How Cryptocurrencies Will Be Affected in the Russia-Ukraine War

How Cryptocurrencies Will Be Affected in the Russia-Ukraine War

On February 24, the Russia-Ukraine conflict erupted. Just like any other financial market in the world, the crypto market is in trouble. Bitcoin, Ether, BNB, XRP, and all other major cryptocurrencies fell sharply.

However, as countries and international organizations around the globe declare their positions, it is impossible to miss how Web3, and in particular the crypto community, has been an integral part of helping Ukraine. crypto has indeed played no small part in this conflict, as both Ukraine and Russia seem to have found an advantage in this borderless, decentralized asset.

Crypto trading volumes soar in Ukraine and Russia

According to crypto analytics firm Kaiko, when Russian troops entered Ukraine, trading volumes in the Russian legal tender ruble (RUB) and Ukrainian legal tender hryvnia (UAH) with bitcoin pairs immediately spiked to the highest levels in months, growing much faster than volumes in other pairs such as BTC-USD, suggesting that the crisis is directly affecting trading in the crypto market behavior, highlighting the complexity of the crypto industry's role in the conflict.

The plunge in RUB amid a wave of Western sanctions against Russia has also boosted the appeal of the US dollar stablecoin. trading volumes in USDT-RUB soared to a 10-month high, trading higher than the BTC-RUB market. Meanwhile, local cryptocurrency trading volumes in Ukraine experienced a similar surge due to the plunge in Ukrainian UAH and uncertainty over citizens questioning continued access to banking services.

Ukraine receives donations from crypto community

On February 26, Ukraine's official Twitter account posted a request for cryptocurrency donations and listed the addresses of bitcoin, ethereum and USDT, a stable coin that accepts donations. At first, some users thought it was a scam, possibly the result of hackers stealing accounts, and Ether co-founder Vitalik Buterin was the first to warn. The authenticity of the donated address was confirmed only after Mykhailo Fedorov, the deputy prime minister of Ukraine, forwarded it.

Currently the official address in Ukraine has received $14,823,856 in donations, of which

Bitcoin: 182.8 BTC ($7,930,541) - 7,833 transactions

Ether: 2,355.0 ETH ($6,893,315) - 7,427 transactions

Long before Ukraine officially accepted crypto donations, a number of Ukrainian civil society organizations began accepting donations in the form of cryptocurrencies.

Come Back Alive, a volunteer organization based in Kiev, Ukraine, was founded in 2014 and has been accepting cryptocurrency donations and bitcoin through online fund transfers since 2018. Its mission is to support the Ukrainian Armed Forces by providing medical and security kits, including drones and sniper rifle scopes. The organization has received more than $4 million in bitcoin donations during the Russia-Ukraine conflict, according to information from blockchain data analytics firm Elliptic.

The conflict between Ukraine and Russia also extends to the cybersecurity arena, where organizations are also active and funded through cryptocurrency donations.

The Ukrainian Cyber Alliance (UCA) is a group of technicians who have been conducting cyber attacks against Russian targets since 2016. The group's operations have included attacks on propaganda websites, the Russian Ministry of Defense and various individuals associated with Russian activities in Ukraine. Intelligence gathered during these operations is shared with Ukrainian law enforcement and intelligence agencies.

Unlike other organizations, the Ukrainian Cyber Alliance's public fundraising relies entirely on crypto-asset donations. However, the organization says they received only "$3,000-$4,000" in donations during the conflict.

The decentralized autonomous organization UkraineDAO, created by Russian band Pussy Riot, PleasrDAO, Trippy Labs and other companies in cooperation with the war relief efforts in Ukraine, has also contributed. The organization raises funds for donations to Ukrainian civil society by issuing Ukrainian flags in the form of NFTs and selling them at low prices. To commemorate Ukraine's declaration of independence on August 24, 1991, the NFT will be minted at a price of 0.08241991 ETH (about $220).

Notably, London-based creator social platform OnlyFans contributed 500 ETH to UkraineDAO's NFT mint, worth about $1.38 million.

UkraineDAO will support two civil society organizations: Back Alive, and Proliska - an NGO that helps people living near the contact line in eastern Ukraine.

In addition to NFT sales, UkraineDAO will also create a website to accept cryptocurrency donations and accept traditional funds. Even without access to NFT, the site raised nearly $660,000 in the 26 hours it was live.

Separately, an ethereum-based token project called Help Ukraine ($HUKR) was created on Feb. 24 and has been donating ETH to a fundraising campaign called Support Ukrainian Sovereignty, which has pledged to distribute its funds to various charities in Ukraine. Ukrainian Sovereignty says it has raised $281,769.

