War costs a lot of money. In today’s money, the US spent around USD 1.1 trillion on the Iraq war in 2003, whereas the UK spent about GBP 2.6 billion on the Falklands conflict (USD 3.4bn).
As a result, funding, like artillery, gasoline, and boots on the ground, is a crucial resource in any fight. Governments have always carried the financial burden, frequently in the form of issuing war bonds. For this reason, Ukraine is now offering USD 270 million in war bonds.
Ukraine, on the other hand, is relying on solutions that were not available until lately. Mykhailo Fedorov, Ukraine’s vice prime minister and minister of digital transformation, called on people all over the world to demonstrate solidarity with Ukraine by sending crypto donations a few days after the Russian invasion.
Donations have surpassed USD 60 million as of this writing. This isn’t comparable to the value of war bonds or the financial and military help provided by nations around the world, but it’s not trivial either. It demonstrates how individuals may have a state-like impact on the world scale.
This new method of gaining access to global private capital is a welcome addition to the cryptocurrency world. Ukraine’s government was able to generate funds fast without the use of financial intermediaries by going straight to the people of the world.
However, as with all cryptocurrencies, they come with both perks and threats. They also have the ability to assist Russians in avoiding the collapsing rouble, despite Ukraine’s demands. “All major crypto exchanges to block addresses of Russian users,” Mykhailo Fedorov, for example, asked on Twitter. It’s critical to sabotage ordinary users as well as the addresses associated to Russian and Belarusian politicians.”
The crypto community is divided on the issue. David Gokhshtein, a prominent Twitter user, said that he is “definitely with Ukraine and for peace, but we don’t do that in crypto.”
Changpeng Zhao, the founder of the leading cryptocurrency exchange Binance, has stated that it is not the role of crypto exchanges to restrict Russian activities in general, though he did state that his exchange would not allow any of the hundreds of wealthy Russians on Western sanctions lists to use its services. Even then, he claimed, it was hard to stop them because there were so many other options available.
Because Russians are also prevented from moving money out of the country due to restrictions on Russian banks and capital controls enforced by their own government, many appear to be striving to break free from the constraints of their national virtual identity in order to circumvent these rules. Over the weekend, Russian demand for VPNs, which enable people keep private online while using public networks, increased by at least fourfold, if not more.
The desire for cryptocurrency in Russia may already be contributing to bitcoin’s recent increase.
The bigger issue
There are also concerns about how crypto might undermine the sanctions framework as a whole, which includes not only limitations on Russian banks and billionaires, but also accusations that Russia utilized bitcoin to circumvent sanctions in the past. Concerns about Russia, however, are of a different order, as the global community appears to be increasingly fragmented by ideology and previous grievances.
However, I do not believe that crypto will be able to save Russia from sanctions. Apart from the enormous job of setting up the appropriate infrastructure within Russian banks, many of the persons and institutions that would receive the cryptocurrency would need to create their own wallets. Aside from that, the daily value of crypto transactions is merely a few billion dollars. This is a large amount, although it is a small fraction of the broader financial system. If Russia were to really consider utilizing cryptocurrency for payments, the market would not be ready to handle it.
Having said that, it’s worth mentioning that bitcoin has now surpassed the rouble in overall value as a result of the rouble’s depreciation. It is now the world’s 14th most valuable currency, three places ahead of the rouble.
It’s likely that the benefits that crypto has brought to this battle will be a step toward it becoming more broadly accepted and the globe coming up with the harmonised worldwide regulation that is required for it to truly enter the mainstream. On the other hand, it is evident that crypto is already being used to evade sanctions on a modest scale, and it has the potential to make it far more difficult to financially restrict pariah regimes in the future.
