Crypto Economic Warfare
I have to start this by saying — the war currently being waged by the Russian military in the sovereign nation of Ukraine is appalling and condemnable. My heart goes out to all the innocent citizens whose lives have been lost or disrupted, all the families being torn apart and all those who, though not in immediate danger, are being affected in one way or another.
As with all tortuous times that we’ve gone through as humankind — as with the pandemic, the great recession, civil wars in Liberia and the United States, hurricanes, tsunamis and genocides — through the pain, the fear and the uncertainty, we have always come away with learning and new ideas that make us ever more resilient in the next step. With the understanding that this ongoing war is still very real, very wrong and very painful for Europe and the world, let’s start digging into the lessons we are already learning and the advancements it is forcing us to make quickly as we push forward.
Implications for Cryptocurrency Adoption
Long before the invasion was launched, Ukraine was well on its way to being a big player in the crypto industry. With a youth-led government and a tech-savvy population, the country was a fertile nesting ground for rapid development. In 2020, the Global Crypto Adoption Index reported by Chainalysis noted that Ukraine had the most active base of digital currency users, transferring up to $5million in crypto through small businesses each week.
The country, through its Ministry of Digital Transformation established in 2019, has its own crypto exchange, known as Kuna. Thanks to the work done to get them to that point, on just the second day of Russia’s invasion, the Ukrainian government was able to open up official wallets to receive crypto donations from the public to support their citizens and troops through the crisis. In just the first 10 days, over $54 million dollars worth of bitcoin and other cryptocurrencies were received, and double that at time of writing. Lots of players in and around the crypto industry — the likes of PleasrDAO, Times Magazine and OpenSea — have also chipped in to provide assistance through NFT exchanges and fundraising. Thus far, most of the funding has been used to purchase gear and equipment for the soldiers fighting to protect Ukraine. In comparison to the slow and problematic traditional methods of receiving military and humanitarian aid during war crises, crypto donations have proven to be much more efficient in getting quickly to where it’s most needed.
Even after the sharp dives that all financial markets have seen over the past month from the start of the invasion on February 24th, Bitcoin has quickly rebounded by over 14% since then. Ether, by over 13%. In comparison, according to Reuters, the S&P 500 has risen by only 3.2%.
In another realm of blockchain applications not solely focused on immediate financial gain, the government of Ukraine intends, at some point after the war, to release a series of NFTs under the title “Meta History: Museum of War”. In this collection, a different token will be created for every day of the conflict, each representing an important news story of the day — this, according to the Financial Times. This is just another example of how pain and uncertainty can birth novel ideas across multiple industries. We may very well be witnessing the origin of a new form of national historical archiving, commemoration and sharing.
The Flipside of the BitCoin
Although there is clearly a world of good that can be done, there are, of course, also concerns over how “the other side” might be using the perks of crypto to their advantage, moving funds under the radar and in defiance of the heavy sanctions placed on their country and its supporters by the West. An article published by Coindesk in September of 2020 noted that both Ukraine and Russia were leading the global market with cryptocurrency uptake. This means that while the Ukrainians were busy putting their funds into crypto investments and finding ways to use it to stabilize their economy, Russians were also engaging in frequent transactions and finding ways to implement digital currency in their own economy. By late 2021, there was a completed prototype for a digital version of the Russian ruble and in the days leading up to their invasion of Ukraine, there were still ongoing talks regarding a pending crypto bill that would regulate how it is managed. Since transactions on the blockchain are anonymous, this begs the question of just how much currency Russia may be HODLing or moving around on it, out of sight of international regulators.
The growing fears and lack of answers to this question has led many groups to push for all of Russia to be blocked from crypto platforms. Now, there are multiple ways to look at the possible outcome of this issue:
On the one hand, there is a possibility that Russians targeted by sanctions will be able to find a safe haven on the blockchain to transfer their money. In a fully decentralized world, what would the ramifications be if sanctions could not be placed effectively to deter nations or governments from wrong-doing? Just as well, while European nations hold talks about potentially de-investing in Russia’s economy in the long term, there is a secondary notion that pushing autocratic nations out of the global economy will only encourage them to ultimately develop an alternative economy of their own, which their enemies could not control. We can always debate at another time whether the benefits of having such a development made on the blockchain would outweigh the negative impacts it would certainly have on world order.
On the other hand, the ability to block a certain subsection of the population from access to the blockchain at will seems to violate the foundational decentralized nature of the system. If at any given time, “owners” can step in and influence public access, then how is crypto any different from traditional banking? In the same vein, though these sanctions are aimed at Russian government officials and the oligarchs that support them, they also greatly and negatively affect ordinary, innocent Russian citizens who may themselves be completely opposed to the war. Should they really be penalized based on their place of citizenship by having the one chance at saving their livelihoods removed?
In the current situation, what we have seen is governments and agencies reaching out to request that the various decentralized exchange platforms comply with sanction mandates from the West. While these exchanges are not currently regulated by any central bodies and therefore not obligated to fulfill such requests, the idea of blatantly going against international agency mandates and decisions, even out of principle, doesn’t quite sound like the right course of action for a platform that’s still struggling to be accepted into the mainstream economy.
Conclusion
Even with as much physical pain and wreckage that has been brought to Ukraine since the start of the invasion, this is in fact being fought as an economic war. For fear of triggering World War 3, no outsider countries dare to get physically involved in the fight, and so the strongest approach they can have is to cut the aggressor off by the drawstrings of its change purse. Maximillian Hess of the Foreign Research Policy Institute himself called these the “Most significant geo-economic moves in post WW2 history”.
The ongoing questions, forced decision-making and rapidly unfolding events will undoubtedly lead to accelerated policy creation out of sheer necessity. How long can crypto exchanges hold out from picking a side and taking a defined stance on politics vs decentralized principle? Well, that’s the million dollar question.
