Friend or foe? Crypto regulation's challenge

Money that no government can freeze, trace, or shut down has limitless possibilities. By using cryptocurrencies, civilians around the globe can access global markets without being limited by their local financial systems, allowing them to circumvent corrupt banking sectors and gain access to remittances from abroad. What could go wrong?

The first digital currency, Bitcoin, was launched in 2009 and remains the most widely traded among the thousands now in existence. These can be exchanged for various national currencies: some, like stablecoins, are pegged to assets like the U.S. dollar, while others float freely based on market demand. Their distributed ledger system means transaction records aren't stored on any single computer that could be hacked or shut down, but instead across thousands of computers at once, making the network difficult for any single government to control. According to Forbes, the approximate global market capitalization of cryptocurrency in July 2026 is $2.29 trillion.

Unfortunately, cryptocurrencies also present an opportunity for bad actors to evade sanctions and commit cybercrimes, fueling the illicit funding of authoritarian regimes. The same attributes that present opportunity — decentralization, borderlessness, resistance to seizure — enable Russia to deploy it to fund its war, and Iran to keep selling sanctioned oil to China. Digital currency is simultaneously being deployed by authoritarian states escaping financial pressure and by civilians in those same states resisting repression.

In a world where economic instruments are increasingly the weapons of choice, it is imperative to effectively target bad actors, rather than bluntly hurting innocents. Cryptocurrency, still the "wild west" of financial markets, is the next battlefield between regulators and their targets, with civilians and dissidents at risk of becoming collateral casualties.

How authoritarian states use crypto

Chainalysis reports that the crypto addresses of sanctioned entities received over $100 billion in 2025 alone, which is nearly eight times what they received the year prior.

Much of this volume traces back to currencies launched by governments in response to financial sanctions that limit their access to institutionalized global finance. Russia's A7A5 token, launched in early 2025 as sanctions from the Ukraine war deepened, allows users to buy it domestically with rubles, then convert it into an internationally usable stablecoin like Tether. Funds are then routed to settle payments across borders without ever involving international banks, avoiding Western sanctions. The Wall Street Journal has reported that A7A5-to-stablecoin swaps were traced directly to payments for China-based drone vendors, pointing to a link between some of A7A5's $90 billion in transactions last year and Russia's ongoing war effort. Iran poses a parallel story: its Islamic Revolutionary Guard Corps gets paid for oil sales to China through crypto exchanges, moving sanctioned crude despite a litany of U.S. and EU sanctions efforts.

As Rose Gottemoeller, former U.S. Under Secretary of State for Arms Control and International Security, explained in an interview with The Beiruter, sanctions have become "the default, go-to tool for the US and the EU, especially when we don't want to apply military power and are trying to get to the negotiating table." However, sanctions only work when they impact their target over a sustained period of time, meaning the crypto back channels states like Russia and Iran have built undermine the fundamental efficacy of this vital tool.

How those resisting authoritarians use crypto

As authoritarian states themselves seek to evade international sanctions, they weaponize their own domestic financial systems to control the people living under them, freezing accounts and using private assets as means of political control. Decentralized finance similarly offers an out for citizens and resistance groups escaping the control of their governments.

For movements opposing autocrats, it is difficult to just maintain access to their finances in banks. In Russia, a leader of Team Navalny, the opposition movement founded by the late Kremlin critic Alexei Navalny, had his bank account blocked in mid-2025, which he believed was due to pressure from Putin's government, according to the Journal of Democracy. Similarly, advocacy groups and opposition politicians in India challenging Narendra Modi's policies, or members of Hong Kong's democracy movement, have lost their banking rights. For these groups fighting for freedom in oppressive environments, the fact that cryptocurrencies like Bitcoin allow for transactions without banks as facilitators proves fundamental to their continued operations.

Cryptocurrencies have also empowered ordinary citizens coping with weak, unstable, or sanctioned financial systems. In Iran, a collapsing rial and tightening sanctions have driven the rise of dozens of domestic crypto exchanges, with the country's crypto economy processing $7.78 billion in transaction volume in 2025 alone, according to Chainalysis, as the rial lost roughly 95 percent of its value. Russia demonstrates a paralleled situation, with citizens turning to crypto while sanctions squeeze an already depreciating ruble. The stakes are even higher when regimes collapse entirely: the Journal of Democracy tells of a young Afghan woman named Roya, whose family's savings were lost when the American-backed government fell in 2021, while her own savings, stored in Bitcoin, survived.

Remittances, funds transferred from a country's diaspora to support relatives at home, become cheaper and faster for civilians when sent through cryptocurrencies like stablecoins. Stablecoins offer expedited cross-border transfers, while traditional channels can take several days and charge 5 to 10 percent in fees. The Goldman Sachs Global Institute estimates that roughly $290 billion in stablecoin is now held by people in emerging markets seeking stability amid volatile currencies and weak banking systems. Lebanon upholds this pattern, with remittances constituting nearly 18 percent of its GDP, and The Beiruter has previously reported that the country's crypto market revenue is projected to grow to $7.3 million in 2026, as the economy continues recovering from its 2019 banking collapse.

Regulatory challenges: the need for precision

The same digital currencies enabling everyday Iranians to shield their savings from a collapsing rial are often the very ones abused by the IRGC to profit from sanctioned oil. Restrictions on cryptocurrency meant to target illicit activities also risk harming the civilians and democratic movements freed by decentralized finance, a tradeoff that regulators must balance. Some cryptocurrencies may seem like comparatively cleaner targets: for example, Russia's A7A5 is designed explicitly for businesses to evade sanctions and isn't used by dissidents. However, even these often funnel into stablecoins like Tether once funds cross borders, the same instrument a Lebanese family may rely on for remittances. This overlap presents a new problem for regulators: while traditional banks can be licensed and identified as regime-linked, letting regulators more effectively freeze them, crypto provides no such opportunity, with a dissident's savings and sanctioned oil payments existing on the same exchange.

Worsening the problem, there is still no unified international body governing cryptocurrency, meaning individual governments struggle to coordinate, acting instead through blacklists and exchange sanctions on their own.

As Rose Gottemoeller told The Beiruter, "Over time, governments have gotten smarter and smarter about the sanctions evasion techniques. It's a bit like a game of whack-a-mole, but there is a concerted effort by the U.S. Treasury and others to figure it out and enforce against sanctions evasion." Cryptocurrency has created a new challenge for policymakers, and blunt sanctions won't solve it. In today’s world of digital currencies, sanctions that can't tell a regime from its people risk making civilians and dissidents collateral casualties instead.