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Cryptocurrencies have become a new tool of war

In the current war, both Russia and Ukraine have used cryptomonedas to impose sanctions, harm the adversary and obtain the necessary resources. La falta de regulación de este método de intercambio es su principal ventaja.

Russia’s difficult relationship with cryptocurrencies was further complicated during the aggressive invasion of Ukraine. Starting in 2022, Russia moved forward with a proposal to ban the use of cryptocurrencies in the country. However, in February, it did a complete U-turn by suggesting that its regulation might be a better alternative than banning them outright. The country’s hesitant attitude toward cryptocurrencies shows how this new technology strengthens and threatens the government’s prevailing interests. According to recent surveys, although cryptocurrencies are almost as popular as gold among Russian investors, Russians’ affinity for investing in digital currencies also poses risks to the financial system that the Kremlin is reluctant to tolerate.

However, recent events may present the most compelling case for the use of cryptocurrencies in Russian political affairs: as a new tool in conventional warfare. Since the invasion of Ukraine began on Thursday, February 24, in defiance of decades of international sovereignty norms, cryptocurrency has played an important role for both sides of the conflict, and even for those not involved. While the war has been fought primarily through conventional technologies (tanks, missiles, and troops on the ground), cryptocurrencies have played an increasingly key, non-violent role in the war. Cryptocurrencies have served as a new measure for Ukrainian defense; as an escape route for Russia while navigating overwhelming Western sanctions; or even as a tool for those not involved in the war to support Ukraine in the conflict. But these new interactions between money and war are likely to be temporary.

For one thing, cryptocurrencies have provided new ways for Russia to avoid the main global response to its attack: sanctions. Many commentators argue that the country has likely been developing this strategy in the years since it invaded Crimea. Individuals and companies targeted by sanctions can simply move their funds through crypto networks, which remain harder for governments to monitor and control, especially across borders. However, it is worth noting that this seemingly simple strategy is still fraught with difficulties. Indeed, Russia may be much better off if it continues its efforts to develop an alternative financial network that bypasses SWIFT (which is the global interbank financial network used to impose sanctions). But given the magnitude of wealth that Russia holds in the form of cryptocurrencies, it is very likely that digital money will play a significant role in future sanctions against the country.

In addition, cryptocurrency provides new attack vectors for the Ukrainian defense to counter-attack Russia. Recognizing the possibility of Russians evading sanctions through cryptocurrencies, Ukrainian authorities have publicly requested information on Russian politicians’ cryptocurrency wallets to monitor, disclose, and potentially intercept these attempts to avoid non-violent Western interventions. Two days after the start of the armed conflict, Deputy Prime Minister Mykhailo Fedorov sent out a tweet offering rewards for any information. The effort reflects not only the impressive capabilities of Ukraine’s “IT army,” which continues to grow, but also the vulnerabilities Russia faces in its efforts to use this technology as an escape route from global punishment for its illegitimate actions.

However, Ukraine’s cryptocurrency defense strategy does not stop with a call to arms for hackers. The country has also requested that major cryptocurrency exchanges freeze all wallets associated with Russian users. Fedorov even stated that it was crucial to “freeze not only addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” a suggestion that drew mixed responses from users of cryptocurrency sites. Cryptocurrency exchange operators are now in positions of power over the role of digital money in the current war. While a large number of these exchanges have begun to freeze Russian cryptocurrency wallets on their networks, some are reluctant, limiting their efforts to the minimum necessary to comply with sanctions. This development may be one of the most significant points of uncertainty surrounding the use of cryptocurrencies in warfare, as it highlights the extremely young and unregulated nature of the digital currency market, as well as the enormous power that these circumstances give to a small handful of large entrepreneurs.

Finally, digital money has also provided a new avenue for people outside the armed conflict to support Ukraine. In the early days of the war, small groups in the cryptocurrency community began organizing to send digital currency donations in support of Ukraine’s defense. Since the country’s president openly solicited “crypto donations” from a public wallet address, in a matter of days the fundraising effort has amassed more than $22 million in financial support for defense. While these numbers are insignificant compared to the billions of dollars in Ukraine’s defense budget and the magnitudes of funding Russia has at its disposal, the rapid accumulation of financial support for defense provided a compelling use case for the role of cryptocurrencies as a non-violent means. intervention in conventional wars by those not directly involved.

While cryptocurrencies have helped both sides in the current conflict, Ukrainian defense has undoubtedly benefited more than Russia from the new role of digital money in warfare, at least for now. These developments are due to two unique causes that shape the lessons we can learn from today’s examples. On the one hand, the unique technology of cryptocurrencies has paved the way for these new and creative applications of digital money in conflicts between states, especially the rapid settlement of payments, which are more difficult for governments to monitor and control. On the other hand, most of these events are due to the extremely early nature of cryptocurrency markets. The technological promises of digital currency are only getting attention now because there are few if any binding rules about how money moves through cryptocurrency networks and particularly how it crosses borders.



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