The wartime military function of digital currency

Author: Xue Zichen

The global geopolitical landscape is undergoing profound restructuring. The holistic, hybrid, and persistent nature of modern warfare is becoming increasingly prominent, and cross-domain military coordination capabilities based on digital systems are rapidly deploying. Digital currency, as a key strategic tool for national total warfare, modern hybrid warfare, and digital financial warfare, is essentially a new form of traditional financial warfare, spawned by the evolution of modern information-based and intelligent warfare. It is reshaping traditional models of cross-border capital flows and resource mobilization during wartime, and is gradually becoming a key strategic tool in geopolitical competition.

Basic Principles and Main Functions

Cryptologists have long mused: Could cash, like mail, be encrypted and signed, and then sent from one end to another? This was the original intention behind the birth and development of digital currency. From David Chaum, the "Father of Digital Currency," to Satoshi Nakamoto, the "Cryptocurrency Legend," digital currency has undergone numerous historical changes and reshuffles, evolving from a single Bitcoin into a vast ecosystem encompassing cryptocurrencies, stablecoins, and central bank digital currencies. Each digital currency has its own unique features, uses, and technical background, but at its core, they are no different from general-purpose currencies, fulfilling basic functions such as a store of value, a medium of payment, and a unit of account. Prior to 2022, the total market capitalization of digital currency assets grew rapidly. In recent years, due to their involvement in numerous global geopolitical conflicts, digital currencies have begun to find military applications. By providing fast, secure, and anonymous transactions, they have laid the foundation for the subsequent militarization of digital assets. Blockchain, the underlying technology of digital currencies, is essentially a decentralized distributed ledger that organizes transaction information into "blocks" and forms an immutable chain in chronological order, ensuring the integrity and security of transaction data. In battlefield environments, this feature can even determine the success or failure of military operations. Although Bitcoin hasn't demonstrated the same "first-line safe-haven properties" as gold during geopolitical conflicts, blockchain's unique decentralized nature has gradually strengthened its role as a "non-sovereign asset" as warfare evolves and global risk appetite reconfigures. For example, after the outbreak of a localized geopolitical conflict, cryptocurrency prices can experience a pullback followed by a rebound within a week, highlighting the crypto market's high sensitivity to geopolitical information and its liquidity adaptability. Furthermore, geopolitical conflicts have further reinforced the three-stage cycle of "wartime volatility, risk-off correction, and on-chain monitoring," all of which have led to cryptocurrencies being considered a crucial wartime safe-haven tool. Digital currencies can withstand the test of wartime market resilience, maintaining economic operations and livelihoods in war zones, and are crucial for protecting funds during armed conflict and war scenarios. The digital nature of digital currencies makes the allocation of war funds more flexible and efficient, facilitating wartime fund transfers and hedging. In wartime scenarios, when physical banking infrastructure is paralyzed or subject to enemy financial sanctions, digital currencies can serve as hidden channels for asset transfers, enabling rapid capital circulation and increasing battlefield mobility. Regarding the distribution of funding sources, the anonymity of cryptocurrencies can diversify and conceal wartime funding, facilitating cross-border solidarity and supporting humanitarian aid. Wartime funds typically come from national treasuries and are used for military expenditures and equipment purchases, but these funds are vulnerable to enemy surveillance and tracking during wartime. Cryptocurrency's blockchain technology disperses funding sources and, through anonymity, reduces enemy blockades and interference, reducing the likelihood of tracking and interception. This can alter the course and outcome of war and lay the foundation for the modern military application of digital currencies. A Review of Digital Currency's Wartime Performance As regional geopolitical competition intensifies, the trend toward the military application of digital currencies is accelerating. From the Russo-Ukrainian conflict to the Middle East wars, the wartime performance of digital assets is embedded in a scenario-based reconstruction: each round of geopolitical shocks reshapes the perception of the risk profile of digital assets, and every war becomes a stress test for the safe-haven function of cryptocurrencies. Resource-based digital currency military alliances – a "resource tokenization" model typified by resource-rich countries. Through resource tokenization, resource-rich countries transform natural resources into digital currencies through information technology and explore new paths to financial independence through national alliances. This approach circumvents wartime financial sanctions, maintains cross-border payments and military trade settlements, and mitigates the risk of wartime exchange rate fluctuations. For a long time, some countries have been subject to economic sanctions, exemplified by the international settlement system SWIFT. In February 2018, the Venezuelan government officially issued the oil-backed cryptocurrency Petro. In January 2019, Iranian banks jointly launched the gold-backed cryptocurrency PayMon. Agile cryptocurrency military aid – a "decentralized crowdfunding" model typified by small and medium-sized countries and regions. Small and medium-sized countries and regions can leverage the instantaneous, low-cost, and flexible nature of cryptocurrencies to quickly absorb small, anonymous global financing, reducing fundraising time and transaction costs. They can leverage digital capabilities to balance geographical disadvantages and achieve cross-border solidarity in support of military relief efforts. Sanction-based cryptocurrency military operations—the "on-chain sanctions" model typified by developed countries—reignited by developing countries. Developed countries prioritize military technical intelligence and use multi-departmental collaboration and blockchain technology to track and freeze enemy digital assets. Since October 2023, Israeli law enforcement authorities have shut down dozens of Hamas cryptocurrency accounts and confiscated millions of dollars worth of cryptocurrency. This initiative, a collaborative effort between the nation's cyber unit, intelligence agencies, and global cryptocurrency exchanges, aims to track and freeze enemy digital assets, disrupting their financial channels for fundraising and organizational operations, and weakening their economy and regional influence. This marks the first time digital currency has been used as a financial sanction in international political and military conflict.

