Can Cryptocurrency Defeat Economic Sanctions? What Israel, Russia, and Iran Reveal About Its Real Power

Israeli Prime Minister Benjamin Netanyahu has raised an unusual possibility: using cryptocurrency to protect Israel's economy from potential international sanctions.

Speaking to Israel's Channel 10 on October 23, Netanyahu warned that restrictions on Israeli banks could eventually force the country to develop alternative financial arrangements.

When asked whether cryptocurrencies and blockchain technology could provide such an alternative, he agreed, saying he had requested a plan exploring the idea.

The suggestion immediately drew criticism from the Bank of Israel, which argued that cryptocurrencies could not provide an effective way around international sanctions.

More than 100 Israeli economists subsequently expressed concern about the economic implications of Netanyahu's proposal.

But beyond the political controversy, his remarks raise an important economic question.

Can cryptocurrency actually allow a country to operate outside the international financial system?

The answer is more complicated than either side suggests.

Cryptocurrencies can provide alternative payment channels, and sanctioned governments are already using them. But their effectiveness depends on the type of sanctions, the currencies involved, and whether businesses are willing to accept them.

Evidence from Russia and Iran reveals both the possibilities and the limitations.

Why financial sanctions work

Modern economic sanctions do not necessarily prevent a country from producing goods, manufacturing products or possessing money.

Instead, they can restrict its ability to transact with the rest of the world.

International trade depends heavily on banks, payment networks and access to major currencies, particularly the U.S. dollar and euro.

When a company imports machinery, the transaction often involves several financial institutions, sometimes operating across different jurisdictions.

Banks verify the parties, process payments and provide access to foreign currency.

Sanctions can interrupt this process.

They may prohibit banks from serving designated individuals or companies, freeze overseas assets or restrict access to international payment systems.

The result can be economically damaging even if the sanctioned country retains substantial domestic wealth.

A business might have enough money to purchase equipment but struggle to transfer payment to its supplier.

Cryptocurrency offers a possible alternative because blockchain transactions do not necessarily require traditional banks.

What cryptocurrency actually changes

Bitcoin and other cryptocurrencies allow value to move directly between digital wallets.

Transactions can be validated by decentralized networks rather than processed through a conventional bank.

Consider a company in a sanctioned country purchasing equipment from a foreign supplier.

If both parties accept a cryptocurrency, a payment could technically move between their wallets without using the banking system that would normally settle the transaction.

That is the attraction.

A bank can refuse to process a transfer.

A decentralized blockchain generally does not require an individual bank's permission to record one.

However, completing a blockchain transfer and completing an international commercial transaction are not the same thing.

The supplier must be willing and legally permitted to accept the payment.

The recipient may need to convert cryptocurrency into local currency.

And the purchased goods must still be manufactured, shipped, insured and cleared through customs.

Cryptocurrency can bypass certain payment intermediaries. It cannot automatically remove the other restrictions imposed by sanctions.

Russia is already testing the model

Russia provides one of the clearest examples of cryptocurrency being incorporated into an alternative international payments system.

Following Western sanctions imposed after its invasion of Ukraine, Russian authorities and businesses began exploring ways to conduct cross-border trade outside conventional banking channels.

The country subsequently introduced legislation allowing cryptocurrency to be used in certain international trade arrangements.

More significantly, Russia-linked networks developed specialized digital assets designed to facilitate payments.

One example is A7A5, a ruble-backed stablecoin launched in 2025.

Unlike Bitcoin, whose price fluctuates, A7A5 is designed to maintain a value linked to the Russian ruble.

That makes it more suitable for commercial settlement between businesses seeking predictable transaction values.

According to blockchain analytics company Chainalysis, A7A5 processed approximately $93.3 billion in transaction volume during its first year.

TRM Labs separately estimated more than $72 billion in volume associated with the token during 2025, using different measurement methods.

These figures do not represent $72 billion to $93 billion in unique imports or successfully evaded sanctions. They measure on-chain activity, which can include repeated transfers of the same funds.

Nevertheless, they demonstrate that cryptocurrency-based financial infrastructure can operate at substantial scale.

Russia has not eliminated its dependence on conventional international trade, nor has cryptocurrency neutralized Western sanctions.

But it has helped establish parallel settlement channels that reduce reliance on some traditional financial intermediaries.

That is a meaningful development.

Iran shows both sides of the argument

Iran has also turned to cryptocurrency amid years of financial isolation.

Blockchain analytics firms have documented cryptocurrency activity linked to Iranian state institutions, sanctioned organizations and networks involved in cross-border payments.

Chainalysis reported that wallets associated with Iran's Islamic Revolutionary Guard Corps and its proxy networks received more than $3 billion in transfers during 2025.

That demonstrates that sanctioned actors can use digital assets to move substantial amounts of money.

Yet Iran also provides an important counterexample.

In July 2026, U.S. authorities identified four cryptocurrency addresses associated with Iran's central bank.

According to Chainalysis, those wallets had received approximately $165 million in stablecoins.

Their issuer, Tether, subsequently froze approximately $131 million.

The incident revealed a critical limitation.

Although stablecoins operate on blockchains, many are issued and administered by centralized companies.

Those companies can have mechanisms allowing them to freeze particular tokens or wallets.

A government may successfully avoid a traditional bank only to discover that its digital currency remains vulnerable to restrictions imposed by the issuer.

Cryptocurrency therefore does not necessarily eliminate reliance on intermediaries.

