week following the meme token’s stunning rally this year, joining Binance, Coinbase, Public, Crypto.com, and eToro, among others.

“For something to have liquidity, you need a large number of people to want to buy it or sell it,” Zhao said. “Once you have liquidity, a thing has value, according to the neutral market. So it’s not up to me to judge it.”

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