A very 21st-century conflict is deepening between Ukraine and Russia, defined not just by military might and geopolitics, but also by social networks, the control of information, and cryptocurrency.
Russia's recent invasion of Ukraine has seen both sides embracing cryptocurrency, leading some to dub the conflict the “world’s first crypto war.” Like many features of the invasion, it's unclear how this striking aspect of the conflict will unfold.
The Ukrainian government is directly asking for donations in Bitcoin, Ether, and Tether, already raising the equivalent of $35 million in cryptocurrencies. Some people are also sending valuable NFT “artworks” to the Ukrainian government’s wallet.
Beyond governments, the people of Ukraine are also using crypto to their advantage. The Ukrainian central bank suspended electronic cash transfers and ATMs were overrun after conflict broke out last week, leading many people to opt towards the use of cryptocurrency. Crypto-advocates believe this could benefit Ukrainians dealing with the immediate crisis at hand, but it may also help them secure their wealth in the long term.
“Cryptocurrencies have also been used to support Ukrainians to buy crucial goods and services when there is no cash in ATMs and critical infrastructure has been damaged by Russia’s attacks. Concerned friends and family abroad can send money to their loved ones across borders using cryptocurrency,” Ian Taylor, Executive Director of Crypto UK, said in a statement sent to IFLScience.
“With the likely collapse of the Ukrainian economy as this conflict continues, crypto provides a way for people to protect their investments so that, for example, their pensions aren’t eroded. It can also be used to bypass capital controls so that people have control over their own money. Crypto is trustless and provides financial sovereignty whether that’s from a failure of infrastructure due to war or from a mismanaged economy,” Taylor explained.
On the other hand, cryptocurrency could also be exploited by the Russian government.
Mykhailo Fedorov, Vice Prime Minister of Ukraine and Minister of Digital Transformation of Ukraine, asked all major crypto exchanges to block the addresses of Russian users. However, Coinbase and Binance have rejected the calls to impose a blanket ban on Russian accounts.
Both exchanges have said they are blocking accounts and transactions that involve sanctioned individuals, such as blacklisted oligarchs and politicians, but they were not willing to block the accounts of ordinary Russian citizens.
“To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists,” Binance told CNBC. It’s noteworthy, however, that Binance has donated $10 million to help the humanitarian crisis in Ukraine.
Some commentators have speculated that the Kremlin could utilize cryptocurrency to bypass the sanctions that have been imposed by the European Union, the US, the UK, Japan, Switzerland, Australia, Taiwan, and others. Others believe that it’s not as simple, contending that Russia is too deeply embedded with the established financial system to avoid sanctions with ease.
“It is very difficult to move large amounts of crypto and convert it to usable currency,” Ari Redbord of TRM labs, a blockchain intelligence company, told Al Jazeera. “Russia cannot use crypto to replace the hundreds of billions of dollars that could be potentially blocked or frozen.”
Love it or loathe it, it appears this conflict is showing how cryptocurrency is fulfilling its promise to allow people to transcend the traditional financial systems. Whatever side you're on and whatever your ethical stance, it's clear also that cryptocurrency is becoming an inseparable part of the wider world; the good, the bad, and the ugly.