MakersPlace, an ethereum-based NFT marketplace, sent a clear message of support to Ukraine in a goodwill manner. The marketplace announced several measures on personal social media, including donating daily proceeds and adding Ukraine to their biosLinks to the Red Cross.

Exchange "support" Ukraine

Binance, the world's most traded cryptocurrency exchange, has announced a $10 million donation to Ukraine, in addition to the exchange's charitable fund launching an emergency fund for the country. CEO CZ noted on his Twitter account, "Our focus is on providing support. We care about the people."

In response to the crisis in Russia and Ukraine, we donated $10 million to leading intergovernmental and non-governmental organizations to provide emergency assistance to refugees and children, as well as logistical support for refugees in the form of food, fuel and supplies," said an official statement from the Binance Charitable Foundation.

Sam Bankman Fried, founder of FTX, has announced that he will donate $25 worth of cryptocurrency to every Ukrainian exchange user during the Russian-Ukrainian conflict.

Chain.com  Deepak Thapliyal, the CEO of Deepak Thapliyal, donated 100 ETH (about $278,000) to Ukraine. In an interview afterwards Deepak Thapliyal said, "When I realized that the Ukrainian government was asking for donations in the form of cryptocurrency, I felt compelled to do my part to help. Cryptocurrency donations are borderless and almost instantaneous, so I hope the government there will be able to use it to help people in need as soon as possible."

Crypto.com  's chief executive officer tweeted that a donation has been made to the Red Cross to support those suffering on the ground in Ukraine. "Our thoughts are with the people of Ukraine and the innocent bystanders in the ongoing conflict.Crypto.com  One million dollars has been donated to the Red Cross. We urge our communities to do what they can to support humanitarian efforts."

Blockchain.com  's co-founder and CEO Peter Smith also announced his support for Ukraine and pledged that all Ukrainian users of the exchange would be exempt from transaction fees when buying and selling cryptocurrencies.

It is worth mentioning that some other representatives of crypto institutions also expressed their opposition to the Russian-Ukrainian conflict.

Ether co-founder Vitalik Buterin was one of the first voices to criticize Russia's invasion of Ukraine, an action Buterin described as a crime against the Ukrainian and Russian people. "(I) am very disturbed by Putin's decision to abandon the possibility of a peaceful resolution of the dispute with Ukraine in favor of war. While Ether is neutral, he is not."

Barry Silbert, CEO of Digital Currency Group, the largest digital asset group in the U.S., tweeted, "Screw the war."

Payment use cases for cryptocurrencies play a key role

The payment use case for cryptocurrencies was taken to the extreme in the Russia-Ukraine conflict.

According to blockchain data analytics firm Elliptic, the Ukrainian government and non-governmental organizations have now received $20 million in cryptocurrency donations involving more than 22,000 transactions since the conflict began. Among these donations, cryptocurrency has proven its ability to facilitate a fast cross-border money transfer solution that bypasses traditional financial institutions.

On the other hand, as part of the sanctions, the United States, the United Kingdom and several other European countries have agreed to ban several Russian banks from joining the global cross-border payments network SWIFT. SWIFT, in full, the Society for Worldwide Interbank Financial Telecommunication, is a fast and secure global cross-border payments system that currently serves 11, 000+ banks and financial institutions worldwide. What is known is that Russia relies heavily on this system for its major oil and gas exports.

In addition, credit card giant MasterCard, money transfer finance company Wise and others have stopped providing services to Russian financial institutions due to the sanctions.

On this backdrop, many analysts speculate that Russia really does not have any effective alternatives for cross-border payments, and the central bank digital currency (CBDC), the digital ruble, which is widely considered a "cash alternative", is only in the pilot stage. However, blockchain technology and cryptocurrencies, especially Bitcoin, could be considered as one of the alternatives.

Due to their censorship-resistant, open, neutral and license-free nature, cryptocurrencies could theoretically be a viable tool for countries like Russia to use to evade sanctions. As long as it finds partners willing to accept cryptocurrencies, the country can continue to participate in international trade or raise funds for political and military activities.

Russia, for example, could use cryptocurrency mining as revenue to raise funds or pay for imports - just as Iran has done, and it is estimated that Iran may have earned as much as $1 billion from bitcoin mining.

However, such an idea has not been fully endorsed by the crypto community, with some expressing the opposite view.

