Can cryptocurrencies really impact a war?
With Russia’s recent invasion of Ukraine after a declaration of war, this military conflict will be nothing like the world has ever seen before as it becomes the first major war to be staged in the era of cryptocurrencies. While crypto paired with war may appear to be insignificant at first glance, that couldn’t be further from the truth and only time will tell how much of an impact cryptocurrencies have had on this war.
How cryptocurrencies and blockchains are being used during the war
Both Russia and Ukraine have embraced cryptocurrencies in the past and have now looked to leverage crypto in an effort to gain the upper hand during this war. Crypto is seen as a tool that can move huge amounts of funds seamlessly across borders without any central authority controlling it.
Since it is very difficult to prevent such large transactions from taking place, crypto can be useful for Ukraine as it can help to crowdfund for their military objectives. In terms of the Russian cause, crypto can provide immense financial relief as they can evade the toughest sanctions being imposed on them globally. Let’s explore how crypto is being used during the war between these two eastern bloc giants.
Ukraine government officials have used Twitter to publicly appeal for crypto donations in the form of Bitcoin, Ether, and Tether in a bid to strengthen their capacity to defend their country. Incredibly, their appeal has touched the hearts of millions of crypto users around the globe who have rallied to raise more than $22 million at the time of writing.
While this figure pales in comparison to Ukraine’s $4 billion defence budget and the $650 million in weaponry that the US sent to the Ukrainian army, it is symbolic in the sense that donations can impact a war by helping to boost military efforts — irrespective of the intention of those armies being funded. Clearly, crypto donations can be regarded as either good or bad when contributed towards war efforts — depending on which side of the fence you are sitting on.
Autonomous organisations coordinating war aid
Since the invasion of Ukraine, citizens like Alona Shevchenko have created decentralised autonomous organisations (DAO) that have helped to raise funds for the Ukrainian army. DAOs can be described as venture capital funds with all decisions made by an automated system and crowdfunding process — all encoded on the blockchain.
In essence, these DAOs can help to fund war and support armed forces while rapidly connecting like-minded people to respond to emergency situations as Ukraine finds itself in. In effect, it is crowdfunding while creating a community that is willing to assist — akin to a digital version of the Red Cross or Amnesty International. A future of DAOs working alongside international relief organisations now becomes a distinct possibility in times of war.
Using crypto to avoid sanctions
The Russians have sought to exploit crypto to avoid the heavy financial sanctions imposed on them globally. While sanctions have traditionally been used as a weapon to punish offending countries during periods of strife and war, cryptocurrencies have seemingly turned the tables as it is decentralised and largely unregulated — enabling large amounts of funds to flow undetected.
If sanctions are imposed so that Russia cannot deal with other countries and businesses, crypto has provided the perfect avenue for the Russians to circumvent this punishment without being detected. It is thought that Russia’s exploration of their own digital ruble prepared them for the possibility of sanctions and how they could navigate around it with digital currencies.
Many crypto exchanges around the globe don’t confirm the identity of their customers and have great difficulty tracing the origins of transactions, making it a safe haven for Russia. Moreover, many of these exchanges have rebuffed global appeals to freeze Russian accounts — another boost for Russia’s efforts to avoid the burden of sanctions.
While the global community has excluded Russia from the Swift global payments system that helps facilitate international transfers, they cannot block Russians from trading in crypto, accessing blockchain networks, and transacting internationally to keep their economy alive.
Easing the burden on financial institutions
With many banks and financial institutions imposing restrictions on Ukrainians by limiting their access to bank accounts and foreign currency, many of the country’s citizens are turning to crypto for quick access to funds.
Considering that their crypto cannot be frozen and their wallets are not censored, many of those who are fleeing the country for temporary refuge can find comfort in the fact that their crypto can be used across the border instantly. In addition, crypto can be used as a store of wealth in the wake of Ukraine’s economy collapsing — with central banks suspending electronic cash transfers and blocking foreign currency withdrawals.
With this eastern bloc conflict far from over, the impact of cryptocurrencies on this war may only be realised well after the dust has settled. For now, though, there is enough evidence to suggest that cryptocurrencies and blockchain have shifted the goalposts in how future conflicts will be handled. We watch with bated breath.