The two sides of the crypto coin in the Russia-Ukraine war

Since Russia invaded Ukraine, cryptocurrencies have been making headlines. While the Ukrainian Government and NGOs are raising crypto donations to help Ukraine distribute emergency resources and push back against Russia, there are also fears that deep-pocketed Russians, especially those tied closely to Putin, are trying to circumvent the impact of Western sanctions by employing cryptocurrencies.

Both economies have quickly embraced digital money to gain a competitive edge against the other in this geopolitical showdown. For the first time, the world is witnessing the power of blockchain technology at scale. It is also the first time we are witnessing “crowdfunding” efforts for a defense application.

To date, the Ukrainian government has received more than $50 million worth of crypto donations in BTC, ETH, USDT, DOT, TRX, DOGE, and several other ERC-20 tokens. 

Can Russia actually use crypto to evade sanctions?

Crypto is intended to be a decentralized asset, free from the whims and fancies of governments and central banks. While it can be used as a weapon against dictatorship and oppression, it can also be used to fund warmongers. 

Russia is staring down an economic collapse as it faces a series of coordinated sanctions from western countries; it has been removed from the SWIFT global banking system, while third-party payment service providers like PayPal, Visa and ApplePay have severed ties with Russia, forcing ordinary Russians to seek alternative financial solutions.

The internet is filled with opinions at this point about the fair use of crypto. “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,” noted Tom Robinson, chief scientist and cofounder of crypto analytics firm Elliptic. “No one can really prevent it from being used in either way.”

On the other hand, crypto industry leaders like Binance’s founder CZ (Changpeng Zhao), are of the opinion that blockchain, in no way, can be used by anyone to evade sanctions because all transactions are recorded in distributed public ledgers.

The ethical threat

While it is awe-inspiring to witness the incredible unity among the global community, the fact is that a major portion of these donations will be used to directly fund the Ukrainian army and hacktivists. Since Bitcoin or any other crypto for that matter can be sent and received anonymously, it can and is being used to raise funds for causes that traditional fundraising platforms don’t allow. 

This begs one critical question: is it moral to use crypto to raise funds for war?

At present, the answer depends on who is holding it, and how they intend to use it. The Ukrainian Government and NGOs like Come Back Alive have been pretty clear that the funds will directly support the Ukrainian army. People who have donated are aware of what they are doing and how their donations will be used.

It should be noted though that the few million dollars raised independently pale in comparison to the $650 million worth of weaponry that the Ukrainian government received from the US government earlier this year.

Is crypto really helping ordinary Ukrainians?

For now, at least some Ukrainians escaping their country are pinning most of their hopes on cryptocurrencies, planning to convert them into fiat currencies as soon as they reach a safer destination. 

Ukraine has limited fiat transfers and withdrawals (as has Russia). As a result, cryptocurrencies are a financial escape route for the average citizen. While cryptocurrencies may not help to revive the crashed economy of either country fully, they will surely act as a buffer for thousands who have lost their homes and savings.

Then again, using crypto in the middle of a crisis isn’t an easy task. Not only does one need a working device and internet connection, but they also need to have a basic knowledge of operating wallets and the blockchain in general — the latter being a significant problem for the majority of the population.

Given these constraints and growing presence of capital controls, crypto is only helpful for Ukrainian and Russian citizens who already own it. For Ukrainians, this could potentially mean billions of dollars in crypto, primarily because the country has aggressively promoted crypto in the last few years and is one of the leading adopters worldwide. It is estimated that nearly 5.5 million Ukrainians already own crypto, accounting for more than 12% of the nation’s population, not to mention the technology and development communities that reside within its borders. 

The Russian crypto conundrum 

On the aggressor side, while the Russian Central Bank hasn’t been much of a fan of crypto, the Russian government surely had a soft spot for it given the high rate of local ownership. An unclear regulatory environment hasn’t deterred adoption within its own borders, and it is estimated that almost 12% of the Russian population, or 17.3 million people, own cryptocurrencies. 

This doesn’t necessarily mean that it is an accessible exit strategy for everyone. While centralized exchanges like Binance and Coinbase have attempted to keep crypto channels open for Russians, especially ordinary citizens seeking a financial lifeline, efforts to ferret out malicious actors are already in full swing. Coinbase, in keeping with US law, blocked more than 25,000 wallets of Russian users linked with “illicit” activity, and is proactively monitoring its systems to deter any sanctions evasion efforts.

Crypto is not yet the unsung hero

And so, putting crypto on the “savior” pedestal may be premature given these realities. There is no doubt that crypto is playing an outsized role in the unfolding dynamics of this conflict, but it is no silver bullet. While it demonstrated an ability to act as a temporary buffer for many ordinary people, underlined by the widespread usage across both countries, characterizing it as a lifesaver in a sea of unrest is a bit, well, pretentious.

Sadie Williamson is the founder of Williamson Fintech Consulting.