During what has been a whirlwind two years for crypto, marked by exponential growth and mainstream adoption, one often overlooked aspect has been the technology’s underlying ethos.
Cryptocurrency was founded on the ideas that the assets must be financially decentralized and that blockchain technology is inherently politically neutral. While these themes have not been lost among the community’s more devoted members, they have not been primary narrative themes in the 13 years since Bitcoin’s genesis block was mined.
That is, of course, until Russia’s invasion of Ukraine happened, and the role of money as a tool of war in great power politics was illuminated for all.
Yes, the COVID-19 pandemic did serve as a major paradigm shift for crypto in 2020, increasing its popularity as a tradeable asset and store of long-term value. On the other hand, it did not significantly disrupt the ethos.
Russia’s invasion of Ukraine in February 2022, however, and the economic ramifications that followed, have shined a spotlight on the role of crypto in society that’s simply too bright to ignore. The stakes are significantly increased for Bitcoin and other assets, which have become vessels for political and economic freedom. With that, crypto and blockchain could be headed for a major inflection point.
Why is crypto significant to the crisis?
The economic factors that have injected crypto into the Russia-Ukraine conflict are two-fold. On one end, crypto’s identity as a trustless (i.e., third-party free) form of currency has been magnified on both ends of the battle. For Russian citizens, this means using crypto as a monetary lifesaver against the crumbling ruble. Already in a decline since 2014, the Russian economy has been hit hard with global sanctions brought on by the invasion, the effects of which have crippled its businesses and markets, as well as frozen assets.
As for Ukraine, citizens are increasingly trading in crypto as their nation’s currency, the hryvnia, continues to depreciate. Moreover, digital assets have served a major role in international relief efforts, as roughly $100 million in crypto donations have been crowdsourced. The funds have mainly been transferred to Kuna, Ukraine’s crypto exchange, and deposited into two wallets: one to aid the military and another used for non-lethal necessities like fuel, food, and bulletproof vests. Crypto has proven to be a superior technology in fundraising for crisis relief. In an act of further endorsement, the Ukrainian government passed a law just this week to create a legal framework for cryptocurrency, making Ukraine the first European country to do so.
Crypto’s ability to facilitate secure donations to Ukraine, as well as financial freedom to war-torn citizens on both sides, is without a doubt an uplifting part of this story. On the other end of the spectrum, however, is crypto’s alleged role in allowing Russian individuals and entities to circumnavigate sanctions. With Russia essentially isolated from the global economy ― its large reserve of fiat assets mostly unusable ― it should come as no surprise that the nation’s oligarchs would quickly move their assets into crypto.
The role of government intervention
Considering all of the above, it was inevitable that crypto transactions would become even more scrutinized by government bodies. In the US, for example, top crypto exchanges are already feeling the heat to comply with federal law as it pertains to Russian users and transactions. While some have enforced comprehensive bans, other exchanges are hesitant to impose restrictions on all of the country’s citizens.
It is these instances where the conflict and crypto’s ethos begin to clash. If crypto is truly neutral, does it defy the ideology to restrict who has access based on geopolitical alliances? The same can be said for decentralization and the growing presence of central banks in regulating crypto during times of crisis.
As far as sanctions are concerned, there is a case to be made that using crypto to bypass restrictions is not a prudent move, the main reason being crypto transactions are publicly viewable on the blockchain, creating a permanent record. While this doesn’t prevent all illicit trading, it limits its effectiveness, especially when dealing with large sums. It becomes even more challenging when exchanges take a proactive approach to block certain transactions linked to sanctioned entities.
What this means for crypto going forward
Clearly, the stress and uncertainty over the Russia-Ukraine conflict has far greater implications than the fate of money. Nothing supersedes the loss of human life, which is why de-escalation and a peaceful resolution should be the top priorities on a global level.
Having said that, it’s hard to deny the impact this crisis has had on crypto when it comes to human emotions and morality. While countries and their citizens take sides, the ethos of crypto is only as resilient as that of its creators. Ethereum founder Vitalk Buterin, who made a sizable donation to the Ukrainian cause, summed it up well on Twitter by announcing, “Reminder: Ethereum is neutral, but I am not.”
Whatever ultimately comes out of this critical moment, one thing is all but certain ― that citizens’ and governments’ trust in crypto as a parallel economic system is an unavoidable part of the picture. Witnessing the economic fall-out of the Russia-Ukraine conflict, it’s hard to fathom a world where fiat currency is all that will prevail.
Instead, crypto is likely to have its seat at the socioeconomic table. It likely means that regulation will be catalyzed as opposed to slowed down, but with the understanding that blockchain enables an unprecedented global coordination, which just may come in handy during humanitarian crises.