Apolitical Crypto Networks in Times of Sanction and War
  The biggest crypto news and ideas of the day Feb. 25, 2022 Was this newsletter forwarded to you? Sign up here. Supported by 
Welcome to The Node.
In today's newsletter: Activists are raising bitcoin to fund Ukraine's military. China criminalized crypto. And the Associated Press cancels the sale of a news-photography NFT.
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Today's must-reads Top Shelf  UKRAINE: In response to Russian aggression against the Ukraine, President Joe Biden announced the U.S. will freeze Russian financial assets, seize assets from high-ranking officials and block technology exports (more on that below). Private efforts to assist Ukrainians are in full swing: Flexpool, the fifth-largest ETH mining pool, cut services to Russian users to show solidarity with Ukraine. It is using IP addresses to pay outstanding balances. A charity called "Come Back Alive" claiming to support the Ukrainian military has received more than 19 bitcoins (about $700,000). (See how the funds are spent here.) This decentralized effort is all the more significant after Patreon de-platformed the charity for violating its terms of service, having raised $670,000 for military gear.
CRIMINALIZING CRYPTO? China's Supreme Court ruled Thursday that virtual asset transactions constitute "illegal fundraising," thereby applying criminal status to much of the crypto industry – far and above just banning it. Crypto convicts would face three to 10 years in prison and monetary fines under Article 176 of China's criminal law. Meanwhile, the European Parliament has indefinitely postponed voting on the Markets in Crypto Assets (MiCA) regulatory framework after a leaked draft was criticized for raising concerns about crypto's energy use. MiCA included a provision that may have banned BTC and ETH mining, which a parliament representative denied.
CANCELING CRYPTO: The Associated Press canceled the sale of a news-photography NFT showing migrants attempting to cross the Mediterranean Sea in a raft, capitulating to backlash on Thursday evening. The news service sells tokens on its NFT marketplace in part to pay for operations and reward photographers, though critics called the latest "drop" insensitive in light of Europe's humanitarian migrant crisis. Elsewhere, Portuguese soccer club Sporting Lisbon and Italian team Spezia canceled their sponsorship deals with Turkish crypto firm Bitci, after the firm failed to make payments.
HAZED: BitMEX founders Arthur Hayes and Benjamin Delo pleaded guilty in federal court to violating the U.S. Bank Secrecy Act (BSA), the U.S. Department of Justice said Thursday. The bitcoin-only derivatives platform was found to be operating without sufficient anti-money laundering (AML) protocols, and earlier settled charges with the CFTC. The co-founders face up to five years in prison, though their actual sentences will be decided by a federal judge, with further judgments to come for other early BitMEX employees.
NETWORK ADVANCES: Terra's LUNA tokens regained a $25 billion market capitalization in early European trading hours on Friday, following earlier news that the Singapore-based nonprofit organization Luna Foundation Guard (LFG) would create a $1 billion dollar bitcoin-denominated reserve for UST – Terra's USD stablecoin – raising funds through a private token sale to Jump Crypto, DeFiance Capital and Three Arrows Capital. In Ethereum-land, a protocol responsible for implementing Ethereum scaling platforms called zkSync released its zero-knowledge rollup (zkEVM) testnet years ahead of schedule. Like market leaders Arbitrum and Optimism, zkSync is looking to improve Ethereum's transaction throughput.
PUBLICLY TRADED: Fintech and digital payments giant Block reported better-than-expected Q4 results with total revenues of $4.08 billion, up 29% year-over-year. Bitcoin accounts for about half the company's revenue, through its peer-to-peer payment service Cash App. The fair value of Block's bitcoin (purchased in 2020 and 2021) was $371 million, after impairment adjustments. Coinbase also posted strong quarterly results, but the price of COIN shares fell after the exchange noted it faces headwinds, including macroeconomic, geopolitical and crypto-specific issues. Analysts are still bullish on the exchange, which also hired a former Goldman Sachs partner to run its financial operations.
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Overheard on CoinDesk TV...
Sound Bites
 "If there is a system that develops where cross border activity happens, and there's a separate system where banks aren't involved, it'll take time. That's not going to happen just because you create a new digital currency."
–Yaya Fanusie, cryptocurrency strategist and former CIA analyst, on CoinDesk TV's "First Mover."
What others are writing... Off-Chain Signals 
 Taxes: Understand them. Minimize them. Avoid them. Follow along with our continuing coverage. What You Need to Know About Taxes Before You Claim Your Next Airdrop Investors receiving airdrops should be aware of the tax implications of their newly earned tokens to avoid unwelcome surprises from the IRS NFTs Are the Latest Crypto Tax Events Nobody Understands Casual collectors may be in for a rude awakening this year.
