The Dual Role of Cryptocurrencies

The US Treasury Department warned back in the fall that cryptocurrencies threatened the effectiveness of sanctions. In fact, Bitcoin and company are playing a central role in the war in Ukraine.

States have always financed wars with more or less voluntary donations. For example, special taxes or war bonds with the promise of interest. In this regard, Ukraine's call two days after Russia's attack is not unusual - whether the government would specifically request cryptocurrencies.

"Shield for the People"

“However, I would not call it a crypto war, but rather a protective shield for people,” says Alex Gladstein of the New York-based Human Rights Foundation. He helped organize a fundraiser for Ukraine — and successfully: at the moment, the equivalent of almost $60 million in various cryptocurrencies has been collected for the military treasury. “The Ukrainian government used this money to buy military equipment to defend the country,” explains Gladshtein, as did cryptocurrency brokers Australia. But that’s not all: “Crypto technologies also provide peaceful humanitarian assistance to hundreds of thousands of people who have fled, been displaced or suffer in difficult economic conditions.” There are special funds that help civilians escape and provide them with food and fuel.

"Blacklist is useless"

But the brave new world of crypto also has its downsides, says Hanna Halaburda, professor of business technology at New York University. “Even before the war in Ukraine, cryptocurrencies were used for good and for evil, because they bypass government control and regulation,” the scientist says. “And in this conflict, this is again very clearly shown: you can do better and worse with cryptography.” Because cryptocurrencies are also used in Russia - there to circumvent the harsh sanctions of the West. With the invasion of Ukraine, more rubles were exchanged for bitcoin than ever before. “Take the oligarchs: they can exchange money for cryptocurrencies to avoid sanctions,” says Khalaburda. It is unlikely that you will be able to prevent this. First of all, you will need the virtual wallet addresses of these oligarchs. “Then you, secondly, will have to block them on all trading platforms. And thirdly, there are not only bitcoins, there are cryptocurrencies that are so secure that the blacklist is useless.” More about the reasons for the collapse of bitcoin are reported in this source.

Access to cryptocurrencies is not regulated?

The US Treasury already warned last October that cryptocurrencies pose a threat to the effectiveness of sanctions. Entire departments are now busy tracking down suspicious transactions. Trading platforms are not very helpful. “We are a private company,” says Kraken CEO Jesse Powell. “Freezing the accounts of Russian citizens is not part of our task. It would be too far." Denying someone access to their finances is not the same as "not selling them shoes or camera lenses anymore," Powell said. “We will take such extreme measures only if we are forced to do so by the government.” In the meantime, under pressure from Washington, several thousand crypto accounts were blocked, but most Russian oligarchs and Putin supporters probably remained untouched, expert Khalaburda said. “Bitcoin was invented precisely to circumvent government regulations.” The Bitcoin community could theoretically introduce blacklists now. But for this, according to the scientist, she will first have to coordinate her actions. “And then there are all the second-generation cryptocurrencies. We are practically powerless to limit the use of cryptocurrencies.”