Since their emergence, cryptocurrencies have continued to solidify their position in the financial system. And, despite fluctuations in their value, their popularity worldwide has soared as many have invested in the many different cryptocurrencies that have popped up since Bitcoin. Facing its first significant conflict in the Russia-Ukraine crisis and at a time when regulating digital assets is a topic, cryptocurrencies are currently facing a major hurdle which will either make them more popular, or it will be the start of their fall.
In the context of Russia invading Ukraine in the middle of the first quarter of 2022, cryptocurrencies have acted as a cushion for those affected by the conflict. For instance, Ukrainians who have faced limits in accessing their accounts in their local financial institutions have shifted to cryptos as alternatives. As is the case with major conflicts, affected economies face internal sanctions to avoid further conflict internally.
The time taken to do a cryptocurrency transaction is as well shorter when compared to a wire transfer or going to a brick-and-mortar financial institution which will face long queues. As Illia Polosukhin, a co-founder of the blockchain company Near, recently stated that a bitcoin transaction takes 10, 20, 30 minutes versus a wire transfer that might take two or three days, and you can’t be sure of that—by then, the Russians might have bombed the national bank.
Through cryptocurrencies, Ukrainians could receive donations faster as they helped those directly affected by the ongoing war by ensuring that necessities and healthcare were readily available. Millions of dollars in crypto have continued to support the Ukrainian forces. Thanks to the characteristics of cryptocurrencies, those in support of Ukraine in Russia have been able to donate, giving rise to the digital assets being dubbed humanitarian tools.
According to Alex Bornyakov, Ukraine’s deputy minister of digital transformation, at the start of March, when the war was in its starting stages, about $100 million had already been sent to support Ukrainians. Taking note of its importance, the government started to accept cryptocurrencies and thus, it created a website to centralise its crypto-based fundraising effort. However, even though millions are going through crypto, its share is still tiny compared to donations using other mediums of exchange. Also, the number of those with the technical know-how of cryptos is still small, contributing to the small share of financial assistance. However, this has not halted the government from setting aside a portion of the donations received in cryptocurrencies to cover those businesses accepting cryptos as payment; the rest is converted to different physical currencies.
As crypto has been hailed as a vaccine to the new pandemic that is the conflict, its dark side has also become apparent; the same things that make it appealing to the invaded are appealing to the invaders. With Russia facing several economic sanctions from those countries and blocs that support Ukraine in the conflict, access to global financial and payments markets have been greatly affected. As a result, Russia is in a position to employ the use of crypto as a way around the sanctions to move money undetected.
With some of the platforms being used to move cryptocurrencies and identify Russian users’ addresses, Ukraine and its supporters have asked them to be blocked to control their use. However, not all platforms confirm the identity of their users, as well as some venues are in different countries that do not have to comply with the sanctions placed. Furthermore, Russia is recognised as the world’s third-largest bitcoin miner; thus, denying access to crypto for the country is impossible as it would significantly affect the value of cryptos. Thus, there is currently nothing in the way of Russians, in support of the conflict, from bypassing and accepting funds through cryptos.
With a high number of sophisticated online users, as evidenced in the early stages of the conflicts whereby Russian hackers attacked Ukrainian institutions wiping data and causing electricity and communication shut-offs, they can target beginner online users looking to cryptos as a way of storing their value. In doing so, these hackers can target many ordinary users, increasing their funds while reducing the funds for the invaded.
As the conflict rages on, cryptocurrencies are a double-edged sword as they seem to continue assisting both sides. Nevertheless, cryptocurrencies have shown their potential in times of conflict while at the same time identifying where they are lacking. For progress to occur, there is a need to identify the current weaknesses, such as holding information on users using cryptocurrencies. Cryptos are not on either side of the Russian-Ukraine conflict; they are smack in the middle of it. (
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