Putting the news into perspective The Takeaway  Will Russia Be Cut Off From Global Finance? Could It Turn to Bitcoin? In response to Russia's unprovoked invasion of Ukraine this week, transnational Western authorities have taken significant actions to restrict the Eurasian kleptocracy's access to the global financial system. It remains to be seen whether Russia might face the ultimate sanction – wholesale removal from the international Swift system, which coordinates transfers between banks.
Such a cutoff from the Belgium-based Society for Worldwide Interbank Financial Telecommunications would be a world-historical turning point, arguably representing the end of the post-Cold War dream of a global democratic-neoliberal consensus. (Turns out "The End of History" was greatly exaggerated – there is a potential future beyond liberal capitalism.) It could also push at least some new amount of Russian and Russian-aligned financial activity onto decentralized networks such as Bitcoin, especially given the country's deep involvement with the technology over the past decade.
Restrictions and sanctions on Russian institutions and individuals have come at a blistering pace this week. On Feb. 24, the U.S. Treasury Department announced it was cutting off Russia's two largest banks, Sberbank and VTB Bank, from global U.S. dollar (USD) transactions, as well as seizing international accounts from Russian institutions and wealthy individuals. The European Union (EU) said Thursday it would seize personal assets of President Vladimir Putin and his deputy, Sergei Lavrov. China, another authoritarian state, has notably refused to impose sanctions on its neighbor.
Non-financial sanctions are also coming fast and furious. The U.S. has restricted technology exports along with imposing financial constraints. Taiwan, arguably the world's most important maker of semiconductors, suggested Friday morning it will restrict supplies to Russia, with potentially devastating medium- and long-term consequences. In Norway, the seizure of a "yacht" owned by a Putin ally may have uncovered a sabotage operation targeting the Nordic region.
A remaining major question is Swift, the communications network that coordinates global interbank transfers. European international relations scholar Dóra Piroska is among those calling for removing all Russian institutions from the platform. According to the New York Times, U.S. President Joe Biden has the unilateral power to kick Russia off Swift. Iranian institutions have previously been removed from Swift – in retaliation, it must be said, for actions far short of Russia's invasion.
However, some argue that such a measure is unlikely. Since its founding in 1978, Swift has attempted to position itself as a neutral, nonpolitical entity, but the real obstacles are more complex. For instance, according to Bloomberg's Javier Blas, Europe continued to buy Russian natural gas even as the invasion got into full swing. European nations including Germany are dependent on that fuel for winter heating and other energy needs. Cutting off Swift access would likely disrupt this vital trade, leverage Russia certainly weighed in its decision to invade Ukraine.
There is also a humanitarian argument for letting Russia keep access to Swift – a cutoff could harm many relative innocents. Cutting off Russian banks from Swift would shrink the economy, according to one estimate, by a stunning 5%, likely leading to the immiseration of many Russians.
Russia is an undemocratic authoritarian state whose leader has enriched himself and a circle of cronies through various forms of embezzlement. Putin, a former KGB agent who has ruled for close to two decades, is believed to be, in effect, the richest man in the world, but experts say much of his wealth has been placed in the custody of various so-called oligarchs. Much of this, it must be emphasized, was enabled by America and the West's support for the rushed, ill-conceived and possibly corrupt privatization of the Russian economy following the collapse of the Soviet Union (USSR) in the 1990s. Meanwhile, Russia has reportedly been developing its own alternative to Swift, which the former prime minister, Dmitry Medvedev, claims is functional and could replace Swift access if necessary. That presents the possibility of Russia becoming the nexus for a second global banking network, one totally outside of European and U.S. influence, and likely not based on the U.S. dollar. Jared Bibler, a former Icelandic banking regulator, argued on Twitter on Thursday that American desire to maintain dollar dominance over the long term makes it unlikely Russia will be kicked off Swift.
If it were cut off, Russia could also transfer some international financial activity to crypto networks. According to Banco Santander, Russia's import/export flows total around $570 billion annually, a volume that could be accommodated with relative ease on the Bitcoin network. According to CoinDesk data, Bitcoin processes $20 billion in on-chain transactions per day, or more than $7 trillion per year. (Total cross-border capital flows from Russia, including finance in addition to trade, are considerably larger.)
Russia's aggression is unfolding in a much more tightly connected world than the one of even three decades ago. It remains to be seen how Russia, once famous as a builder of defensive concrete walls, can deal with being hemmed in by less tangible financial barriers.
Institutional Acceptance of Crypto Is on the Rise, Despite Market Volatility
The crypto market has always been volatile, but the recent months have been exceedingly so, with the price of bitcoin going from an all-time high of $69,000 in November to nearly half of that in less than three months, leading to an increase in fear, uncertainty and doubt (FUD). Despite these setbacks, the lowered cost of bitcoin, ether and other coins has allowed many small investors to enter the space. Since then, the market has mostly recovered, with 2022 set to become an important year for crypto.
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