Some have labelled Russia’s war against Ukraine “the world’s first crypto war.” That might be overstating matters, but cryptocurrencies are certainly having an impact on Russia’s invasion of Ukraine.
Cryptocurrencies like Bitcoin, Ethereum, TRON, Polkadot, Dogecoin and Solana, have a chequered reputation. Once deemed the criminals’ currency of choice and marred by the greed of tech bro speculators, crypto has been much rehabilitated thanks to the vast amounts of humanitarian donations it has facilitated.
Indeed, Larry Fink, the CEO of the BlackRock hedge fund, recently told shareholders that the war had the potential to accelerate digital currencies.
On 26 February, just two days after the start of the Russian invasion, the Ukrainian government posted pleas on Twitter for crypto asset donations with the addresses of two crypto wallets to which prospective donors could send contributions. In the first four days of the war they raised more than $10.2m (€9.2 million euros). That speed is one of the key reasons crypto has become one of the primary ways to donate to support Ukraine. A Bitcoin transaction takes 10 – 30 minutes, compared to a wire transfer that might take two or three days.
Since the beginning of the war an estimated $100m worth of crypto has been raised, the majority via the “Crypto Fund for Ukraine” run by founder of the Ukrainian crypto exchange Kuna, Michael Chobanian. Cryptocurrencies can also be instrumental in helping to gather anonymous donations – something Russian citizens or companies who are against the war would require as Putin cracks down on any dissent from within the country.
Michael Chobanian, told the U.S. Senate: "We receive money instantly, we can spend money instantly. We can attract donations from pretty much any place in the world, even countries which don't have access to banking, but they have crypto.”
The Ukrainian government also launched a website to centralise its crypto-based fundraising effort. But crypto can also be especially helpful for Ukrainian citizens fleeing the country who may well not want to travel with cash, or cannot access their bank accounts.
But it’s not all one way. Crypto could also be used by Russia to circumvent sanctions – Russia is the world’s third-largest Bitcoin miner. Countries around the world have denied most Russian financial institutions access to the international SWIFT payment system and private sector actors Mastercard and Visa have also blocked many Russian organisations from their networks. The aim is to starve the Russian regime of funds to conduct the war. But decentralised crypto exchanges allow access to digital assets anonymously, so Russian actors may well still be able to spend freely in support of the war using crypto.
To prevent this, Ukraine vice prime minister and minister of digital transformation, Mykhailo Fedorov, asked crypto and blockchain platforms to block the addresses of Russian users.
Allegations of facilitating Russia with crypto assets have also been flying. Chobanian, who is also president of the Blockchain Association of Ukraine, called on the EU to investigate whether the Binance crypto exchange is cooperating with the Russian government to circumvent sanctions. “I’m not the court, but [the EU] should investigate. If Binance is innocent, I will say sorry. If Binance is not, then they [the EU] will have to deal with it,” Chobanian told CoinDesk in an interview.
The European Commission also confirmed the “common understanding that loans and credit can be provided by any means, including crypto assets,” as well as further defining the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure more fully the implementation of sanctions.
Another concern around using cryptocurrencies for aid, is that they are quite volatile. Donations may turn out to be worth less than thought, or refugees may find that their assets have lost value by the time they can convert them back to cash.
Yet another downside to crypto is the huge ecological footprint and vast use of energy, particularly at a time when energy prices are soaring.
But despite being around for more than a decade, politicians all over the world are still struggling with how to regulate it. In the US, President Biden signed an Executive Order with regard to the regulation of digital assets on 9 March, while the EU’s forthcoming Markets in Crypto-assets law (MiCA) is stalled over a dispute about who should enforce it. The European Council made up of national ministers believes it should be the European Banking Authority (EBA). But the European Parliament wants the European Securities and Markets Authority (ESMA) to act as the watchdog. In summary, it remains to be seen whether Larry Fink’s prediction will prove correct.
This article was first published by Heinrich-Böll-Stiftung Washington, DC.