Fighting economic warfare with the double-edged sword of cryptocurrency

Israeli serial entrepreneur Ariel Shapira reports on emerging technologies in the fields of cryptocurrencies, decentralized finance, and blockchain, and their role in shaping the 21st century economy, in his monthly crypto column.

Economic warfare is inseparable from geopolitical conflicts, and just like violent physical warfare, innocent civilians are often targeted. This time, however, the advent of cryptocurrencies has slightly changed the dynamics. With Russia’s invasion of Ukraine sending shockwaves through global markets, many are championing digital assets as a safe haven in times of disruption and instability. In fact, Russians and Ukrainians are already taking advantage of this alternative to traditional finance.

On the Ukrainian frontline, cryptocurrencies have been used as a fundraising tool for millions of fleeing refugees and citizens who stayed behind to defend their homes. On the Russian side, the situation has become more complicated. Some predict that oligarchs can use cryptocurrencies to bypass NATO sanctions. On the other hand, 17.3 million Russians hold cryptocurrencies. Most of them are certainly not oligarchs. We can reasonably conclude that most of them are innocent citizens using digital assets to save their own livelihoods.

So now is the time to clarify: The Ukraine crisis has shown that cryptocurrencies are a powerful tool that empowers ordinary people around the globe to help others in their darkest hours. Cryptocurrencies have previously been strongly associated with charities, such as XMANNA, a metaverse gaming platform that returns 40% of profits to users through rewards. Today, the once understated philanthropic side of cryptocurrencies is openly weaponized in support of Ukrainian refugees and innocent Russians.

ukraine front

Forced to abandon their normal lives, Ukrainians are turning to cryptocurrencies as their financial lifeline. Outside of the war, many donated cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) to the Ukrainian government and NGOs, totaling $108 million. And, thanks to the transparency of the blockchain, we are now able to track how those donations are spent better than we could 15 years ago—Ukraine has used $15 million of the money raised to expand military equipment.

The speed and ease with which more traditional donation platforms like GoFundMe and Fundly move funds from donor to recipient has been overshadowed by cryptocurrency donations. While traditional funding options can take up to 5 days to process a wire transfer, crypto transactions are instantaneous. Even Bitcoin’s notoriously slow transaction speeds (up to 6 minutes) are enough to dwarf traditional transaction methods.

In fact, the Ukraine aid effort is just the latest, or publicized, mainstream iteration of blockchain’s potential for fundraising. Projects like SeedOn utilize a smart contract escrow model to ensure funds are only accessed in stages, preventing abuse. This model is likely to become more common in the fundraising world in the wake of the current Ukraine crisis.

With Ukrainian financial institutions restricting customers from accessing their finances, cryptocurrencies are one of the most reliable ways for ordinary Ukrainians to not have to worry about their accounts being frozen. Cryptocurrencies are essential for those who need immediate access to cash, whether to buy essentials or access personal funds before fleeing Ukraine.

If someone is suffering from the effects of war, downloading the MetaMask wallet may not be the first thing they do, especially if they have not used cryptocurrencies before. Nonetheless, Ukraine ranks fourth in the global list of countries that have adopted cryptocurrencies, which means that a large number of Ukrainian citizens at least have the option of using this alternative financial means to survive. While it may not be widely available, for those who own cryptocurrencies, this option could save their lives.

The other side of the double-edged sword

Several Russian banks have been cut off from SWIFT. SWIFT is the global information system connecting financial institutions. While the sanction cuts affected banks off from the global economy, it also affects individuals within the U.S. because it disrupts any cards issued by major credit card networks like Visa, Mastercard or American Express transaction. With only 20-25% of domestic transactions and text messages taking place outside of SWIFT, Russian citizens have flocked to ATMs, withdrawing a total of nearly 3 trillion rubles, or $23 billion at the time of writing.

These sanctions have led to a sharp depreciation of the Russian ruble. Compared with a week ago, the ruble has lost about 30% of its value. While traditional Russian banks suffer from the fallout from sanctions, cryptocurrencies remain an option for people to convert depreciating fiat currencies into cryptocurrencies to protect their wealth and ensure liquidity at a time when banking access is less secure . Trading volume between the ruble and Tether (USDT) has tripled since last week, according to Reuters.

While Russian cryptocurrency holders are leveraging their digital assets, critics argue that Russians can bypass sanctions this way. This is based more on suspicion than fact. If anything, blockchains provide more records of money transfers than any other asset or commodity. Coinbase CEO Brian Armstrong confirmed that oligarchs have not seen a significant uptick in trading volumes on the exchange. He was able to make such a statement thanks to the traceability of digital asset transactions.

On a macro level, sanctions imposed by the European Union and the West to counter Russian President Vladimir Putin and his circle are at the heart of the conflict. But, from a personal standpoint, Russia's outsiders are clearly suffering. Therefore, it is not appropriate to denigrate the only tool that can help them escape this kind of suffering.

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.