The Russia-Ukraine conflict is showing the world the true power of cryptocurrencies. They have been used for diverse reasons during the last month, making a clear case for why they should be considered more than just highly speculative assets.
As a matter of fact, we have to say that crypto is always neutral. It is a way out of the traditional centralized financial system and it should remain like that. Serving to everyone that is in need of this technology, without looking at race, gender, or nationality (Russian or Ukrainian).
Ukraine donation numbers have soared following the invasion by Russia. Almost US $70 million in crypto have been donated so far. Here is a link to see a breakdown of the total amount received in crypto by the Ukraine Government, Ukrainian NGO, UkraineDAO, Unchain.Fund and AidForUkraine.
The country has found crypto to be one of its most efficient avenues to receive donations since transactions within the blockchain (depending on the network) are settled instantly.
As a matter of fact, Alex Bornyakov, the deputy minister of Digital Transformation of Ukraine, said in a Zoom interview with Bloomberg that the government expects to double the crypto donations received so far in the next few days. He also mentioned that Ukraine has spent US $15 million of its cryptocurrency donations on combat gear, including bulletproof vests delivered on Friday.
In a nutshell, crypto allows fundraising capital in a fast and efficient way, allowing the receiver to spend those funds within minutes (only if the seller allows crypto payments, if not it could take up to 2-3 business days to get your money wired to the bank account…boomers…).
Last Wednesday, the Ukrainian government announced through Twitter that it was planning a token airdrop (to send tokens) to reward all the crypto wallet addresses that have contributed funds to the country’s humanitarian and war efforts.
If you are in crypto, you must know how powerful airdrops are. The FOMO (Fear Of Missing Out) that people get for being among the receivers of new token releases is insane. A clear example of this is the token contribution (donations) that the Ukrainian government had right after posting the previously shown tweet.
Like, come on… We may be getting into WW III and crypto degens are focused on getting the Ukrainian Government’s token airdrop, haha, it is surreal.
The funny thing is that those who decided to donate for the previously mentioned reason (just for the token giveaway) got rugged by a sovereign state. Ukraine’s government canceled its planned token airdrop and said it would instead sell NFTs to raise funds.
If all this cannot be considered crypto adoption at its finest, I clearly do not understand what technology adoption is.
On the flip side, Russians are being isolated by all the sanctions that have been applied to the Russian Federation financial system in the last week.
Among the sanctions are, removing multiple banks from SWIFT, the bank resolution that Sberbank (one of the largest financial institutions in Russia) suffered because of liquidity concerns (many people stated that the lack of transparency that the Single Resolution Board had, in this case, is kind of concerning). The largest western payment companies including Visa, Mastercard, Paypal, and American Express will also halt servicing Russians.
However, cryptocurrency exchanges decided to not freeze users’ accounts and keep providing service as usual, until a legal requirement from Ukraine or foreign states is made.
The reason for these decisions is based on the premise the vast majority of users are individuals that have nothing to do with the Russian government’s decision-making of invading Ukraine. In addition, it is well known that Crypto is serving as a lifeline for many people in Russia now that their currency has collapsed, therefore, freezing cryptocurrency accounts would be tragic for them. The Russian ruble-to-Bitcoin (RUB/BTC) trading volumes reached a nine-month high. Russians are paying as much as US $20,000 above the market rate to buy Bitcoin. Someone called this the “matreshka premium” as a joke, putting a spin on the kimchi premium which was a prevalent phenomenon in 2016.
This decision taken by cryptocurrency exchanges, which in my opinion is aligned with the ideals that cryptocurrencies represent, opens the gate for regulators to accelerate regulation on cryptocurrencies.
ECB President, Christine Lagarde said it is “critically important” that European Parliament passes its Markets in Crypto-Assets (MiCA) regulation “as quickly as possible”. Federal Reserve Chair Pro Tempore Jerome Powell and some members of the United States House of Representatives called for congressional action on crypto in response to discussions about Russia potentially evading sanctions too.
On the other side of the hill, Senate Banking Committee members Elizabeth Warren, Mark Warner, Sherrod Brown, and Jack Reed penned a letter to Treasury Secretary Janet Yellen on Wednesday expressing concerns that Russia and other nations could use crypto to “hide cross-border transactions for nefarious purposes” including undermining sanctions. The lawmakers cited North Korea using “stolen cryptocurrency” to fund its nuclear weapons program and Iran promoting Bitcoin mining while under U.S. sanctions.
In my opinion, this is an over-exaggeration coming from regulators and totally unfounded.
First of all, crypto markets are too small (token trading pairs with the ruble are very rare and do not have the necessary liquidity), too costly, and too transparent for the Russian government to use them. Therefore, everything that is coming from regulators is just FUD and an excuse to accelerate cryptocurrency regulation with a “proper” reason.
If Russia wants an alternative to the current payment infrastructure, they are more likely to use China’s CIPS than a public network they cannot control and record every transaction made in a public and immutable ledger.
Moreover, Putin spent years diversifying Russia’s reserves into Chinese Yuan and gold, shifting trade to Asia, and bringing manufacturers onshore.
Lastly, it is needless to say that Russia does not have the required infrastructure to migrate to a cryptocurrency-based financial system and neither has the Russian population the ability and knowledge to use it. Going to a cashless society where everything is digital is extremely difficult. China has been in that process since 2014 when they decided to provide banking licenses to Tencent and Alibaba so they could start paving the way to a cashless society while the Chinese government started working in their CBDC (Central Bank Digital Currency).