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AAX Trends

Ukraine war is crypto's biggest test yet

Ukraine war is crypto's biggest test yet

News & Insights

04 Mar 2022

The war in Ukraine is the first major conflict in which cryptocurrency has featured prominently. It has been used for humanitarian purposes, with people across the world sending crypto to the Ukrainian government and non-governmental organizations, and a member of the Russian punk activist band Pussy Riot even helping to set up a Decentralized Autonomous Organization that will sell non-fungible tokens of pictures of the Ukrainian flag.

This article first appeared on Nikkei Asia.

But there has been controversy too, with Ukraine seeking to restrict Russians' access to cryptocurrencies, as well as concerns that Vladimir Putin's regime will use it to evade sanctions. This relatively young asset class, and the industry and community that has grown around it, are being challenged to reconcile the moral imperative of limiting the financial activity of Russian citizens with its own founding ethos of being a decentralized, permissionless system that enables individual freedoms. Without question, this is crypto's biggest and most serious test yet. But I am confident that its 300 million or so users can rise to the challenge and have a positive impact in this crisis. As part of the response to Russia's brutal and unprovoked invasion, Ukraine and its allies have imposed an unprecedented range of sanctions on Russia's government, banks, and wealthy elite, isolating Russia both economically and financially. Now, crypto has come into focus.

Not only did Mykhailo Fedorov, Ukraine's Vice Prime Minister and Minister of Digital Transformation, ask crypto exchanges to block activity by all Russian users, but the U.S. Treasury name-checked digital currencies in new regulations banning Americans from providing support to sanctioned individuals and entities. Japan and the European Union are considering similar measures. The crypto industry has no interest in helping anyone avoid justly imposed sanctions. Not everybody should be able to freely use an alternative financial system that was created to make the world better and fairer, especially not to launder wealth gained through war, exploitation, or suffering. We do not want evil of any kind in the crypto markets. Exchanges should do everything possible to block sanctioned individuals from gaining entry through their platforms, just as individuals need to think carefully about who they transact with privately.

But at the same time, we must ensure that crypto's collaborative and unrestrained community spirit can continue to thrive because that can clearly do good in Ukraine and elsewhere. According to London-based blockchain analysts Elliptic, the Ukrainian government and an NGO providing support to the military raised $46 million via more than 72,000 crypto donations from Feb. 24 to Mar. 2. ForkLog, a Russian-language media outlet focusing on cryptocurrency and blockchain, estimates that over $58 million worth of crypto donations have flowed to Ukraine since the invasion began. Crypto is not just a vehicle for donations, though. Blockchain technology makes possible new ways of organizing social investment, too, such as multi-signature wallets that require the approval of a majority of keyholders to approve a donation before it is paid out. This improves transparency and accountability and is driven by individuals choosing to act conscientiously and not by the need to comply with laws or regulations. It is essential for individuals to accept the accountability that comes with the freedoms that crypto offers. As Vitalik Buterin, the Russian-born co-founder of Ethereum and a fierce critic of the war, put it: "Ethereum is neutral, but I am not."

The war in Ukraine has demonstrated that borderless units of value can be transferred immediately and cheaply without relying on intermediaries. And the growing role of cyberattacks as a form of unconventional warfare also reinforces the value of Bitcoin, in particular as a store of value that cannot be hacked. While peer-to-peer crypto transactions cannot be stopped through direct intervention because the Bitcoin network is open and permissionless, that does not mean there are no ways to make it hard for criminals to move funds through crypto. After offering rewards for information linking anonymous crypto wallet addresses to Russian and Belarusian politicians, Ukraine claims to have received plenty of tipoffs and plans to use this information to ask exchanges to blacklist those addresses. Artem Afian, the lawyer pursuing this initiative on behalf of the Ukrainian government, told CoinDesk that "if the crypto world can show that without centralization it can stand against crime, then people will trust crypto. If the crypto world fails Ukraine, there may not be any future for crypto." This perfectly encapsulates the challenge facing the crypto industry. We believe that Bitcoin and many other cryptocurrencies are designed precisely to support greater freedoms. But making good use of this freedom also means applying good judgment in order to enhance this new technology and improve its reputation for integrity. We have to show that a community of independent individuals can be effective in preventing criminals from taking advantage of principles that most people in our industry are passionate about. Our infrastructure may not allow us to stop every crime or misuse of capital, just as traditional banking cannot. But everyone in our community owes it to the people of Ukraine and the promise of crypto as a force for good to rise to the challenge.

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Ben Caselin

Vice President of AAX, Head of AAX Trends

Ben Caselin is the Vice President of AAX and Head of AAX Trends, a sub-division of AAX aimed at driving the mass adoption of bitcoin and digital assets. Widely published in top-tier media and an avid speaker at global conferences, Ben draws on his background in socio-cultural anthropology, the creative arts and years working in both the development and fintech space, to develop insights into bitcoin and digital assets.

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