Law Decoded: Blockchains and the Eastern Bloc, August 14–21

As protests rage in Belarus and Alexei Navalny remains in a coma, we look at new developments in crypto across the former USSR.

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law.

Editor’s note

The political machinations of Eastern Europe have dominated recent headlines. Protests unprecedented since the fall of the Soviet Union have rocked Belarus for weeks. Outrage over the Aug. 8 election that has seen challenger Svetlana Tikhanovskaya flee the country has threatened the longtime dominion of Belarusian president Alexander Lukashenko, the so-called “last dictator in Europe.”

Protestors are calling the 80% win for Lukashenko a fraud. The regime has tried to crack down with its traditional tactics of disinformation and police violence, but resistance continues. As the EU prepares a sanctions package, the world watches for the reaction of Russia, which has long supported Lukashenko. But while Putin has hesitated to commit support to Lukashenko’s crumbling regime, a new scandal is racking his own.

Aleksei Navalny, the most visible political opposition to Putin left in the country, fell ill on a flight from Siberia to Moscow, necessitating an emergency landing in Omsk. As of press time, Navalny remains in a coma, with many believing him to have been poisoned by regime operatives. The hospital hosting him is doing nothing to alleviate suspicion, initially preventing his wife from getting to him and stonewalling work to evacuate him to Germany.

Former members of the USSR have long been powerhouses of blockchain development based on a combination of strong technology education, murky business environments, and political processes that oscillate between opaque and ominous. Use cases for anonymity or immutability flourish where governments flout election numbers or poison political opposition.

Final tome on Russian electoral interference untangles old Bitcoin connections

As U.S. elections draw near, the Senate Intelligence Committee has released the final volume of its investigation into Russian interference in the 2016 presidential elections.

Clocking in at nearly 1,000 pages, volume 5 publicized new details on, among other things, Russian intelligence’s use of crypto to set up websites and VPNs backing a phishing campaign. It also went into the curious operations of convicted spy Maria Butina among heavy hitters within the crypto industry, especially Patrick Byrne.

Byrne ran Overstock.com for decades before resigning from his position as CEO last summer. Upon his resignation, Byrne released an extensive account of his relationship with Butina that at the time read like the sort of thing you’d hear a teenager make up about a girlfriend who never seems to be around: She’s really hot, just really busy running special ops for Russian intelligence. I’d tell you more about the whole thing but the FBI asked me not to.

In light of the latest version of the report, Byrne’s account looks more like an attempt to frontrun the narrative that this investigation would turn up. Which is that Byrne, now 57 and worried about his genetic legacy, wanted a young woman he met at a libertarian conference to have a child with him. Allegedly.

In terms of broader response in America, the most recent account of the long-running investigation into Russian interference in the 2016 election doesn’t seem to have made any especially consequential splash. A full election cycle after the events described, most Americans have already chosen sides as to what they will and won’t believe about 2016.

Can blockchain patch up Russian (and American) federal elections?

Russia’s telecoms authority is piloting blockchain voting for the federal elections scheduled for September 2021. The new pilot follows a user data disaster in the blockchain-backed e-voting system behind the recent referendum to extend presidential term limits in Russia.

Waves, one of the country’s most prominent blockchain firms, is taking the lead in developing the project. It will feature five master cryptographic keys. In theory, this mitigates any chance of a bad actor breaking into voting data, but the firm admits that it has no say in where those keys ultimately go.

Many have touted blockchain technology for its ability to bring transparency and integrity to voting. Russia, a massive country that also features a ruling party, United Russia, that is known for putting its thumb on the electoral scale, seems like a perfect place to demonstrate.

The US, too, is seeing new debate on the subject of its voting security and accessibility. Trump seems keen to pull the rug out from the postal service in advance of mail-in voting, while the USPS has filed a patent for a new blockchain voting system.

As always, the existence of a blockchain doesn’t actually fix anything if the keys are safe, particularly if they are in the hands of exactly the same government you didn’t trust to run its elections in the first place.

Ukraine and Binance clean up their acts

Collaboration between Ukrainian authorities and crypto exchange Binance is yielding tangible results, with the exchange recently publicizing the June arrest of a ring of money launderers in the country.

Ukraine’s reputation as a hotbed of money laundering predates Bitcoin, the internet, and arguably even the USSR. The era of cryptocurrency has opened up new opportunities in the field.

Binance, the largest exchange in the world, gets a similar bad rap. The question of “where in the world is Binance?” has lingered since the firm left China in 2017. This is despite the exchange’s public claims at various points to registration in Japan, Malta, the Seychelles, Zamunda, Temerant, Ba Sing Se etc. Binance’s takeover of leading crypto market monitor CoinMarketCap earlier this year led to greater suspicion of those numbers. Chainalysis also found Binance to host over a quarter of illicit Bitcoin transactions in the world.

The joint effort between Ukrainian authorities and Binance is, therefore, maybe an early-stage step on the part of both parties to clean up their respective acts. But, then again, maybe the criminals in question were being very obvious and both parties saw an opportunity for a one-time PR maneuver. Time will tell.

Further reads

James Lewis, the head of the Center for Strategic and International Studies’ tech policy program, dissects the updates to Libra that seek to distinguish it from Facebook.

The Financial Times’ editorial board echoes what is rapidly becoming the official line on central bank digital currencies: They are “inevitable,” but don’t rush.

Lawyers for Shearman and Sterling examine new rules on ICO promotions in the UK.