Can hardware cryptocurrency wallet makers block access for Russians?

“Curtsey to the regulators.” How the new sanctions will affect hardware wallet users

10.10.2022

171

5 min

As part of the eighth package of sanctions by the European Union, Russian users were finally banned from conducting any transactions and storing cryptocurrencies in the wallets of operators working in EU countries. While online services are already beginning to implement the blocking, the impact of the restrictions on the operation of hardware cryptocurrency wallets, developed by European companies, remains questionable.

The most recognizable brands in the hardware cryptocurrency wallet market are France's Ledger and Trezor, which is backed by Czech-headquartered Satoshi Labs. In March, it was reported that Trezor devices officially ceased to be supplied to Russia, but the list of official dealers on the manufacturer's website includes one of the Russian online stores, and the Trezor One wallet model is available for order in its catalog.

As for Ledger, the company officially sells its devices through the Russian representative office of Ledger Russia on the marketplaces Ozon and Wildberries, as well as through authorized dealers. Neither company made any statements after October 6, when a new package of EU sanctions came into force. At the end of September, experts noted an increase in device sales on Russian marketplaces.

Ledger wallet line on Ozon Marketplace

Source: Ozon.ru

Cryptocurrency services are already implementing blocking. Accounts of Russian users begin to close the P2P platform LocalBitcoins, registered in Finland. NFT-service Dapper Labs, the developer of blockchain FLOW, announced freezing of the wallets of Russian users, citing the fact that one of the European partners of the project is forced to comply with sanctions.

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Theoretically, the official cryptocurrency wallet software may restrict Russian IP addresses, admits Roman Nekrasov, co-founder of ENCRY Foundation. “But this is easily evaded, and in general it looks only as a curtsey to the regulators,” the expert explains, specifying that where there is an interface solution for access to the wallet and blockchain, there is always the possibility of censorship.

Similarly, if web interfaces of decentralized exchanges (DEX) or DeFi-services are blocked by regulators, it will remain possible to use the services due to the fact that they operate on decentralized smart contracts that are not influenced by a single authority. Nevertheless, the European Commission has already announced that it is looking for a contractor to regulate and monitor the DeFi market in real-time mode.

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Any hardware wallet has the ability to unload a seed phrase, which means the user can open his/her wallet on absolutely any device and dispose of assets, explains co-founder of Berezka DAO and Weezi Roman Kaufman. According to the expert, sanctions may be applied to the region where the devices are sold, but this can be easily bypassed by purchasing a hardware wallet on the territory of those states where it is possible. Kaufman admits to suspending distribution of hardware wallets amid the sanctions, but argues that technical restrictions on their operation cannot be made at this time.

“I doubt that all manufacturers will stop supplying. There will always be some wallets imported in parallel from Armenia or Kazakhstan,” Nekrasov believes. Representatives of the official resellers of Ledger and Trezor wallets did not respond to GetBlock Magazine's request via contacts posted on the websites of the online stores.

The refusal to distribute the devices in the Russian Federation carries risks for customers. When buying hardware crypto wallets by hand or from unauthorized dealers, there are cases of modification of the built-in software for further theft of the new owner's assets.

“You should not buy second-hand hardware wallets, it's just the ABCs of crypto investing,” warns Nekrasov, explaining that buying second-hand hardware wallets threatens a complete loss of funds, because no one knows what the previous owner put into the software of the device. In his opinion, it is better to buy hardware wallets abroad if possible, because in Russia, there are cases of coins being stolen from hardware wallets purchased from “officials.”

The increased demand for hardware wallets often results from high-profile events both in the crypto sphere and in global markets. When Celsius froze tens of millions of dollars in user funds on June 13, Ledger noted a 4,5-fold increase in device sales. In September, a representative of marketplace Ozon told Kommersant reporters that hardware wallet sales had more than five times increased in the first half of 2022 compared to last year. M.Video-Eldorado also noted that device sales peaked in March “with a dramatic, times increase” over last year.

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