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Role of cryptocurrencies during an international conflict

The ongoing conflict is the first time crypto-assets have come into prominence from a financing point of view, and this poses several new questions as to how conflicts are financed. It opens a new front on how economies adapt during conflicts

April 28, 2022 / 04:21 PM IST
Russia-Ukraine war: The Moskva warship was spearheading  Russia's naval effort. (Image credit: Screengrab from video tweeted by @modesud_osint)

Russia-Ukraine war: The Moskva warship was spearheading Russia's naval effort. (Image credit: Screengrab from video tweeted by @modesud_osint)

Ankitt Gaur and Anshul Dhir

The ongoing Russia-Ukraine crisis may have the signs of what many are calling a ‘War by Crypto’. With over $60 million-worth of digital assets being transferred to DAOs and funds maintained in favour of Ukraine, suggests that this digital economy is hard at work.

Cyptocurrencies, or crypto-assets, cuts both ways in as much as the advantage presented to Ukraine is also available to Russia. According to some reports, Russia has been considering accepting Bitcoin as payment for its oil and gas exports.

The ongoing conflict is the first time crypto-assets have come into prominence from a financing point of view, and this poses several new questions as to how conflicts are financed. It opens a new front on how economies adapt during conflicts. What is the role of crypto-assets during a war?

Safe Haven Bet

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Geopolitics is shifting the paradigm of how sovereign currencies react. Since the beginning of the conflict, depositors on both sides of the war have been making a bank run to withdraw their money. Owing to this, the Russian central bank raised its interest rates substantially to stabilise the freefall of the rouble. With sanctions doing the rounds and the values of sovereign currencies falling, people generally move their money to safer havens such as gold. But this time around, it's Bitcoin that has taken precedence. Surprisingly, even the US Dollar, considered to be the global reserve currency, is not immune to this shift.

People are preferring converting fiat to Bitcoin or other virtual digital assets (VDAs), and receiving funds and transacting in crypto assets over fiat currencies. This is despite the fact that off late VDAs have been behaving like a risk asset and not like a safe haven touted till a few months ago.

Effects Of The New Regime

Here is a run-down of what we believe is happening in the current times and how the immediate future will get affected in presence of and because of Cryptos.

Enabling The Displaced Economy: The past 40-plus days of the Russia-Ukraine conflict has seen mass displacement of people. This amounts to a huge loss not only to the country but also to millions of individuals. With this sudden displacement comes a humanitarian crisis, and the friendly governments can only do so much. With fiat donations taking their own sweet time, friends and family have reached out with crypto donations, the transfer of which takes anywhere between 1-20 minutes.

Crowdfunding: The official Twitter account of the Ukraine government earlier posted a message saying it accepted cryptocurrency donations. These digital assets, now topping $120M, raised since the first week of March, has allowed Ukraine to provide its army with bulletproof vests, packed lunches, better military helmets, and much more.

Skirting Sanctions: Moscow has a grip on the energy supply to many parts of the world, especially to countries in Europe. In the last week of March news reports suggested that Russia was considering accepting Bitcoins as payment for its energy exports. This move reflects the value VDAs have in the current economic fog of war. On March 31, Russia’s President Vladimir Putin signed an order insisting that oil be bought in rubles. It is suspected that many oligarchs in Russia have circumvented sanctions using crypto assets.

Citizen Wealth: The financial wellbeing and saving of ordinary citizens in these two countries have been affected because of the conflict—mainly because of the effect on the Russian ruble and the Ukrainian hryvnia. Reports suggest that citizens on both sides of the conflict have been using VDAs as a lifeline after their currencies collapsed. This reliance on stablecoins and Bitcoins has led to these VDAs holding on to their net worth to a certain extent. The volume of Bitcoin-Ruble transaction has touched record highs, which shows the shift of ordinary citizens towards digital assets.

New Crypto World Order

This ongoing conflict is expected to accelerate the need and acceptance for VDAs globally among ordinary citizens as a hedge when economic uncertainties rise. In times of distress, the global reserve currency comes under pressure; and is controlled by States. The ongoing war between sovereign currencies and challenges to a global fiat reserve currency, may help the case for VDAs which are not controlled by governments.

Notwithstanding the devastation of the war, the blockchain-based alternative is beginning to justify what it was designed for.

Ankitt Gaur is Founder & CEO, and Anshul Dhir is Co-Founder & COO, EasyFi Network. Views are personal, and do not represent the stand of this publication.
first published: Apr 28, 2022 04:21 pm
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