EVER since cryptocurrencies showed up in the financial world they’ve been met with scepticism from some quarters. Even the Coinbase listing was not enough to clear doubts of some in the financial establishment. The Russia-Ukraine war, however, might be what could trigger societal acceptance across the board.
As big tech companies deactivate Russia from their financial systems and Swift begins to kick-off, there’s one option – cryptocurrency.
Blockchain technology gives the Russians the ability to transact directly.
Ukrainians have raised tens of millions of dollars in cryptocurrency to assist in the fighting. Ukraine's vice prime minister announced on Twitter that the country would soon release NFTs to help raise funds for its defence against Russia's invasion.
Ukraine has raised more than $50 million (about R760 million) in cryptocurrencies, according to data from Elliptic. The tens of thousands of donations included a $200 000 CryptoPunk NFT and a $5.8 million gift from Polkadot founder Gavin Wood. Donors have been sending crypto in the form of bitcoin, ether, and even meme tokens like dogecoin and digital pieces of art known as NFTs.
Media reports have indicated that the Russian government is developing its own central bank digital currency, a digital ruble that it hopes to use to trade directly with other countries willing to accept it without first converting it into dollars. The digital ruble could also make electronic payments cheaper, ease the pressure on the payment infrastructure and make cross-border payments more convenient.
Reports also indicate that hacking techniques, like ransomware, could help Russians steal digital currencies to make up revenue lost to sanctions.
And while cryptocurrency transactions are recorded on the underlying blockchain, making them transparent, new tools developed in Russia could help mask the origin of such transactions. That would allow businesses to trade with Russian entities without detection.
According to some media reports, Russian entities are preparing to blunt some of the worst effects, by making deals with anyone in the world willing to work with them. And, they say, those entities could then use digital currencies to bypass the control points that governments rely on — mainly transfers of money by banks — to block deal execution. In Russia, cryptocurrencies are becoming an important tool in lessening the impact of sanctions.
Recently representatives of Russia’s central bank told a Moscow newspaper that the new “digital ruble” would make the country less dependent on the US and better able to resist sanctions. It would let Russian entities conduct transactions outside the international banking system with any country willing to trade in digital currency.
As the crisis unfolds, other countries and businesses are watching the developments, and they are learning. One lesson that stands out is that it’s not a waste of time to develop a national cryptocurrency. It can be a means of protection when the establishment disconnects you from the global system.
There are lessons for the establishment as well. One such lesson is that technology is taking power from those with power and distributing it. To regulate, society would have to include a clear understanding of technology.
While cryptocurrencies are an option for Russia they are receiving the attention of authorities. The EU is considering new measures to ensure digital assets are not used to dodge sanctions against Russia as the bloc toughens its enforcement of the financial penalties imposed on Moscow in the past week.
This, however, has not deterred crypto entities from enabling Russia to trade. Many large crypto exchanges, including those based in offshore jurisdictions, have pledged to honour sanctions but resisted calls for a blanket ban on dealing with Russia. Several exchanges said broad restrictions would hurt Russians and run contrary to cryptocurrencies’ founding libertarian ideology.
Russia’s invasion of Ukraine is turning into a geopolitical test for Bitcoin as a digital currency in a time of crisis. It appears to be passing.
Bitcoin jumped more than 15 percent on Monday as the Treasury Department announced sanctions against Russia’s central bank and froze some Russian assets.
War can never be a good thing in society, however, it has a way to jumpstart some innovations previous wars have proved. The Russia-Ukraine war might just lead to crypto adoption by a major part of the world.
Wesley Diphoko is the Editor-In-Chief of Fast Company (SA) magazine.