Bitcoin and cryptocurrencies have been pushed into the spotlight over the last week as global financial sanctions on Russia come into force.
Now, the world’s largest payment card networks Visa and Mastercard, as well as internet payments giant PayPal, have suspended their services in Russia—with the moves described by one crypto expert as “a bigger earthquake than [the] SWIFT” ban.
“We are compelled to act following Russia’s unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed,” Visa chief executive Alfred Kelly said in a statement with the company adding it would cut off transactions “over the coming days.”
“We don’t take this decision lightly,” Mastercard said in a statement. “Mastercard has operated in Russia for more than 25 years.”
Credit and debit cards issued by Russian banks will no longer work outside of the country while Russian businesses and cash machines will be unable to accept cards issued from outside the country.
There have been local media reports that Russia’s Sberbank will begin issuing cards with China’s UnionPay. Meanwhile, Russia’s payment network alternative to Visa and Mastercard that was founded in 2015 is thought to have just a 30% market share in the country, according to data from Russia’s central bank.
The Visa and Mastercard ban comes after PayPal shut down its services in Russia this weekend just a week since Russia was kicked off the world’s main international payments network SWIFT.
“PayPal supports the Ukrainian people and stands with the international community in condemning Russia’s violent military aggression in Ukraine,” said PayPal chief executive Dan Schulman.
“[The Visa and Mastercard shutdown] is a bigger earthquake than SWIFT,” tech lawyer Preston Byrne posted to Twitter, adding “trillions of dollars are going to be made building a mirror system that doesn’t respond to American pressure.”
Over the last week, trading between Russia’s ruble and cryptocurrencies has soared, according to data from Chainalysis, a crypto research company.
“Every cultural sphere that isn’t the U.S. or China will build national stacks for social media, shopping, and the like as part of its digital defense strategy,” tech investor Balaji Srinivasan predicted via Twitter. “But they won’t have the scale to be globally competitive on their own. They’ll need to hook into bitcoin/web3 for that.”
The relatively anonymous nature of bitcoin and other cryptocurrencies, combined with their decentralized structure, means countries and crypto companies aren’t able to lock user out of the system in the same way as the traditional financial industry.
Some of the world’s biggest cryptocurrency companies and exchanges have come under pressure to block off access to their services from Russia, however, the likes of U.S.-based Coinbase and Binance, the world’s largest crypto exchange, have so far refused.
Binance’s founder and chief executive Changpeng Zhao, often known simply as CZ, dismissed fears that bitcoin and crypto could be used by Russia to evade sanctions, claiming “crypto is too small for Russia.”
“Currently, the media and politicians are spending a lot of effort and focus on crypto and sanctions,” CZ said in a statement.
“If we look at the crypto adoption today, there is probably about 3% of the global population with some kind of crypto exposure (ie, owning some crypto). Of those, most only have a small percentage of their net worth in crypto. Less than 10% on average. So, there is probably only less than 0.3% of the global net worth in crypto today. This percentage applies equally to Russia.”
“We don’t think there’s a high risk of Russian oligarchs using crypto to avoid sanctions,” Coinbase chief executive Brian Armstrong posted to Twitter this week. “Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using U.S. dollars, cash, art, gold or other assets.”
Last week, it was reported by the Wall Street Journal that the Biden administration is considering imposing sanctions on Russia’s bitcoin and cryptocurrency market.
By Billy Bambrough