How the Ukraine War Is a Test for Crypto — And Why Crypto Is Passing
By Giovanni Zaarour, Richard Tso, and Aaron Teklu
It’s been over a month since Vladimir Putin shocked the world with his prompt instigation of the all-out Russian invasion of Ukraine. While this situation still raves on and continues to affect and displace millions of Ukrainians from their homes, the crypto world has seen massive attention as donations have been flooding Ukrainian wallets. At the same time, crypto is proving to be a valuable alternative for Russian citizens affected by sanctions. As the very first international conflict and geopolitical setting of this magnitude that involves crypto, the 2022 Ukraine invasion is a showcase of the true utility of cryptocurrencies.
On one hand, the world’s first “crypto war” involves plenty of humanitarian-minded monetary donations to Ukraine. This includes money donated to both the Ukrainian government wallets and NGOs such as Come Back Alive, UNICEF, UNHCR, and more. Since the outbreak of the war, the global crypto community has come up with a plethora of donation mediums, such as Ukraine DAO, NFT donations, Unchain Fund, Endaoment, reli3f.xyz, NFT sales revenue, and direct donations through mainly Ethereum, Bitcoin, and stablecoins. See the charts below provided by @msilb7 on Dune analytics which summarize all the Ethereum L1 donations:
Additional donations include 30% Bitcoin, and 14% DOT (which is mainly a $5.8 million donation by Polkadot founder Gavin Wood). Here is the breakdown of currencies donated to Ukraine, provided by Elliptic:
Sources of bitcoin donations include $10 million from Binance charity on February 27th, going mainly to UNHCR, UNICEF, and other NGOs, and another $10 million from Kraken exchange, which airdrops money directly to Ukrainian civilians with Kraken accounts. An estimated $60 million in cryptocurrency has been donated to Ukraine.
As mentioned by ConsenSys founder and Ethereum co-founder Joseph Lubin, crypto is proving to be one of Ukraine’s best weapons against Russia. It has played a pivotal role in the conflict, helping provide food and shelter aid, medical supplies, and refugee support to those in Ukraine impacted by the invasion.
The conflict has also caused government sanctions against Russia, specific to traditional finance. Countless Russian banks have been banned from SWIFT, preventing international transactions and severely affecting trade. Additional sanctions include those against individual Russian politicians and oligarchs, many of whom had their foreign assets frozen; Mastercard and Visa blocking Russian transactions; Russian companies banned from western financial transactions and trade in the US, Canada, and the EU; and Russian financial services restricted from issuing bonds, shares, or loans in the EU and making dollar transactions in the US.
A more complete list of these sanctions is available through this Financial Times article, but it is needless to say that the traditional finance world has made Russia pay for its actions — and this unfortunately includes the tens of millions of Russian citizens who are uninvolved and against the war. Thus, many Russians who can no longer rely on their banks to make transactions and foreign transfers have turned to crypto as alternatives to fiat money.
With this, there has been an onslaught of western governmental demands for crypto exchanges and services to ban use in Russia, with fears that oligarchs and institutions can evade the consequences of sanctions by using crypto. This has raised a very important discourse about crypto neutrality, as exchanges like Binance, Kraken, and Coinbase all refused Ukrainian and US demands to ban Russian citizens from using their services. This is on the basis of fundamental cypherpunk and libertarian ideals that crypto was founded upon, highlighting crypto neutrality and the decentralized blockchain ideology — not trusting governments and not choosing sides.
Given these ideals of the blockchain community, it is also clear when comparing TradFi and DeFi that the foundational properties of crypto make it a superior system in the role it has played in this war. As blockchains are permissionless, decentralized, immutable, transparent, and not subject to middle-men intermediaries, it allows for a roadblock-free way to fundraise, send and receive money, and use alternatives to fiat money.
Permissionless means nobody is barred from entering or using the systems, thus allowing neutrality between both Russian and Ukrainian use of blockchain’s financial infrastructure. With an immutable and transparent blockchain, anyone can verify and track all real transactions, which debunks the worries that oligarchs and institutions can evade necessary sanctions through the use of blockchain technology. Additionally, the lack of intermediaries in DeFi eliminates the worry of corrupt financial institutions and NGOs misusing or stealing donation money in the transactional process — this has happened many times before with fiat and, even if it happened in crypto, it would be traceable.
With a severe decline of the Russian economy and national currency, the Ruble, cryptocurrencies are a significant alternative for Russian citizens as a store of value and transactional money. Whether it be bitcoin, Ethereum, other altcoins, or reliable stablecoins, many Russians would rather hold onto value in crypto than suffer losses due to severe inflation and price volatility in the Ruble. Similar volatility can be seen with the Ukrainian national currency, so the same principle also holds.
Hence, crypto has somewhat proven its utility with respect to banking the unbanked and supporting those who cannot rely on traditional financial institutions, through the lens of Russians civilians that cannot currently rely on their conventional banks. In a similar way, but from the Ukrainian perspective, crypto has shown how a massive global community can come together and provide international monetary support using split-second transactions without having to go through slow and potentially corrupt third-party funds and intermediaries.
This is what all the crypto maximalists, founders, and believers envisioned, and we are starting to see that manifest. It is unfortunate that this realization is starting to happen through war, tragedy, and human suffering but, as the thinker Nassim Taleb would say, this is a case of increasing global antifragility — systems gain the capability to thrive as a result of disorder, stress, and shocks. In the same way, crypto is an improvement the world needed, and this conflict has actually accelerated its adoption and improved the overall global sentiment towards blockchain as a whole.
Evidently, when centralized institutions and governments can no longer be trusted to provide financial infrastructure and economic reliability, blockchain can come to the rescue. While the ongoing Russia-Ukraine war is a complicated situation that has negative societal consequences, it has, through the chaos and fragility that it caused, undoubtedly shown how valuable blockchain can be to the world.
Finally, although the use of blockchain and cryptocurrency has not been completely accepted by people and governments around the world, it is slowly becoming integrated into more people’s lives. The war is an eye opening example of what decentralized assets can do for the people in these countries that have limited the people’s access to their funds. Now that people are actually purchasing and using crypto as a means of survival rather than speculative investments, it is proving the actual utility of blockchain technology and digital assets. It is possible and hopeful that, after all is said and done, these people that relied so heavily on crypto donations and blockchain to access their funds could go on to keep using digital assets, rather than switching back to traditional finances.
