In the past, wars were fought through actual physical combat. With the development of military technology, this turned into wars fought over distances with long-range missiles and more dangerously in some cases, nuclear weapons. The tragic and senseless cost to human lives is something that is still very fresh in our minds, if not still being experienced by many across the globe.
Meanwhile, many countries have come to realise they cannot exist on their own- they have something they need and can also offer something in return. As a result, international trade is always on the rise and globalisation is bringing the world ever closer together. Therefore, nowadays when countries are in a dispute, violence is rarely the immediate solution, especially as it inevitably results in the loss of human lives. Instead, countries engage in economic warfare through increasing tariffs or other economic sanctions.
Now with cryptocurrencies, people are gradually recognising their attributes of convenience and cost-effectiveness, without the usual delays and paperwork bogging it down by banks or financial institutions. And an increasing number of people are adopting cryptocurrency as a viable method of sending funds across borders. At the same time, cryptocurrencies are also being used to aid or hinder nations in the midst of conflict. In particular, in the current Russian invasion of Ukraine, we can see how cryptocurrencies are being used as a weapon in war. This article will explore the unique use case of cryptocurrency in war.
On 24th February 2022, Russian President Vladimir Putin ordered a full-scale invasion of Ukraine. Whilst there have been tensions between the two countries, Putin’s invasion of Ukraine came as a surprise even to many Ukrainians, who did not expect Putin would actually drop bombs over their major cities.
As a result, Ukrainians had to quickly mobilise their forces to protect their country. At the same time, many locals and people from around the world turned to utilising the power of cryptocurrencies to assist Ukraine. On the other hand, facing increasing economic sanctions and bans by nations and private companies as a sign of disapproval towards this invasion, many Russians are turning to cryptocurrencies as an alternative.
Two days after Putin commenced the invasion of Ukraine, Ukraine’s Vice-Premier Mykhalio Federov posted Bitcoin and Ethereum wallet addresses on Twitter requesting cryptocurrency donations.
Later, more currencies including Dogecoin were added, as Federov said on 2nd March 2022, “We start to accept donations in meme coin. Now even meme can support our army and save lives from Russian invaders.”
According to the Ministry of Digital Transformation of Ukraine, they have so far received over US$70 million in cryptocurrency donations. This does not include the many NGOs (Non-Governmental Organisations) that have set up their own cryptocurrency fundraising initiatives. A report by Yahoo! Finance states that of the funds received, 69% went to military support, 19% for humanitarian aid, and 12% for general aid.
Alex Bornyakov, Deputy Minister of Ukraine’s Ministry of Digital Transformation, believes that in times like the existing crisis, a quick response time is crucial, which cryptocurrencies are able to fulfill, “The National Bank of Ukraine created a fiat fund, but with the time and speed of a regular banking system, it was impossible to finance important things for the army. Crypto plays a role to get this flexibility when we really needed to respond quickly to deliver the army with its required supply”.
As a result of the huge influx of cryptocurrency donations, Ukrainian President Volodymyr Zelensky swiftly signed legislation legalising the use of cryptocurrencies in Ukraine. This legislation essentially permits foreign and Ukrainian cryptocurrency exchanges to operate legally in Ukraine and banks will be able to open accounts for crypto business-related companies.
However, whilst cryptocurrencies offer faster transaction times, not all businesses accept crypto as a payment method. Currently, the Ukrainian government converts the donated cryptocurrencies into dollars or euros through Ukrainian exchange Kuna, which it has partnered with to also act as a custodian of the funds. So for firms that do not accept cryptocurrencies as a payment method, the crypto assets are sent via Kuna into the conventional banking system for onward payment.
As a result of all this, Ukraine now ranks 4th in the world in crypto adoption.
Whilst cryptocurrency donations are pouring in globally, there are others who are utilising their artistic skills to show their support for Ukraine. NGOs such as Save the Children are reporting receiving a huge number of inquiries from artists wanting to create an NFT to benefit Save The Children’s response in Ukraine.
