Russia-Ukraine War: The role of Bitcoin, Ethereum and cryptocurrencies
*Please note that any information in this article is not financial advice and for entertainment purposes only.
As the Russia and Ukraine war rages on, traditional financial instruments go haywire and struggle to keep up with the demands and activities of their users. Many people and organisations have thus turned to cryptocurrencies. While it is difficult to say whether cryptocurrency has benefitted the overall socio-economic and political landscape of the war, its deep involvement and the help it has provided to those suffering from the effects of war cannot be ignored. The fact that the once nascent industry has given rise to countless tools and pathways to empower individuals, groups and communities involved in this war speaks volumes about cryptocurrency’s power, utility and potential for future growth.
Cryptocurrency has allowed individuals and organisations affected by the war to receive financial aid in the form of cryptocurrency donations from anyone who wants to play a part. As of 10 March 2022, Ukraine has received close to US$100 million in crypto donations, according to Alex Bornyakov, Ukraine’s deputy minister at the Ministry of Digital Transformation and the de facto crypto spokesperson of the government. This money has massively aided Ukraine in her fight against the Russian invasion. Due to the permissionless nature of crypto, anyone around the world, from those living in third-world countries with inadequate financial tools to those in first-world countries, is now able to donate to the war efforts as long as they have a smartphone and internet connection. This global financial involvement in the war has never been seen before as those without a bank account were previously not able to send any funds to causes they believe in. As of now, according to the World Bank, 1.7 billion people around the world are still unbanked and would have been unable to do anything for the people suffering in Ukraine and Russia had it not been for cryptocurrency. But now, a large percentage of them now have the option to do so. Evidently, cryptocurrency has brought the whole world together, regardless of class, race, gender or identity, and empowered all of us to play our part and contribute to causes we each believe in.
On top of that, cryptocurrency, especially Bitcoin and Ethereum, provides a secure and anonymous peer-to-peer payment system without a third party. The cryptographically secure code for Bitcoin, Ethereum and Tether, gives people the peace of mind that their donations cannot be hacked or reversed once printed into a “block”. Without a middle-man, everyone is sure that their transactions are not vetted or seen by third parties such as governments or other individuals. Also, private keys for cryptocurrencies are not tied to any identity, and thus any transactions cannot be linked to individuals, as long as their private keys are not leaked to external parties. This helps maintain anonymity of those who want to send crypto to or receive crypto from anyone in Russia or Ukraine, who’s money and properties are frozen by their own central banks and other countries around the world. For those who want to send money in and out of Russia or Ukraine, be it donations, financial aids for family members and loved ones or to escape sanctions, the secure, anonymous nature of cryptocurrency that eliminates any middlemen are also why so many have turned to cryptocurrency in the midst of the fiasco.
Cryptocurrency’s decentralised and censorship-resistant nature is also on full display. Under global sanctions, Russia’s citizens, both the rich and poor, are turning to crypto. Crypto firms in the United Arab Emirates are getting flooded with requests to liquidate their crypto holdings. One request from a Switzerland broker reportedly involved liquidating 125,000 Bitcoins, worth around US$6 billion. Since there are no central parties governing the transactions of cryptocurrency, Russians who have had their foreign assets frozen by countries have turned to crypto for a way around the sanctions. Pro-Russian groups are also receiving crypto donations from around the world, even when other financial instruments in Russia are getting increasingly isolated from the outside world. Even in Ukraine, the central bank has suspended electronic cash transfers at the start of the invasion and is blocking Ukrainian citizens from withdrawing foreign currency for many types of transactions. As such, many have turned to crypto for international transactions. Ukraine ranks fourth, well ahead of the United States, in the Chainalysis Global Crypto Adoption Index, which measures a number of factors around crypto use.
Right now in Ukraine, the government is turning to crypto for donations to fund Ukraine’s war efforts. This has led to many crypto supporters singing praises for the power of cryptocurrency. However, one must also be aware of the other side, where concerns are being raised about Russia’s utilisation of cryptocurrency to circumvent sanctions and donations to pro-Russian groups. These have the potential to worsen the war situation, which is definitely unfavourable and should be avoided.
Current efforts to block Russia from cryptocurrency include crypto exchanges such as Coinbase or Binance blocking Russian accounts believed in being involved in illicit activities. According to Coinbase, around 25000 Russian accounts believed to be involved in illicit activities have been banned. However, these large crypto exchanges have ignored calls to ban all crypto accounts of Russian citizens. Coinbase CEO Brian Armstrong said in a series of tweets last week that “ordinary Russians are using crypto as a lifeline” after the ruble’s value plummeted as a result of economic sanctions imposed by the U.S. on Russia. Shutting down Coinbase’s trading platform in Russia would hurt ordinary Russians, many of whom don’t support the war, he said. These exchanges will, however, freeze the trading activity of any Russian national that the U.S. places on its sanctions list, including Russian oligarchs.
To address the potential for Russian oligarchs to use cryptocurrency to circumvent sanctions, Coinbase CEO Brian Armstrong tweeted “That being said, we don’t think there’s a high risk of Russian oligarchs using crypto to avoid sanctions. Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using U.S. dollars cash, art, gold, or other assets.” Cryptocurrency’s public nature allows for irrefutable proof of transactions, which may discourage Russian oligarchs from using crypto as a way to circumvent sanctions for fear of being caught.
Some may argue that cryptocurrency is good as it has helped Ukrainians in various ways. Some may argue that cryptocurrency is bad as it has aided Putin in his brutal invasion of Ukraine. However, what is clear is that cryptocurrency has liberated individuals from the control of governments and powerful organisations. Cryptocurrency’s role and effects in this war has shown crypto’s power and how it empowers individuals, groups and communities by providing them with financial tools that are absent in traditional financial institutions. Whether cryptocurrency has made the war better or worse is difficult to debate, although it is apparent that measures are being implemented to maximise the benefits while minimising the potential costs. At the end of the day, cryptocurrency gives us freedom and power and will likely not go away anytime soon.
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