Financial and economic implications
Challenge to monetary authority: Decentralized cryptocurrencies bypass traditional intermediaries and government control, making it harder for central banks to influence monetary policy.
Bypassing sanctions: These technologies can be used to circumvent international sanctions, providing alternative payment channels for sanctioned economies and empowering actors like nation-states to finance illicit operations.
Shift in financial power: The potential for a global shift away from traditional financial systems like SWIFT could alter the balance of global financial power, diminishing the leverage of sanctioning nations.
New tools for statecraft: Some nations leverage decentralized assets for national economic or strategic purposes, viewing them as a new form of statecraft, while others implement strict controls to protect monetary sovereignty.
Security and governance implications
Erosion of regulatory control: The decentralized nature of these networks makes traditional oversight mechanisms less effective, creating challenges in monitoring and regulating financial crimes, money laundering, and tax evasion.
Heightened cybersecurity threats: The rise of decentralized finance (DeFi) has reshaped the cybersecurity threat landscape, increasing risks from ransomware attacks that often depend on cryptocurrency payments for their operations.
Need for new governance frameworks: Decentralization challenges existing internet governance models and requires the creation of new, agile, and inclusive international standards to address risks like fraud while promoting innovation.
Geopolitical conflict and stability
Weaponization of crypto: Digital assets are increasingly being used in geopolitical conflicts for both legitimate purposes, like fundraising, and covert activities, like sanction evasion.
Impact on conflict zones: In conflict zones, decentralized currencies can be a last resort for civilians to conduct safe transactions when traditional financial services are unreliable due to infrastructure damage or macroeconomic instability.
Reaction to geopolitical risk: Studies show a reactive relationship between geopolitical risk and cryptocurrency activity, indicating that periods of heightened global uncertainty can lead to increased adoption of these digital assets.