Meanwhile, Vogue Singapore and Vogue Ukraine have collaborated on an NFT collection known as ‘Fashion for Peace‘. The collection features 6 Ukrainian fashion designers who have contributed artworks, photographs, and illustrations celebrating their home country and culture. 100% of primary sale proceeds from this collection will go towards Save the Children to support their humanitarian relief efforts in Ukraine.
Other collections include Vandalz for Ukraine: Wladimir Kiltschko x WhIsBe, a collaboration between Wladimir Klitschko, Ukrainian heavyweight boxing champion, and contemporary artist WhIsBe. 100% of the sale proceeds from this collection would go directly to Red Cross Ukraine, UNICEF Ukraine, and other Ukrainian relief funds.
Russians turn to cryptocurrencies amidst sanctions
Meanwhile, Russians are facing sanctions from other countries and businesses as a result of its invasion of Ukraine. Most notably, Visa and Mastercard had swiftly suspended their services to Russians. As a result, ordinary Russians are resorting to cryptocurrencies as their own currency collapses under the brunt of economic sanctions and bans.
However, Acting Director of the US Financial Crimes Enforcement Network (FinCEN) Him Das issued a statement that they have “not seen widespread evasion of our sanctions” via cryptocurrencies. According to analysts, this is because wealthy and well-connected Russians often have a web of companies through which they sift funds and cryptocurrencies might not form a huge part of this web. Therefore it is mostly average citizens or small businesses that are turning to crypto instead.
But based on the situation in other countries, avoiding sanctions using crypto has been seen to happen on a small scale over a long period of time. For example, blockchain analysis firm Elliptic has found that Iran has used Bitcoin mining to bypass embargoes imposed upon it by the US. At the same time. Chainalysis has found that North Korea has hired hackers to steal around US400mil in assets from different cryptocurrency exchanges.
In any event, Russia’s embargoed but wealthy persons of interest could also instead divert money through smaller cryptocurrency exchanges with fewer compliance protocols or scrutiny. Taking it further, these exchanges might even be cooperating with the interested persons and/or their money-laundering or ransomware schemes. In 2021, the US already sanctioned 2 exchanges on allegations of facilitating ransomware transactions.
Regulation of cryptocurrencies?
It is ironic that failing to prevent Russian oligarchs from using cryptocurrencies to dispose of their millions around the world may result in tighter regulations on cryptocurrencies. Matt Weller, Global Head of Forex.com has highlighted this dilemma, “Those are the main two competing factors: The ideological-utilitarian perspective on the benefits of crypto assets versus the financialized investment component. Those are sort of pushing in opposite directions.” An example of this ironic dilemma is Nadya Tolokonnikova, Co-founder of the Russian music group Pussy Riot. By being Russian, she would be the subject of any sanctions against Russian crypto even though her intentions were to raise money for Ukraine.
But as cryptocurrencies can be sent peer to peer, even if it is decided to regulate cryptocurrencies, the next logical dilemma would be how to implement these sanctions. In Ukraine, Bornyakov has started to reach out to major cryptocurrency exchanges encouraging them not to work with Russian customers temporarily. According to Bornyakov, some exchanges have indeed stopped working with or have limited their activity with Russia. Yet, according to Investors.com, TRM Labs recently have identified 340 crypto businesses with strong connections with Russia that is considered high risk such as lesser-known OTC trading desks.
Another issue is decentralisation, whilst it is a huge benefit of cryptocurrencies, it means that there can be no control over how it is used. According to Tom Robinson, Ellipctic’s Chief Scientist and Co-founder, “Because there is no central controller who can impose their morals on its user, crypto can be used to crowdfund for the Ukrainian army or help Russia evade sanctions…no one can really prevent it from being used in either way.”
World’s first crypto war
Cryptocurrency adoption is currently at unprecedented levels, and the current war between Russia and Ukraine has pushed adoption even further. As a result, mainstream media such as the Washington Post has gone on to dub this conflict “the world’s first crypto war”. How this conflict will play out is unknown, but it is clear that the unique features of cryptocurrency such as its convenience, speed, and decentralization is quickly being recognised by people who are certainly warming up to the idea of adopting cryptocurrencies in their daily lives.
The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal,vor tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action. Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur.
Disclosure: Authors are invested in cryptocurrency projects and have cryptocurrency holdings – including those covered on this website.
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