According to Daniel Monchar, an advisor at Meta DAO Guild, "Under the Ministry of Finance's latest proposal, there are apparently plans to severely limit the ability to pay for cryptocurrencies - with a cap of 50,000 rubles (about $800) for unqualified retail investors and a cap of about $8,000 for the rich. The Russian authorities' comments make it clear that bitcoin will not be recognized as a legal form of payment in Russia any time soon. At most, Russia will allow citizens to purchase bitcoin as an investment asset."

According to Andrey Diyakonov, CCO of fintech startup Crypterium, "The Russian Central Bank and Chinese regulators have a similar stance on Bitcoin, both of which are aimed at promoting the digital ruble or digital yuan. Therefore, the Russian authorities have so far banned the use of cryptocurrencies as a means of payment in Russia solely to disallow the use of dollar-stabilized coins, not Bitcoin."

Crypto not "encrypted"

On February 27, Ukrainian Deputy Prime Minister Mykhailo Fedorov tweeted, "It is crucial to freeze not only the addresses of cryptocurrencies associated with Russian and Belarusian politicians, but also those of ordinary users." Belarus was mentioned because the country is one of Russia's allies.

Jesse Powell, CEO of cryptocurrency exchange Kraken, responded to Fedorov: "We don't block Russian customers from trading in cryptocurrencies without a legal basis to do so."

Binance responded "We will only block the accounts of all sanctioned Russian users, but we will not unilaterally freeze the accounts of millions of innocent users ...... unilaterally deciding to ban people from accessing their cryptocurrencies would go against the very reason why cryptocurrencies exist. "

In the wake of sweeping sanctions imposed on Russia by the United States and its allies, the White House National Security Council and the Treasury Department have sought help from some of the world's largest cryptocurrency exchanges to block any Russian addresses that try to circumvent the sanctions with cryptocurrencies in an attempt to tighten the "siege" on Russia in the realm of cryptocurrencies as well.

Chainalysis, a blockchain tracking company that works closely with the U.S. Treasury Department, gave a clear answer to the question [how Russia is trying to use cryptocurrencies to evade sanctions]: We are monitoring the on-chain indicators of Russian politicians using cryptocurrencies to evade sanctions ...... and we will also monitor Russian cyber Criminal groups' cryptocurrency activities, ransomware group Conti has expressed its intention to support the Russian-Ukrainian conflict and carry out cyber attacks against Ukraine. ....... Overall, we are optimistic that the "crypto industry" can counter attempts by Russian actors to use cryptocurrencies to evade sanctions.

A Coinbase representative said the company is blocking transactions from Russian addresses that have been identified as prohibited by the Treasury Department's Office of Foreign Assets Control, or otherwise flagged as those individuals or entities that may be subject to sanctions. A number of exchanges, including Kraken, which rejected the Ukrainian deputy prime minister's offer mentioned above, have made it clear that they will comply with the sanctions if they are extended to individual citizens.

The move has sparked a huge controversy among the crypto community on personal social media Twitter: if centralized exchanges are forced to "politically" take sides and freeze users' accounts, is there any so-called privacy left in crypto transactions? What is the meaning of "decentralization" of cryptocurrencies?

A week back in time to the Russia-Ukraine conflict, Bitcoin had received the usual condemnation from the traditional media during the Canadian "Freedom Convoy" event.

The "Freedom Convoy" event is an ongoing protest by truckers in Canada against the vaccination mandate. The truck convoy plans to march in multiple routes through all Canadian provinces, converging in Ottawa on January 29, 2022, and rallying on Parliament Hill.

The Canadian government's move to allow banks to freeze related financial accounts without court documents has raised concerns in the crypto industry. The Ontario Superior Court of Justice was the first to sign an injunction freezing more than 150 different cryptocurrency addresses associated with BTC, ADA, ETH, LTC and XMR. As part of the injunction, protesters are prohibited from selling or transferring any assets, including cryptocurrencies, that are directly used to support the protests.

How can a form of cryptocurrency designed to be censorship-resistant and decentralized be traced and seized by law enforcement agencies? That is by relying on service providers that host cryptocurrencies. Many third-party Bitcoin service providers are also regulated. If you sign up for a custodian service, such as Coinbase or Square, it holds the private key to your bitcoin, just as if you had an account with a U.S. bank. These third-party services are regulated just like traditional companies, and they collect and report information about your transactions.

The crypto industry is also bound to face such controversy when it wants to enjoy the protection that comes with regulation.

One final quote from the Forbes article, "As crypto enthusiasts wonder if Bitcoin can save Russia, little do they know that Bitcoin's decentralized nature has been greatly diminished by centralized power."