Crypto’s (Unfortunate) Value During Wartime

News, Opinion, Regulation | March 17, 2022 By:

The Russian invasion into Ukraine sparked global outrage and a humanitarian disaster. It also marks the first major conflict to occur during the cryptocurrency age, and digital currencies quickly had a role to play on both sides of the war. Increased usage between these two countries at war will further drive personal adoption and encourage countries to enact rules and frameworks for cryptocurrency transactions. There’s multiple reasons individuals and businesses are turning to cryptocurrency during the Russian-Ukrainian conflict, including enhanced safety and convenience, security, and decentralization. 

Safe and Convenient

Cryptocurrencies provide people with a fast and reliable way to conduct transactions. There’s no antiquated wire transfers or settlement delays, instead secure and immutable transactions completed instantly. During armed conflict, people cannot access brick-and-mortar banks without putting themselves in harm’s way. If they can reach their bank, they might face limits on withdrawals and usage of digital wallets, two conditions that emerged in Ukraine right after the start of the Russian invasion. 

Cryptocurrencies give people a hedge against bank runs and insolvent financial institutions, by giving them a globally traded form of money. If people flee conflict, such as the millions of Ukrainians pouring into Poland and other countries, then cryptocurrency allows them to “take” their money with them without the possible collapse of their local bank. Even if they don’t have immediate internet access, if they know their login credentials, they can still access their funds at some point. The ease of sending Bitcoin and other cryptocurrencies is also driving donations to Ukraine, with nearly $100 million in donations received as of March 9, 2022, according to Ukraine’s deputy minister at the Ministry of Digital Transformation. There’s confidence in these donations reaching the right groups due to cryptocurrency’s solid security. 

Improved Security and Lowered Risk

While Bitcoin is sometimes referred to as “digital gold,” it’s become more than just a place to store funds and see long-term appreciation. Holding physical gold or other precious metals as an asset is very risky, especially during conflict. Metals are heavy and bulky. People transporting precious metals make themselves targets for theft, and during wartime they’ll have no recourse to recover any stolen goods.  

People can hack through blockchains, but it’s difficult to hack a cryptocurrency like Bitcoin. The entire network reviews the Bitcoin blockchain all the time, and its decentralized structure sets it up to deflect hacking attempts. Since its formation there has not been a successful Blockchain hack. However, people and cryptocurrency exchanges are easier targets for hackers. People holding these assets before, during, and after war and conflict should be sure they keep their passwords secure. They also should understand how wallets, exchanges, and other parts of the cryptocurrency ecosystem work, so they have the context to spot potential scams and make informed decisions. Utilizing a cold wallet is an option for many of these people because it provides them with an offline way to protect their money with encrypted hardware. If they can flee with the physical cold wallet, they can keep their cryptocurrency assets secure and hidden until they’re reestablished in a new country or region. 

Free from Sanctions and Unjust Control

As Russia invaded, Western countries responded with sanctions. They used the global monetary system to devalue the ruble, seize Russian assets, and limit the flows of money into and out of the country. These actions increase the value proposition of Bitcoin and other cryptocurrencies. They’re no longer attractive forms of decentralized currency shaping the modern economy but serve as a necessity for people impacted by conflict. In Ukraine, a group launched the Ukraine DAO (decentralized autonomous organization) to funnel crypto donations. It’s the first instance of wartime donations not routing through an organization like the Red Cross or other similar group, but instead through a virtual organization that does not have sanctioned leadership, rather it’s a collective group with a shared goal. These DAOs can work hand in hand with established charitable organizations to bring in funds at unprecedented speed and scale, allowing groups to help people in need without delay. 

Stephanie Hurder, partner and founding economist and Prysm Group, an economic advisory, noted the war put cryptocurrency at a new inflection point, saying “This moment has really emphasized the best parts of crypto but also reinforced some of the areas that still need work. There’s promise in the transfer of value but a lot of the issues that we know exist are really still there.” 

On the other side of this war, Russians are turning to cryptocurrencies as a financial alternative. It might provide oligarchs a way to shield their assets or skirt around sanctions. It also gives lower and middle-class Russians a way to convert the plummeting ruble into Bitcoin or other assets. This movement to cryptocurrencies will likely continue within countries like Russia as well as other autocratic regimes where ordinary citizens’ finances are at the whim of dictators. 

The apolitical nature of Bitcoin means it will offer potential benefits and financial pathways for both sides of an armed conflict for the foreseeable future.