The Two Sides of the Cryptocurrency in the Russia-Ukraine War

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Ever since Russia invaded Ukraine, cryptocurrencies have made headlines. As the Ukrainian government and NGOs collect crypto donations to help Ukraine distribute and push back emergency resources against Russia, there are also fears that Russians with deep pockets, especially those closely linked to Putin, are trying to evade the impact of Western sanctions. by using cryptocurrencies.

Both economies have quickly embraced digital money to gain a competitive advantage over the other in this geopolitical showdown. For the first time, the world is witnessing the power of blockchain technology on a large scale. It’s also the first time we’ve witnessed crowdfunding efforts for a defense application.

To date, the Ukrainian government has received more than $50 million in money crypto donations in BTC, ETH, USDT, DOT, TRX, DOGE and several other ERC-20 tokens.

Can Russia actually use crypto to evade sanctions?

Crypto is intended to be a decentralized asset, free from the whims and fantasies of governments and central banks. While it can be used as a weapon against dictatorship and oppression, it can also be used to fund warmongers.

Russia stares at economic collapse as it faces a series of coordinated sanctions from western countries; it has been removed from the global SWIFT banking system, while third-party payment service providers such as PayPal, Visa and ApplePay have cut ties with Russia, forcing ordinary Russians to look for alternative financial solutions.

The internet right now is full of opinions about the fair use of crypto. “Since there is no central controller to impose their morals on the user, crypto can be used to crowdfund the Ukrainian military or help Russia evade sanctions,” said Tom Robinson, chief scientist and co-founder of crypto analytics firm Elliptic. “No one can really prevent it from being used in any way.”

On the other hand, crypto industry leaders such as Binance founder CZ (Changpeng Zhao) believe that there is no way blockchain can be used by anyone to evade sanctions as all transactions are recorded in distributed public ledgers.

The ethical threat

While it is awe-inspiring to witness the incredible unity among the global community, the fact is that a large portion of these donations will be used to directly fund the Ukrainian military and hacktivists. Since Bitcoin or any other cryptocurrency can be sent and received anonymously, it can and is used to raise money for purposes that traditional fundraising platforms do not allow.

This raises a critical question: is it moral to use crypto to raise money for war?

Right now, the answer depends on who’s holding it and how they want to use it. The Ukrainian government and NGOs like Come Back Alive have been pretty clear that the funds will directly support the Ukrainian military. People who have donated know what they are doing and how their donations are being used.

However, it should be noted that the few million dollars raised independently pale in comparison to the $650 million worth of weapons the Ukrainian government received from the US government earlier this year.

Does crypto really help ordinary Ukrainians?

For now, at least some Ukrainians fleeing their country are pinning most of their hopes on cryptocurrencies, and plan to convert them to fiat currencies once they reach a more secure destination.

Ukraine has limited fiat transfers and withdrawals (as does Russia). As a result, cryptocurrencies are a financial escape route for the average citizen. While cryptocurrencies may not help fully revitalize both countries’ crashed economies, they will certainly act as a buffer for thousands who have lost their homes and savings.

On the other hand, using crypto in the midst of a crisis is not an easy task. Not only do you need a working device and an internet connection, but they also need to have a basic understanding of how to operate wallets and the blockchain in general – the latter is a major problem for the majority of the population.

Given these limitations and the growing presence of capital controls, crypto is only useful to Ukrainian and Russian citizens who already own it. For Ukrainians, this could potentially mean billions of dollars worth of crypto, especially as the country has aggressively promoted crypto in recent years and is one of the leading users worldwide. It is estimated that nearly 5.5 million Ukrainians already own crypto, accounting for more than 12% of the country’s population, not to mention the technology and development communities that reside within its borders.

The Russian crypto riddle

On the aggressor side, while the Russian Central Bank isn’t much of a fan of crypto, the Russian government certainly had a soft spot for it given its high percentage of local ownership. Unclear regulations have not deterred adoption within its own borders, and it is estimated that nearly 12% of Russia’s population, or 17.3 million people, own cryptocurrencies.

This does not necessarily mean that it is an exit strategy accessible to everyone. While centralized exchanges like Binance and Coinbase have tried to keep crypto channels open to Russians, especially ordinary citizens seeking a financial lifeline, efforts to track down malicious actors are already underway. Coinbase, in accordance with US law, has blocked more than 25,000 wallets belonging to Russian users related to “illegal” activity, and is proactively monitoring its systems to deter attempts at sanctions evasion.

Crypto is not the unsung hero yet

And so it may be premature to put crypto on the “savior” pedestal given this reality. There is no doubt that crypto is playing an outrageous role in the unfolding dynamics of this conflict, but it is not a panacea. While it showed it could be a temporary buffer for many ordinary people, underscored by its widespread use in both countries, it’s a bit, well, pretentious to characterize it as a lifesaver in a sea of ​​turmoil.

Sadie Williamson is the founder of Williamson Fintech Consulting.

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