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Crypto’s use case during times of conflict

Slate | Tim Marple | Mar 1, 2022

Crypto during times of conflict - Crypto's use case during times of conflictFirst, digital currencies have provided new ways for Russia to sidestep the world’s primary response to its attack: sanctions. Many commentators argue that the country has likely been developing such a strategy in the years since it invaded Crimea. Individuals and businesses targeted by sanctions can simply move their funds through crypto networks, which remain harder to monitor and control by governments, particularly across borders. However, it is worth noting that this seemingly simple strategy remains rife with difficulties. In fact, Russia may be far better off continuing its efforts to develop an alternate financial network that circumvents SWIFT (which is the global interbank financial network used to enforce sanctions). Still, given the sheer scope of Russian wealth held in cryptocurrencies, digital money will likely play a role in future sanctions against the country.

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Beyond this, cryptocurrency provides new attack vectors for the Ukrainian defense to hit back at Russia. Recognizing the opportunity for Russians to evade sanctions via crypto, Ukrainian officials have publicly solicited information on Russian politicians’ crypto wallets in order to monitor, publicize, and potentially intercept these attempts at evading the West’s nonviolent interventions. Two days into the armed conflict, Vice Prime Minister Mykhailo Fedorov sent a  tweet offering substantial rewards for any tips. The effort reflects not only the impressive capabilities of Ukraine’s still-growing “IT army,” but also the vulnerabilities that Russia still faces in its efforts to use this technology as a functional escape hatch from global punishment for its illegitimate actions.

However, Ukraine’s cryptocurrency defense strategy doesn’t stop with a call to hackers’ arms. The country has also requested that major cryptocurrency exchanges freeze every digital currency wallet associated with Russian users. Fedorov even claimed it crucial to “freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users,” a suggestion eliciting mixed responses among crypto exchanges. Crypto exchange operators are now in positions of significant power over the role of digital money in today’s war. While a wide swath of these exchanges have begun freezing Russian cryptocurrency wallets on their networks, some have been reluctant to comply and have limited their efforts to the minimum necessary compliance with sanctions. This development may be one of the most significant points of uncertainty around crypto’s use case in war, as it highlights the extremely young—and underregulated—nature of the digital currency market, and the enormous power that these circumstances place on a small set of large business owners.

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Finally, digital money has also provided a new avenue for people outside of the armed conflict to support Ukraine. In the early days of the war, small corners of the cryptocurrency community began organizing to send digital currency donations in support of Ukraine’s defense. Since the country’s president openly solicited crypto donations with a publicly listed wallet address, the fundraising effort has amassed more than $22 million in financial support for the defense in a matter of days.

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