A closer reading of any war will tell that there is no certain right or wrong side, however one thing which is certain is destruction. We live in a time when the largest country in the world is attacking its neighbor. This time however there are certain things which are new to the war zone and one of them is Cryptocurrency.
With cryptocurrency becoming mainstream in the global financial systems, the effect is that cryptocurrency has invariably become a part of the Russia-Ukraine conflict. As of 10th March, over $53 million worth of cryptocurrency has come into Ukraine to support its army and techno-hacker community. With even the Ukrainian Government, soliciting and officially accepting donations in cryptocurrency. Ukraine being under siege from Russia has forced its financial institutions to freeze bank accounts to prevent Russia from pouring in more money to the rioting groups. With these limitations in place, Ukrainians have turned to crypto as an alternative with the persistent fear being that at a time when governments are in disarray, how can national financial institutions be trusted. Crypto makes perfect sense as an anonymous, free and global system.
Anonymity is an important trait with crypto, as cryptocurrency can’t be censored, suspended and can be used without any identification. Just like with everything, cryptocurrency is a double-edged sword and its use in times of crises is being debated. At a time when the world is being disrupted, do we need another disruption?
Weapons, though, are as available to the ‘bad guys’ as they are to the ‘good guys’. Russia has been masterfully using/ misusing crypto to bypass sanctions which are being imposed by opposing countries. Almost 75% of the money made through ransomware and crypto went to Russia. With Russia having one of the largest hacker communities in the world, cyber warfare is also an increasing risk, reminding the world that although crypto is anonymous, it isn’t foolproof.
Supporters of cryptocurrencies would often remark crypto as ‘digital gold’ but common knowledge tells us, Cryptocurrencies are extremely volatile. And in these times of uncertainty, they’ve lost and gained a lot of their value, questioning their relevance. Be that as it may, is it the easiest way to get anything close to money in wartime, is it better than zilch?
A lot of fleeing Ukrainians are taking their crypto in the hopes of converting them back to fiat when they are at a safer place, while other Ukrainians are looking at crypto to store their wealth as economies collapse.
However, there are certain challenges too. An internet enable device is the first challenge and an extremely steep learning curve is the other. Availability of crypto has also started becoming a problem.
Cryptocurrency was legalized by the Ukrainian Parliament in February, which means that millions of Ukrainians hold cryptocurrencies. Making it the 4th largest country in terms of crypto adoption. As the conflict continues and the global support for Ukraine grows, a lot of QR codes and wallet addresses are being circulated from Ukraine for donations. With the Ukrainian Government having used $15 million from cryptocurrencies to amp up their military, a lot of planning actually remains to be done as to how to handle the incoming cryptocurrency.
Russia is one of the hypocenters of cryptocurrencies. Economic sanctions like banning them from SWIFT, freezing assets don’t affect Russia as terribly as they used to. Russia has increasingly shifted to crypto. With talks of developing a digital Ruble in place, Russia is also preparing itself. And sanctions could easily be circumvented using cryptocurrencies. The US and Ukraine have taken this game changer into consideration and now are thinking how to cut that nerve. But cutting that nerve could be very different and difficult than how traditional war works. Russia is the world’s third largest bitcoin miner and origins of these miners and owners are hazy and often unknown. It might not be realistic or feasible. Pro-Russian separatists have been receiving donations too, which is the fact of the matter.
Digital gold? Diversification in your portfolio? Only a limited number of bitcoins in the world? Hedging? We’ve heard all of these arguments when crypto enthusiasts talk. However these arguments haven’t seemed to hold true when it mattered, in a wartime. Bitcoin has started acting like stocks do, with them being even more volatile.
Russia claims to have more than $200 billion worth of crypto. With Russia’s invasion of Ukraine being called “The world’s first crypto war”, crypto is hands deep in the war. Granted, there are a lot of scams happening in the name of donations too. But there have been tangible benefits too. We necessarily don’t know if crypto is going to help or hurt, but it’s surely here to stay. With people around the world starting to use crypto not just as a currency but a humanitarian tool, are we moving towards a different unimagined world of which we know frighteningly little?