Do cryptocurrencies support war or does war support cryptocurrencies?
Since the introduction of the first cryptocurrency in 2009, the market value of cryptocurrencies has considerably risen. One peculiarity regarding cryptocurrency is that it functions as an alternative means of exchange, decentralized and thus independent of any third entity, such as the government or the central bank.
The world of cryptocurrencies has introduced new opportunities, especially in the framework of international relations. Taking into consideration the current status of international relations, in particular the ongoing Russia-Ukraine conflict and the package of sanctions against Russia, it is becoming more relevant the question of whether countries such as Russia will be able to exploit crypto as a tool to bypass capital control.
The sanctions against Russia have negatively impacted its economy and, more specifically, its financial, commercial, energy, transport, technology, and defense sectors. The European Union, United Kingdom, and the United States imposed sanctions and decided to disconnect approximately 70% of Russia’s banking connections from SWIFT. In addition, the United States stopped importing oil and gas from Russia after it invaded Ukraine, inviting the (more hesitant) European Union to do the same. This has resulted in a devaluation of the ruble and increased the cost of living. To counter the sanctions, Russia has considered accepting Bitcoin for the payment of oil and gas from “friendly” countries such as China and Turkey. On the other hand, from “hostile” countries, Russia declared that it would accept only rubles for payment, to defuse Western sanctions and strengthen the Russian currency.
One question now being asked is “What if payment with cryptocurrency from the “hostile” countries could be an option, a solution, for these countries to pay for energy sources secretly despite having officially announced sanctions against Russia?”
Russia, in need of financial resources and in need to sell its gas and oil might consider allowing such countries to officially proclaim themselves “hostile” to Russia but continue business as usual. Unlike FIAT currencies, cryptocurrencies can benefit from the fact that their system does not have intermediaries such as banks, and transactions taking place to retain a high level of anonymity. Users, therefore, can carry out transactions without their identity being revealed, from the moment that cryptographic keys keep the financial transactions secure.
Arising from such use of cryptocurrencies is the fear that countries such as Russia could use them to bypass international sanctions. The U.S. Treasury Department’s Office of Foreign Assets Control has shown concern that Russia may exploit crypto mining in order to monetize its wide oil reserves and natural resources and circumvent western sanctions. Ukraine, as well as Europe and the U.S., has asked cryptocurrency platforms to ban all Russian users, and Binance, the largest crypto exchange worldwide, is now working in this regard. Indeed, the latter will only allow Russian accounts with more than 10,000 euros deposited in digital currency to withdraw funds, and neither deposits nor trades will be allowed.
Russian citizens are believed to possess around 124 billion U.S. dollars worth of digital assets and ruble-denominated cryptocurrency trading increased dramatically after the outbreak of the Russia-Ukraine conflict; further evidence that Russians are employing cryptocurrencies to counter the difficult economic situation of their country.
In conclusion, the Russia-Ukraine conflict has transcended traditional war borders to involve the world of cryptocurrencies. However, if Russia’s consideration to accept payments in Bitcoin were to become a reality, then the world will have to deal with the upheaval of digital currencies. As a result, the Nakamoto cryptocurrency would become a trans-national means of exchange no longer just for private citizens but also for countries.