‘It is Impossible to Technically Ban Decentralized Cryptocurrencies Due to the Nature of the Internet’ – Evgeny Volovik

Evgeny Volovik is the head of the Information and Communication Department at Russia’s Federal Financial Monitoring Service Resource Center.

The Federal Financial Monitoring Service (Rosfinmonitoring) reports directly to the President of the Russian Federation and is a federal executive body responsible for combating money laundering and terrorist financing.

The agency also develops and implements state policies, assesses threats to national security arising from money laundering, financing of terrorism and proliferation of weapons of mass destruction and develops measures to counter these threats.

Back in August at the #CryptoForum Conference in St. Petersburg, Russia, Evgeny Volovik made some interesting statements that appeared to counter the official stance of Russia’s Central Bank on cryptocurrencies. He remarked that:

Bitcoin is not a monetary surrogate; The Federal Financial Monitoring Service has evidence that terrorists prefer fiat over digital currencies;

If Russia is excluded from the world’s financial system then Russia will revert back to the time of the USSR and will trade with gold;

International sanctions against Russian companies and officials don’t have teeth. If Russian is included into the FATF blacklist, it will drop down to the level of Iran.

Cointelegraph had the chance to interview Evgeny for a detailed explanation about his comments, get an idea of what we can expect from the Russian authorities as far as Bitcoin regulations are concerned, and whether a “Bitcoin ban” is in the cards for Russia.

CT: From your point of view, are cryptocurrencies a useful invention?

Evgeny Volovik: There is no need to prove that cryptocurrencies are useful. Leading US companies (JP Morgan Chase, for example) have already announced that they are studying the blockchain on the possibility of integrating the new technology into their own systems. But it should be noted that we are not talking about currencies per se, but about the blockchain technology i.e. the public ledger.

If this is progress, then should we support it by fostering competitive advantages and helping develop these businesses? Or is it better to block this “progress” since cryptocurrrencies can facilitate crime?

Here lies the dilemma, which is being approached by regulators of many countries around the world. There is a group of countries who understand that blocking this “progress” will result in the flight of these companies to other countries, stagnation, loss of jobs etc.

Other countries simply declare that any citizens dealing in Bitcoin will be considered criminals. These two trends exist concurrently.

“It’s possible to ban just about everything. But it’s important to do so in a way that it is technically feasible.”

-Evgeny Volovik

CT: Russia is preparing a law to ban ‘money surrogates,’ which would entail criminal penalties for cryptocurrency users. What are your thoughts?

EV: Though I will wait until the law is passed, it’s clear that a law on virtual currencies is indeed necessary. Right now, I’m seeing how our banks are refusing to work with Bitcoin companies due to a lack of regulations much like in many other countries.

I think it’s good that our regulators are not in a hurry to pass any rash solutions. We should monitor these developments, which is what’s being done in most countries. Cryptocurrencies are still in their infancy and things can change at any moment. In my opinion, the time for serious decision-making is not here yet.

It’s possible to ban just about everything. But it’s important to do so in a way that it is technically feasible. A law that doesn’t work only leaves us with profanation. On the other hand, bans must also be implemented in a way that the baby is not thrown out with the bathwater, so to speak.

CT: While the authorities are looking to ban cryptocurrencies, I understand that you propose not to rush this process. Is there a clear divide in opinion between government officials on the issue of cryptocurrencies?

EV: I wouldn’t say there is a divide. When a topic is brought up for discussion, there are many view points. Which one will gain the upper hand? These predictions, in my opinion, are pointless.

At the same time, I believe that the discussion today has been steered off course. For example, the director of the US FinCEN, Jennifer Shasky, said that her agency is not targeting new technology (cryptocurrencies) as such, but focusing on methods to catch the criminals using it.

I think that this approach is more constructive in this instance. Here, everything is exactly the same as with fiat currency because it can be used for criminal activities – which we absolutely know it is. However, no one has proposed to ban fiat currency in any country so far.

CT: Many methods exist in the cryptocurrency world to cover one’s tracks: this includes Darkcoin and Zerocoin, as well as mixers CoinJoin, P2P exchanges, anonymizers and others. If cryptocurrencies become mainstream, what methods do the authorities have to capture criminals that use these tools to mask their identity?

EV: It goes without saying that regulatory bodies do not disclose their methods of operation. Though the Americans acknowledge that the use of Bitcoin and IP-address scramblers make it a lot harder to do catch cyber criminals.

It took the FBI two years to bring down Silk Road along with the servers all around the world where it was installed. The international investigation also involved multiple governments working together.

