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Russia is at war with Ukraine. China is threatening to invade Taiwan. Is the world at the cusp of the third world war? Well, we wouldn't want this to happen. While the world is just starting to feel the effects of the Russian-Ukraine war, one thing is certain: crypto use has come to the spotlight. It is the first major war that has thrown cryptocurrency's role into prominence. The emerging question is whether crypto can help people bypass sanctions and how it supports donations to affected people.
 

Can Crypto Help Bypass Sanctions?

According to Bitcoin news today, soon after the Russian army invaded Ukraine on February 24th, the US, European countries, and their allies sanctioned financial institutions and key figures, including removing banks from the SWIFT system. The emerging question is whether Russia can use cryptocurrencies to bypass the sanctions. Let's approach this question from a decentralization basis. 
 

Democratization of Finance 

The basis of decentralizing crypto is to help democratize finance. For instance, ordinary citizens in Russia and Ukraine could use crypto as a medium of exchange and store of value hence avoiding the effects of sanctions and humanitarian costs of war. But what will be the effects? 

First, it could undermine the authoritarian rule in Russia and facilitate capital flight by offering an alternative to the rumble. But on the flip side, the entities and individuals in Russia could use the digital assets to bypass sanctions due to the under-regulated nature of the crypto. Suffice it to say there is an ideological difference in the role of crypto in passing the sanctions. 

At the center of the contention is the extent to which crypto exchanges should adhere to sanctions. For instance, exchanges have resisted calls, including by the Ukraine government, to suspend crypto trading in Russia for everyone. Theoretically, people can use crypto to bypass sanctions and illicit purposes. But practically, the limited liquidity, technological hurdles, and market structures can make it challenging to use crypto to evade sanctions.
 

Technological Barrier 

The crypto transactions are logged on the blockchain, a public ledger. While the transactions are pseudonymous, they are not anonymous. This means that exchanges can trace illicit transactions. Law enforcement and private firms like Chainalysis use creative analytics to identify such transactions. As per Chainalysis, over 0.15% of crypto transactions are used for illegal activities.
 

Market structures 

Centralized crypto exchanges use to know your customer, anti-money laundering, and counter financial terrorism (KYC/AML/CFT), which means authorities can freeze or suspend certain entities. For instance, Coinbase has blocked more than 25000 individuals under the sanction list. However, decentralized exchanges use smart contracts, which are likely to be used for illegal activities, including by sanctioned individuals. 
 

Lack of Enough liquidity 

Despite the crypto industry's growth, which is predicted to further grow in 2022, the daily transaction volume is insufficient to allow Russian oligarchs to move massive amounts of money. The liquidity is just not enough. For instance, while swift handles over $4 trillion daily, the average daily crypto transaction volume is yet to cross half a billion this year.

Note that other parties should be willing to accept crypto transactions to facilitate crypto trade. Remember, Russia is a major exporter of gas. However, countries with massive crypto holdings have sanctioned Russia, while others have explicitly banned crypto.
 

Donations and Humanitarian Efforts in Ukraine 

Ukraine has legalized crypto and ranks fourth globally for crypto adoption. Therefore, Kyiv is well-positioned to use crypto. It has leveraged this to solicit donations accepting over 70 cryptos. The biggest donations have come from individuals, organized by Michael Chobianian, founder of Kuna, the largest crypto in the country. By March, the donation amounted to over $100 million. 

Currency crypto seems to have become a part of the Ukrainian economy. President Zelesnskyy signed a law that provides users and crypto platforms with a framework for conducting transactions.
 

NFTs Donations

Besides using digital currencies, some donors have sent assistance in NFTs. One of the NFT donations, CryptoPunk, fetched a whopping $200000. The Ukraine government has also resorted to minting and selling, including the Ukrainian flag NFT sold in ether and fetching $6.75 million. 

Despite getting valuable NFT donations, the government is yet to sell most of them, unlike more liquid crypto coins. The government has prioritized exchanging less popular coins for dollars and euros while holding ether and bitcoin in reserve. For instance, the Ukraine government has used $15 million to purchase bulletproof vests, battlefield medical supplies, and other non-lethal supplies. The best news is that 40% of the suppliers have accepted direct crypto transactions. 
 

Has Bitcoin Become a Safe Haven? 

Bitcoin has shown a positive correlation with stocks and other risk assets. As the war intensified, its value increased, perhaps proving it was finally becoming a safe haven during the crisis. However, the price has plummeted massively to a yearly low, especially after the Fed increased the interest rates faster than anticipated to curb inflation.

Therefore, it doesn't qualify as a safe haven. Essentially, it is yet to reach the gold standard as a reliable store of value, especially during a crisis. However, stablecoins are more stable than other digital assets hence suitable for facilitating remittances and settling payments and could be the backbone of the Defi growth.
 

Why Crypto Is Proving Useful in War

• First, crypto is more suited to attract young people keen to support various courses through donations. 
• Crypto is less affected by macro factors and geopolitics. Therefore, it is favorable for Ukrainian donations and has come in handy with the Ukrainian hryvnia value depreciation. 
• Making the donations is quite fast, taking a couple of minutes, unlike bank wires which might take up to 24 hours.
   

Streamlining the Role of Cryptocurrencies 

The discussion on the role of cryptocurrencies in war comes as various governments plan to introduce crypto assets regulations. For example, US president Joe Biden recently signed an executive order to develop a strategy for responsible digital assets development to mitigate security risks. 

The order outlines a whole-of-government strategy that extends beyond national security and financial stability to climate risks and consumer protection. Similarly, the European parliament is also planning to pass regulations that could limit some crypto assets. This will definitely affect the global view of cryptos. 

The US lawmakers are at the forefront in urging the treasury department to ensure the crypto exchange complies with the law. Coinbase is planning to block people who mask their IP addresses, fearing that the accounts might belong to sanctioned individuals. It will also screen people who sign up without adhering to the global watchlist.
 

Final Words 

The role of crypto in war has become clearer with the Russian invasion of Ukraine. It is a fast and convenient method of sending donations. Since crypto transactions can bypass some controls, it benefits people in countries hit by sanctions or wars. However, the blockchain utility on a public ledger helps track the movement and deployment of crypto. The exchanges can, therefore, ensure that crypto transactions do not aid sanctioned entities perpetrating the war.