Cryptocurrencies have emerged as a financial weapon in the Russia-Ukraine war as both the countries are using them for their own gains.
It may be noted that Ukraine legalised cryptocurrencies a week before the war broke out, while the Finance Ministry of Russia said that it would consider proposals on cryptocurrencies from the country’s central bank, paving the way for a legislation on digital assets.
Here’s how both the countries are using cryptocurrencies for their gains.
With the US placing several sanctions on Russian banks and financial institutions, it is being speculated that the country may have to fall back on cryptocurrencies for transactions.
According to the official document of the US Department of the Treasury, they would target nearly 80 per cent of all banking assets in Russia, including two largest Russian financial institutions, Public Joint Stock Company Sberbank of Russia and VTB Bank Public Joint Stock Company. Moreover, they have blocked three additional Russian banks: Otkritie FC Bank, Novikombank and Sovcombank. In addition, debt and equity prohibitions have been brought in against major state-owned and private entities.
UK has also frozen transactions with major Russian banks, including VTB, the second-largest bank. They have also come up with a legislation to bar all major Russian companies from raising finances from the UK markets, and have prohibited the Russian state from raising sovereign debt from the UK markets. Moreover, Russian nationals can’t deposit more than $67,000 in UK bank accounts.
The European Union (EU) has also placed sanctions on two Russian banks, Alfa-Bank and Otkritie. They have halted financial inflows from Russia into the EU by imposing limits on bank deposits and barred Russians from investing in EU securities. In addition, the EU has worked in lockstep with the US to introduce export controls on dual-use and high-tech goods, especially electronics, computers, telecom and information security, sensors and lasers and marine applications.
However, the Russian government may not be able to utilise cryptocurrencies to counter sanctions, say experts, adding that common citizens may use them instead. “We expect that some sort of forensic analytical tools like cyber tracing will be used, so it’s very unlikely that cryptos will be used as a war weapon, but at the local level, citizens may use them,” says US-based Kapil Rathi, global CEO of global crypto exchange CrossTower.
What about the use of cryptocurrencies in international trade? While they can use any cryptocurrency, including Bitcoin (BTC), for international trade, “they need to find a willing buyer. Moreover, enforcement agencies have tools which can track the source as crypto wallets can be traced easily,” says Rathi.
A Russia-based crypto expert, who spoke to Outlook Money on the condition of anonymity, said Russia will try to use cryptocurrencies to a larger extent with the country being excluded from the SWIFT banking system. He said that several exchanges, which see this as an opportunity, will assist Russia in it. “Decentralized cryptocurrency and digital assets which can be used in all situations will help Russia in this war,” he said.
India-based Sharat Chandra, vice-president, research and strategy, EarthID, a global decentralised self-sovereign identity management platform, says, “Amidst geopolitical uncertainty, the censorship-resistance nature of distributed ledger technology and crypto has become a double-edged sword. Global sanctions imposed on Russia will have a muted impact because the Russian government has started leveraging crypto to bypass the global SWIFT banking system.”
The Ukrainian government appealed all over the world to donate in cryptocurrencies. "Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT. BTC - 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1P ETH and USDT (ERC-20) - 0x165CD37b4C644C2921454429E7F9358d18A45e14," Offical account of Ukraine Tweeted.
Binance, a global cryptocurrency exchange, on Sunday announced a $10 million donation to Ukraine. The Ukrainian government, and NGOs providing support to the military, have raised $13.7 million through thousands of cryptocurrency donations since the start of the invasion. This is mostly in BTC, Ethereum (ETH) and stablecoins. People are also donating non-fungible assets (NFTs). Read more here
Founder of Kuna.io, a public crypto platform in Eastern Europe, and blockchain expert Michael Chobanian told Outlook Money, “We have created a crypto fund bank, in which people are donating to us in cryptocurrencies. Later, we convert it into fiat and ise it to buy war accessories and food.”
Ukraine-based Chobanian further noted that people feel that their money may be safer in cryptocurrencies compared with assets such as gold.
Pavel Kravchenko, a blockchain expert based in Ukraine, while talking to Outlook Money, said, “Cryptocurrencies are mostly helping us in international aid. Meanwhile, transaction in cryptocurrencies inside the country is low.”
According to CrossTower global president Kristin Boggiano says, “If they (Russia) somehow seize the banking system, as the Taliban did in Afghanistan, local people won’t be able to take out money. So, it (cryptos) would have the perfect use case for people in Ukraine.”