The Guardian reported on Edward Snowden’s revelation that the NSA developed a mechanism to identify users by exploiting a computer software vulnerability with the Firefox browser and TOR-client, particular. It is possible to gain access to files, logs, and monitor online activity. However, the disclosure also made it clear that key TOR functions were not successfully hacked.

In a secret presentation, the NSA emphasized that the agency’s employees can only analyze and identify individual users. The NSA will never be able of deanonymizinig all TOR users in real time, according to the presentation.

On the other hand, it’s interesting that one of the Internet pioneers, Vint Cerf, stated that “privacy may actually be an anomaly,” and adding that “it will be increasingly difficult for us to achieve privacy.”

“[I]t’s impossible to technically ban or ‘turn off’ decentralized cryptocurrencies due to the nature of the Internet.”

-Evgeny Volovik

CT: Let’s take Hawala for example, which is thought by many to be used for financing terrorism. But since it already exists, fighting it will be quite difficult and wasteful (due to the lack of a developed banking system in some countries). Could Bitcoin become the digital version of Hawala? If this is so and the Hawala is not “banned” – is it possible to “ban” cryptocurrencies at all?

EV: In my opinion, it is impossible to technically ban or “turn off” decentralized cryptocurrencies due to the nature of the Internet. You can ban child pornography on the Internet, but you will always find some low-lives, who will continue to demand it.

As far as Hawala is concerned, it is built on trust of the hawaladars (hawala brokers). With Bitcoin transaction, a person still hopes that the coins can be converted to fiat. This is exactly what “trust” consists of when it comes to Bitcoin. But Bitcoin, in my opinion, is more like digital currencies than Hawala.

I would assume that Hawala is not very popular in our country, which means that either digital or fiat currencies are used for money laundering.

CT: At the St. Petersburg Bitcoin conference, you said that if Russia is excluded from the world’s financial system, it will revert back to the time of the USSR and will trade with gold. Meanwhile many experts suggest that Bitcoin could be a much better and more modern option. Do you still give the edge to gold in this potential scenario?

EV: Today I find it absolutely impossible that our country will be excluded from the world’s financial system similar to Iran. Theoretically, if this happens, we will have to revert back to the old ways of exchange using gold, precious jewels etc. to purchase foreign products. It is possible that this will also include other payment methods such as virtual currencies. But I repeat that this scenario is very unlikely in my opinion.

I recall a time when we used to subscribe to American science magazines for our institute in exchange “for gold.” This was also the case for everything else imported. We imported goods, which we could not produce domestically. There were times when we even bought wheat “for gold” as we didn’t produce enough ourselves. But this didn’t have to be gold per se; it could have been something else such as fiat dollars.

CT: Do you think the positive benefits of cryptocurrencies could sway regulators?

EV: Regulators still have to take a clear stance. Right now, as I see it, public opinion is being studied as it takes shape as there are many pros and cons when it comes to virtual currencies.

As usual, we have to rely on expert opinion as we lack solid data that could aid the legislation process. But it wouldn’t hurt to look into the experience of other countries.

CT: Are you seeing Bitcoin growing in popularity, increasing number of transactions and adoption in Russia?

EV: I haven’t seen anyone I know who is into Bitcoin though these are mostly my peers – the older generations who are far removed from the “latest gadgets.” Many can’t (or are too lazy to learn) even read an SMS on their phone, which they use only for calls. So I believe that Bitcoin is for the younger generations.

Inversely, I think that when there is a lack of regulatory clarity, legitimate Russian businesses are simply afraid to work with this innovation.

“Honestly speaking, I think that Bitcoin specifically does not have a future not only in Russia but in the entire world.”

-Evgeny Volovik

CT: Do you think Bitcoin has a future in Russia?

EV: Honestly speaking, I think that Bitcoin specifically does not have a future not only in Russia but in the entire world. I believe it will become an amusement of sorts, a “side-hobby,” though very beneficial for developing new concepts, creating new algorithms, software, improving information security, etc.

I consider the Bitcoin ecosystem as a prototype of a system that is undergoing rigorous testing from all sides. With experience and further innovation, I think it is very possible that the blockchain will have a very bright and promising future.

It’s possible that new “more anonymous” and more reliable payment ecosystems will also emerge in the future. We lived through the transition of going from regular mail to e-mail, from telephone communication to SMS, from paper documents to electronic - so why not a shift towards electronic money?

This project is seriously being considered in Ecuador, where the US dollar is currently being used as the national currency.

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