Digital assets become a tool of geopolitical warfare: authoritarian countries use them for sanctions evasion, while democratic countries use them for regulatory transparency.

Source: TokenPost Original Title: Digital Assets, the Weaponized Blockchain… Authoritarianism as a Detour, Democracy Responds with Regulation Original Link:

Overview

Countries have transformed cryptocurrencies from experimental assets into core strategic tools. According to the latest report from blockchain analytics firm TRM Labs, from North Korea to Singapore, nations are actively leveraging digital assets to achieve economic and security objectives, but the strategies of authoritarian and democratic countries are diametrically opposed.

Weaponization of Blockchain in Authoritarian Countries

Decentralized Bypass Paths

TRM Labs points out that decentralized blockchain technology can bypass traditional financial systems such as SWIFT, the US dollar, and global banking networks, which authoritarian countries are actively exploiting.

North Korea Case

The North Korean government-organized hacking groups have carried out large-scale cryptocurrency thefts, including a hacking incident at an exchange in February 2025, involving billions of dollars in exchange, DeFi, and cross-chain bridge attacks. They launder funds through the following steps:

• Using mixers and multiple blockchains to obfuscate fund flows
• Converting funds into stablecoins
• Cashing out on Asian OTC markets
• Ultimately funneling funds into missile and nuclear development projects in Pyongyang

Russia’s Diversified Strategy

After the invasion of Ukraine in 2022, Russia has used digital assets for:

• Cross-border payments
• Financing pro-Russian organizations
• Large-scale energy-based mining
• Circumventing Western financial systems to acquire foreign exchange

Iran’s Sanction Evasion

Since legalizing Bitcoin mining in 2019, Iran has used domestically mined cryptocurrencies to pay for imports, effectively bypassing US and international financial sanctions.

Focus on Regulation and Transparency in Democratic Countries

US and EU Approaches

TRM Labs notes that democratic countries have adopted completely opposite strategies. The US and Europe are transforming cryptocurrencies into assets that can be regulated within the financial system, focusing on:

• EU MiCA Framework: Implementing comprehensive licensing and regulatory obligations for crypto firms
• US Enforcement: Agencies like FinCEN, OFAC, and FBI use crypto analysis systems for ransomware tracking and sanctions compliance

Differentiated Approaches in Asia

• Singapore: Collaborating with the private sector to establish regulatory technology infrastructure
• Japan: Strengthening exchange supervision, learning from past hacking incidents
• Other Asian Central Banks: Experimenting with Central Bank Digital Currencies (CBDC) and tokenized reserves, aiming to harness the advantages of public blockchains while maintaining government control

Geopolitical Double-Edged Sword

TRM Labs emphasizes that the transparency and traceability of blockchain transactions are fixed features. The difference lies in the “power to see” — only with strong analytical capabilities and international cooperation can this transparency be fully exploited. Without these capabilities, the gap between authoritarian and democratic countries will continue to widen.

Conclusion

Authoritarian states view digital assets as a “bypass path” to evade sanctions, while democracies see them as a “tool” for transparency. As digital asset markets mature, the “divergence” between these two strategies will become even more pronounced.

Key Takeaways

Market Interpretation: Cryptocurrencies have become central assets in national-level financial strategies, with countries adjusting their usage based on political and security goals.

Strategic Insights: Investors and regulators should understand the “intent” and “structure” behind cryptocurrency use. Blockchain technology itself makes no distinction, but the way it is used can lead to vastly different outcomes.

Terminology Clarification

• Mixer: Technology that makes tracking cryptocurrency fund flows difficult
• OTC (Over-the-Counter): Asset transactions conducted through informal channels
• MiCA: EU Crypto Asset Market Regulation Framework
• CBDC: Central Bank Digital Currency issued by governments