Sometimes it merely replaces one intermediary with another.

Bitcoin versus stablecoins: an important difference

Not all cryptocurrencies offer the same degree of independence.

Bitcoin operates on a decentralized network without a conventional corporate issuer that can unilaterally freeze coins across the network.

That can make it more resistant to direct transaction censorship.

But Bitcoin has a different weakness: volatility.

Its price can rise or fall substantially over relatively short periods, introducing exchange-rate risks for companies conducting international trade.

Stablecoins attempt to solve that problem.

Assets such as USDT and USDC are designed to maintain a stable value against the U.S. dollar.

They are therefore often more convenient for payments, invoicing and storing short-term liquidity.

However, their issuers and participating exchanges can be subject to regulation and sanctions compliance.

A stablecoin's reliance on dollar reserves may also connect it indirectly to the same financial system a sanctioned country is trying to avoid.

This creates a trade-off.

Decentralized cryptocurrencies can offer greater resistance to transaction censorship but introduce market volatility and liquidity challenges.

Major stablecoins offer relative price stability and easier settlement but may be subject to freezes and regulatory intervention.

Neither provides complete financial independence.

The transparency problem

Another misconception is that cryptocurrencies are inherently anonymous.

On most public blockchains, transactions are recorded on permanent ledgers accessible to anyone.

Users are represented by wallet addresses rather than personal names, but specialized firms can analyze transaction patterns and link addresses to exchanges, companies and individuals.

This has become a major component of sanctions enforcement.

Companies including Chainalysis and TRM Labs work with financial institutions and government agencies to identify suspicious flows.

Regulators can also impose restrictions on cryptocurrency exchanges, issuers and service providers.

For sanctioned entities, the consequence is significant.

A transaction may move without a traditional bank, but it can still leave an extensive digital record.

And once a wallet becomes associated with sanctioned activity, the recipient may struggle to convert its assets into usable currency through regulated services.

The Financial Action Task Force has documented growing misuse of virtual assets for sanctions evasion while also highlighting the increasing sophistication of monitoring and enforcement.

Cryptocurrency changes the enforcement challenge. It does not make enforcement impossible.

Can cryptocurrency protect an entire economy?

This is where Netanyahu's proposal encounters its greatest limitations.

There is a substantial difference between helping individual businesses complete payments and protecting an entire national economy from sanctions.

Modern economies depend on much more than moving money.

They require access to foreign investment, capital markets, commercial credit, insurance, shipping, technology and major export markets.

Consider an Israeli technology company facing restrictions from an important trading partner.

Even if the company could receive payment in Bitcoin, cryptocurrency would not necessarily restore access to foreign customers, semiconductor technology, investment funds or commercial partnerships prohibited under sanctions.

Similarly, an importer could possess unlimited digital currency and still be unable to purchase goods from a supplier legally prohibited from selling them.

The same problem applies to national borrowing.

International investors do not purchase government bonds simply because a country offers an alternative payment method.

They assess creditworthiness, political stability, legal protections and the ability to recover their investments.

Cryptocurrency cannot resolve those concerns.

Nor can it replace the economic value of maintaining access to major consumer markets.

If sanctions prevent a country from selling goods abroad, changing the payment currency does not restore demand or remove the legal prohibition.

This explains the Bank of Israel's position.

Cryptocurrency may facilitate certain payments, but it cannot reproduce the full economic benefits of unrestricted international financial relationships.

What the evidence actually tells us

The most useful distinction is between evading individual financial restrictions and neutralizing an entire sanctions regime.

The first is demonstrably possible.

Russia-linked payment networks have moved tens of billions of dollars through blockchain infrastructure.

Iranian entities have used cryptocurrency for cross-border financial activity despite extensive restrictions.

These are not merely theoretical capabilities.

But the second objective remains far more difficult.

Sanctions can target the participants in a transaction, the underlying goods, the financial intermediaries and the broader commercial relationships.

A blockchain payment solves only one part of that problem.

Moreover, large-scale cryptocurrency activity increasingly attracts the attention of regulators and blockchain surveillance companies.

Even decentralized transactions eventually intersect with businesses, assets and jurisdictions that governments can regulate.

The evidence therefore supports a limited but important conclusion: cryptocurrency can weaken certain financial chokepoints without eliminating the economic consequences of sanctions.

A new tool in economic warfare

The broader significance extends well beyond Israel.

For decades, Western financial power has rested partly on control over major currencies, correspondent banking relationships and access to regulated financial institutions.

Cryptocurrency introduces payment infrastructure that does not always depend on those traditional channels.

Russia and Iran have already demonstrated that this infrastructure can provide alternatives.

As stablecoins and blockchain-based settlement systems expand, governments imposing sanctions may find some restrictions more difficult to enforce.

But sanctioned countries face an equally important limitation.

Moving money is not the same as maintaining an internationally integrated economy.

Trade still requires willing partners.

Investment still requires confidence.

And economic prosperity still depends on access to goods, services, technology and markets.

Netanyahu's proposal has brought an increasingly important issue into public debate.

The question is no longer whether sanctioned countries can use cryptocurrency. They already do.

The question is how much economic activity those alternatives can realistically sustain.

So far, the evidence suggests that cryptocurrency is becoming a useful instrument of financial adaptation, not a comprehensive shield against international sanctions.

It may change how economic pressure is applied.

It has not made that pressure disappear.