Russia-Ukraine conflict looks like a defining moment for cryptocurrencies

Russia-Ukraine conflict looks like a defining moment for cryptocurrencies

 

While the mindless fighting continues in Ukraine and humanitarian crisis unfolds in untold suffering and misery for children and women as they wait in long winding queues in freezing temperatures to exit from the war zone to a safer place neighbouring country, the raging controversy surrounding ‘cryptocurrencies’ as borderless form of money has been occupying the centre stage of discussions. It also has collided with the reality of international sanctions spurred by a major European conflict.

Bitcoin.com has reported that G7 nations are examining ways to stop individuals and companies from using cryptocurrencies to circumvent Western sanctions following Russia’s invasion of Ukraine. The finance ministers and central bank governors of the G7 nations (Canada, France, Germany, Italy, Japan, the UK and the US) held virtual meetings to address the issue. 

Many major cryptocurrency exchanges put forth defiant statements when Ukraine requested them to freeze all the accounts of Russians. More quietly, however, many were complying with the sanctions plan aimed at devastating the Russian economy.

The gap between the words and actions of crypto’s biggest players points to the challenges that the crypto community now faces as a mainstream industry in the midst of a geopolitical and humanitarian crisis — one that now looks like a defining moment for cryptocurrencies such as bitcoin and ethereum.

On the Ukrainian side, digital coins have lived up to their reputation for easily moving money across international borders, as sympathizers with the Ukrainian cause have raised the equivalent of more than $54 million through cryptocurrency donations.

Ukraine’s non-fungible token (NFT) auction has come to a profitable end.  Sources from the media have reported that the country raised $6.75 million worth of Ethereum (ETH) after a three-day bidding process for an image of its flag. The bidding process started on February 26, when the flag NFT was listed. It ended on March 2, in a sale for 2,174 ETH coins. 

But on the Russian side, the supposedly borderless form of money has instead collided with the reality of international sanctions spurred by a major European conflict — and also the moral question of whether participants in the crypto markets could unwittingly help fuel a war of aggression or help Russian oligarchs preserve their wealth.

In between, cryptocurrency exchanges and bitcoin hard-liners — both of whom have espoused what they say is the libertarian ethos embedded in crypto — have had to wrestle with tough questions about just how much they want to embrace a technology that critics argue has little practical value aside from money laundering and investment hedging while requiring huge amounts of electricity and the burning of fossil fuels.

Crypto in recent years has moved from a fringe technology to the kind of mainstream industry that pushes multiple Super Bowl ads from companies backed with hundreds of millions of dollars of investment. The underlying blockchain technology relies on distributed computing power to create public and unbreakable digital ledgers that can track who owns what without a central authority.

A million dollar question haunting now is how much of crypto’s anti-authority streak is still a reality, and how much is carefully worded marketing slogans. At the start of the sanctions against Russia, one of the most strident statements came from Binance, the world’s largest crypto exchange.But all that was toned downed to a striking different tone, in a 1,500-word blog post by the CEO of company who clarified that they would follow the same sanctions rules as the banks. It has to be noted that Binance donated $10 million for humanitarian needs.

Other major exchanges have also clarified that they would comply with U.S. and European sanctions. The U.S. Treasury Department has not accused any exchange of being out of compliance. Experts have said that Russian President Vladimir Putin won’t be able to use virtual currency to evade sanctions on a large scale, because even at $2 trillion the crypto market isn’t big enough and crypto exchanges have compliance departments dedicated to catching money laundering.

“We have a number of sophisticated tool sets that allow us to understand who are sanctioned individuals, sanctioned nations, to be able to track cryptocurrency and fiat deposits and withdrawals, and make sure that we block those users, as we have been doing since our inception,” Brett Harrison, the president of exchange FTX.US, told CNBC.

The reality of virtual currency is different from how early technologists imagined it — as something so powerful that governments could never touch it. “Various criminal and foreign elements will be active users of CryptoNet. But this will not halt the spread of crypto anarchy,” physicist Timothy May wrote in “The Crypto Anarchist Manifesto” in 1988, two decades before the introduction of bitcoin made the idea a reality.

A fabled outlaw image may once have benefited digital coins by adding to their allure, but that image is now a potential liability as regulators and lawmakers swarm around the community. Cryptocurrency linked crime hit a record last year, with illegal addresses receiving $14 billion in digital currencies, according to research firm Chainalysis, but represents only 0.15 percent of the total crypto transaction volume.