The double-edged sword of cryptocurrency in war

The Russian invasion of Ukraine is an internationally condemned act of aggression currently playing out in real-time which has captured the attention of onlookers globally.

That this could happen in 2022, in Europe, under the unblinking gaze of millions of smartphones has shaken many of us to our core. The invasion has led to 4.5 million Ukrainians leaving the country – Europe’s largest refugee crisis since World War II.

The Western world has stood united in concerted action unlike anything in recent memory.

Unwilling at this stage to engage directly in the conflict, we’ve been quick to explore indirect modes of intervention. Financial and material support has flooded into Ukraine.

Janine Grainger

Trade sanctions on Russia have been escalated with urgency. Financial sanctions have been deployed, including ejecting Russia from the SWIFT international banking system, a penalty which reportedly significantly constrained the Iran economy when that nation was similarly excluded.

Into this milieu of support and sanctions swirls a relative newcomer to events of global geopolitical significance: cryptocurrency.

Over the last month we’ve seen inspiring headlines about cryptocurrency being used as vehicle to crowdfund global financial support for the Ukraine government that would reach the government directly.

In fact, the Ukrainian government tweeted its official crypto wallets to ensure would-be donors knew the call to action was legitimate and the funds made it to the right place.

We’ve also seen headlines about scammers creating false humanitarian initiatives in an attempt to inveigle cryptocurrency from well-meaning donors.

Putin’s sanction-busting super weapon?

Beyond this, a larger, more concerning thread emerges. A number of voices (including The Daily Telegraph’s Ben Wight) have suggested that cryptocurrencies are Putin’s sanction-busting super weapon.

To that claim, it’s worth introducing some perspective. At this point in time, the total market cap of the world’s largest cryptocurrency, Bitcoin, is $836 billion (USD), owned by investors of all nationalities across the globe.

The annual GDP of Russia is $1.75 trillion (USD).

While cryptocurrency has enormous utility for both good and ill (as current world events demonstrate), keeping the entire Russian economy afloat in the face of concerted and consequential economic sanctions is not within the realms of possibility.

Blockchain analytics in the fight against Russian mis-use

What must be reckoned with is that Russia may use cryptocurrency to dull the impact of sanctions for certain individuals in the same way it uses foreign fiat currency reserves (apparently $630 billion worth) and its significant gold reserves.

There are some options here, and Mykhailo Fedorov, Ukraine’s vice prime minister and minister of digital transformation, has implored cryptocurrency platforms to block the addresses of Russian users.

In New Zealand, Easy Crypto, already does this through blockchain analytics which flag and block a lot of Russian exchanges and we’re investigating what further steps we can take.

It will be interesting to see how other Western-based platforms with significant Russian user bases respond to such calls.

All about intent

What can we take from all of this? The reality is that the decentralisation of cryptocurrency is at the heart of its utility. What makes it useful to well-intentioned buyers – those who would donate to the Ukrainian cause or shift funds seamlessly to loved ones across the globe – is what makes it appealing to darker forces.

In much the same way unsavoury elements find immense utility in US Dollars, the internet and mobile phone services when coordinating their efforts, cryptocurrency is a neutral tool directed by the intent of its users.

That cryptocurrency has become a talking point in coverage around this current crisis signals a maturation of the technology. It’s clearly no longer seen as a curiosity for techies and hobbyists.

Cryptocurrency is powerful, consequential, and it’s shaping the world of tomorrow.

For this reason, it’s never been more important to understand its potential for use and misuse.