Future Trends and Reflections

History doesn't necessarily repeat itself, but its paths often echo. The development of digital currency is a storied journey, from a virtual fantasy to a pillar of the real economy. With technological advancements and the gradual improvement of regulatory frameworks, digital assets like Bitcoin will redefine currency, store of value, and the financial system, and are expected to play a more important role in wartime scenarios. In the future, the digital financial system will be further embedded in modern hybrid warfare, serving as a survival tool for civilians, a funding channel for nations, and an invisible battlefield for geopolitical competition. So, how can we strike a balance between "faster progress" in finance and "steadier standing" in national defense? In wartime, what room is there for maneuvering between sanctions and countermeasures in digital currency? Behind this new, complex strategic transformation lies profound changes in the global financial landscape, digital technology, and geopolitical competition.

The future development of digital currency will not be smooth sailing. Amidst the specter of war, are crypto assets a safe haven or a wartime bargaining chip? Limited market acceptance and liquidity, uncertain regulatory policies, high currency volatility, and high technical barriers will remain major obstacles to the industry's development. In the future, as geopolitical competition enters a phase of localized stalemate or even prolonged periods, the crypto market may no longer react sharply to single war news. Instead, it will revolve around multiple wartime issues, such as war financing, sanctions evasion, and financial decoupling, causing cryptocurrencies to continue to ferment in international public opinion and national regulatory circles. In this regard, the on-chain transaction activity and cross-border liquidity of cryptocurrencies may become key variables in national policy research. The military application of digital currencies will transcend conventional functions and transform into multifunctional integrated platforms with strategic significance, including security, combat support, and digital countermeasures. The key to the wartime application of digital currencies will be the deep integration of financial efficiency and supply chain resilience. On the one hand, digital currency strategies can enhance strategic stability and ensure sufficient wartime reserves to counter geopolitical competition. On the other hand, digital currency can be used to enhance the resilience of the defense supply chain and ensure the security, efficiency, and traceability of digital transactions. Furthermore, the militarization of digital currency must balance the decentralized nature of blockchain technology with the centralized requirements of military management. Notably, the "Defense Blockchain Internal Testing Program," mentioned in the US National Defense Authorization Act (NDAA) for Fiscal Year 2025, may become a key strategic tool for future "financial defense," and its potential impact on the international geopolitical landscape and the future direction of the global financial system cannot be ignored.