Over the past 15 years, cryptocurrency has evolved from a niche experiment in digital payments to a global financial juggernaut, with profound implications for geopolitics and international finance. Initially driven by the libertarian ideals of decentralization and independence from governmental control of fiat currencies, crypto’s rise has since catalyzed the broader development of blockchain technology and an expansive, albeit unregulated, set of digital assets offering users privacy and flexibility.

Early use cases for crypto centered on financial inclusion and cross-border payments. In 2024, crypto made a critical comeback as the market hovers near $4 trillion in value and Bitcoin surpassed the psychological benchmark of $100,000. Such conditions demonstrate how cryptocurrencies have become increasingly recognized as tools with strategic relevance beyond a speculative trade or store of value. Governments, corporations, and rogue actors now leverage them to bypass traditional financial systems, challenging the status quo for sanctions enforcement and anti-money laundering protocols.

Cryptocurrency and Sanctions Evasion

Cryptocurrency’s decentralized nature makes it a powerful instrument for sanctions evasion. Economic sanctions have long been used as a tactic to compel changes in state behavior. However, the rise of digital currencies is increasingly undermining their effectiveness, and the methods used to evade sanctions have grown in sophistication as the likes of Russia, Iran, and North Korea have had years of experience with circumventing sanctions.

Russia exemplifies how cryptocurrency is reshaping sanctions enforcement. As a result of its 2022 invasion of Ukraine, Moscow received unprecedented sanctions. In response, Russia turned to digital assets to sustain its economy and geopolitical aims. By 2024, the Russian legislature introduced reforms legalizing crypto mining and allowed select entities to use digital currencies for cross-border payments. Industry observers note that Russia’s most infamous crypto exchange, Garantex, handled 82% of global crypto transactions tied to sanctioned entities in 2023. Drawing a parallel to Switzerland’s banking secrecy practices in the 20th century, crypto now provides covert financial channels, but on a global and decentralized scale, increasing its appeal for sanctioned individuals and entities while making enforcement exponentially harder.

Russia’s broader strategy includes developing a digital ruble and collaborating with countries like Iran on a gold-backed stablecoin. As part of an ambitious and gradual “de-dollarization” initiative, these efforts aim to bypass the US dollar and establish alternative financial systems for states outside of the US sphere of influence. These initiatives reveal how cryptocurrency can facilitate economic resilience under sanctions while forging new geopolitical alliances to create a parallel financial system outside the surveillance capacity of law enforcement and intelligence agencies.

Similarly, the Iranian exchange Nobitex has processed billions in illicit transactions while North Korea has leveraged cryptocurrency through cyber theft and ransomware to fund its nuclear weapons program.

Money Laundering and Illicit Financing

An oft-cited criticism of cryptocurrency’s anonymity and decentralization thesis is its common association with illicit activities, including facilitating transactions of narcotics, weapons, and human trafficking.

Money launderers have adopted cryptocurrency to obscure the origins of illicit funds. Techniques include mixing services, which function as digital “blenders” or “tumblers” to add layers to help obscure transactions, as well as privacy coins such as Monero, and decentralized exchanges. As one example, the TGR Group, an international network working on behalf of sanctioned Russian individuals and entities, used stablecoins like Tether (USDT) to launder funds, which comes with the added bonus of retaining most of their original asset value.

The use of cryptocurrency for illicit financing is not limited to non-state actors. Despite blockchain’s transparency, sophisticated actors exploit regulatory gaps and technological tools to obscure their tracks, complicating international enforcement efforts.

Strategic Crypto Adoption by Nations

As cryptocurrencies challenge traditional financial systems, governments are adopting them as tools of statecraft. Some seek to integrate blockchain into their financial strategies, while others use it to create alternatives to conventional monetary and financial systems.

China is among the leaders in the development of central bank digital currencies (CBDCs). The digital yuan is central to Beijing’s strategy to reduce dependence on the U.S. dollar. Through pilot programs and integration with other states via Belt and Road projects, China is positioning the digital yuan as a key currency for international trade, directly challenging the predominant SWIFT system.

Emerging economies are also exploring crypto assets to assert economic sovereignty. In 2021, El Salvador became the first country to adopt Bitcoin as legal tender with the objectives of reducing remittance fees, attracting crypto-driven investment, and establishing a state-managed reserve fund of Bitcoin that paid off handsomely following a bold bet by President Nayib Bukele. In 2023,  Zimbabwe introduced a gold-backed digital currency as a measure to stabilize its economy and provide an alternative to the collapsing Zimbabwean dollar, signaling a return to asset-backed financial instruments in a digital form.

Similarly, Argentina has seen growing crypto adoption among citizens to hedge against hyperinflation and a depreciating peso under the reform agenda of President Javier Milleil. Argentina has agreed to permit foreign crypto ETFs to be traded in the country. In Nigeria, where access to US dollars is limited, stablecoins are increasingly used for remittances from the Nigerian diaspora, and the country is host to a thriving fintech startup scene capable of handling billions in transaction volume.

Nevertheless, state-backed adoption of crypto comes with risks. Fragmented regulatory frameworks could exacerbate sanctions evasion, while authoritarian regimes may exploit CBDCs for surveillance and control of the local population. Additionally, the proliferation of state-led crypto initiatives raises questions about the legal and regulatory future of decentralized digital assets.

Given the bullish sentiments and relentless momentum for crypto, 2025 will see digital assets and infrastructure playing an even greater role in geopolitics and trade. Several trends will shape this evolution:

• The appeal and competitive pressures of CBDCs: As a result of the breakneck pace of growth in the crypto industry’s valuation, the competition between state-backed digital currencies and decentralized assets like Bitcoin will intensify, with CBDCs potentially reshaping trade and regulations of decentralized assets. Examples include resource-rich nations such as Venezuela, which introduced and subsequently shutdown the circulation of the controversial Petro token, believed to have been co-developed with Russia, and which was backed by Venezuelan oil and minerals, though it failed to remediate Venezuela’s hyperinflation woes.
• Expansion of crypto alliances: As seen with the crypto cooperation between Russia and Iran, more nations embracing cryptocurrencies are likely to advocate for its use in cross-border payments and everyday consumer transactions. The likes of Venezuela, South Africa, Brazil, and Turkey are also likely to leverage their desire to reduce dollar dominance by engaging in crypto projects and initiatives.
• Crypto’s use in crime and conflict: Ransomware groups, primarily based in Russia, generated over $500 million in crypto proceeds in 2023 alone. Platforms like Garantex and Hydra have also facilitated the flow of funds linked to drug sales, weapons procurement, and other illegal activities. In a similar fashion, North Korea’s crypto thefts fund its defense spending and nuclear program, while Iranian entities use digital currencies to bypass sanctions. Furthermore, the ongoing Myanmar civil war has been a boon for crypto in the war-torn state, as both civilians and combatants alike ditch the kyat in favor of stablecoins, serving as a safe haven asset amid sanctions and depreciation.
• Regulatory enforcement challenges: The lack of global consensus on crypto governance will hinder enforcement efforts for years to come, leaving gaps for illicit activities while stifling legitimate innovation. Such conditions suggest Russia will continue to cement its status as an illicit finance hub given its significant technical expertise, its experience with evading sanctions, and its alliances with the likes of the BRICS nations, North Korea, Venezuela, and Iran.