The dual role of Cryptocurrencies - Russia/Ukraine war

Back in the fall, the U.S. Treasury Department warned that Cryptocurrencies threatened the effectiveness of sanctions. In fact, Bitcoin & Co. play a central role in the Ukraine war.

States have always financed wars with the help of more or less voluntary donations. With special taxes, for example, or with war bonds with interest rate promises. In this respect, Ukraine's call two days after Russia's attack is not unusual – the government would not explicitly ask for Cryptocurrencies.

"A protective shield for people" "Nevertheless, I would not speak of a crypto war, but rather of a shield for people," says Alex Gladstein of the New York human rights organization Human Rights Foundation. He helped organize the appeal for donations for Ukraine - successfully: So far, the equivalent of almost 60 million US dollars have been collected in various crypto currencies for the war chest. 

"The Ukrainian government used the money to buy military equipment to defend the country," Gladstein explains. But that's not all: "Crypto technology also provides peaceful humanitarian aid to hundreds of thousands of people who have fled, been displaced or are suffering from terrible economic conditions." For example, there are special funds to help civilians flee and provide them with food and fuel.

"Blacklist doesn't help at all "But the brave new crypto world also has its downsides, says Hanna Halaburda, a professor of economic technology at New York University. "Even before the Ukraine war, Cryptocurrencies were used for good and bad things because they circumvent state control and regulations," says the scientist. "And in this conflict, this is also very clear: With crypto you can do better and worse things. 

"Because also in Russia, the crypto currencies are used - there to circumvent the drastic sanctions of the West. Thus, with the invasion of Ukraine, more rubles have been exchanged for Bitcoin than ever before. "Let's take the oligarchs: they can exchange money for Cryptocurrencies to circumvent sanctions," says Halaburda. 

This can hardly be prevented. First of all, you would need the addresses of the virtual wallets of these oligarchs. "Then you would have to block them - secondly - in all trading platforms. And thirdly, there are not only Bitcoins; there are Cryptocurrencies that are so protected, a blacklist is of no use at all."

Access to Cryptocurrencies not adjustable? Already in October last year, the US Treasury department had warned: Cryptocurrencies are a threat to the effectiveness of sanctions. Entire departments are now busy tracking down suspicious transactions. 

The trading platforms are not much help. "We are a private company," says Jesse Powell, CEO of Kraken. "It is not our job to freeze the accounts of Russian citizens. That would go too far." Denying someone access to their finances is different "than not selling them shoes or camera lenses anymore," Powell said. "We will only take such an extreme measure if we are forced to do so by the government.

"In the meantime, several thousand crypto accounts have been blocked under pressure from Washington, but most Russian oligarchs and Putin supporters have probably remained unmolested, says expert Halaburda.

"Bitcoin was invented precisely to circumvent government regulations." The Bitcoin community could theoretically introduce blacklists now. But to do so, she would first have to coordinate herself, according to the scientist. "And then there are all the second-generation Cryptocurrencies. We are then virtually powerless to restrict the use of Cryptocurrencies."