Cryptocurrencies are making its presence felt among both sides of the turmoil in Ukraine incurred by Russia's attack. Their flexibility to enter territories without regard for rules or regulations is assisting Ukrainian refugees in transferring funds out of the country, but it could also offer a path for Russian elites to avoid severe economic sanctions.
Shortly following the attack last month, the Ukrainian government, in urgent need of supplies, tweeted a request for Bitcoin and Ethereum donations. Ukraine's Bitcoin wallet had garnered over £7.5 million as of 4 March, whereas its Ethereum wallet had gained £3.2 million.
In contrast to funds raised by non-governmental organizations and charities, these were accessible to the Ukrainian government in minutes. Other fundraising initiatives have not been as straightforward. Patreon, an online fundraising service, has banned an account that had drawn over 14,000 funders donating a monthly average of more than £300,000 for Ukraine because fundraisers associated to weapons collection infringe Patreon's policies – the varying levels of donation were referred to as "bullet" and "bomb." Alternatively, Come Back Alive, the organization behind the Patreon page, raised funds by selling an NFT (non-fungible token) of the Ukrainian flag for nearly £5 million.
Russians are also trying to convert their funds to Bitcoin as the Ruble's value fell given the international sanctions that have choked Russia's economy. Bitcoin has been in such high demand that it is trading at a premium to global prices. Simply put, there are more buyers than sellers who can or will accept Russian Rubles.
There are concerns that Russia's wealthy oligarchy and those linked to Putin will use similar methods to transfer their money from the country in order to avoid sanctions. However, according to George Lopez of the University of Notre Dame in Indiana, any Russian oligarch who uses a Swiss bank – long a favorite storage option due to the country's strict banking privacy laws – and hopes to cash in millions of dollars worth of Bitcoin will most likely be on the surveillance of multiple wary Western governments.
He contends that, whereas nations such as North Korea were able to set up complex global networks to circumvent sanctions in order to transfer funds and goods using Bitcoin, Russia has had insufficient preparation time. “Every bank is very, very suspicious of reasonably large transfers from anybody who’s trying to convert into euros or dollars who hasn’t been a prior customer,” he says.
According to Lopez, Russian businesses are now cut off from the global banking system, and dealing with foreign nationals using cryptocurrency transactions will be tricky since the recipient will inevitably have to convert into their own currency, triggering financial inquiry. Put bluntly, under the present surveillance, large sums of unspecified money are becoming more difficult to deposit into banks.
While some exchanges, such as Gopax, have restricted accounts affiliated to Russians on official sanction lists, some are likely to undertake meaningful action, leaving the libertarian-leaning industry on its own as brands like Apple, Nike, and Ford suspend products and services from Russia.
A representative for Kraken, a cryptocurrency exchange based in the United States, told New Scientist that the company was complying with all sanctions imposed on Russia, but the company's CEO, Jesse Powell, said on Twitter that the company would not go much further. “If we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, step one would be to freeze all US accounts,” he wrote. “That’s not really a viable business option for us.”
It is difficult to attribute any price movement in Bitcoin to the invasion of Ukraine alone, but cryptocurrencies are clearly demonstrating to be a far more reliable bet than the Russian Ruble during this conflict.