top of page

Flagless Currencies, An Economic Weapon Loyal To Whomever Uses It

In an era marked by the end of the race for nuclear destructive power, which has reached such indecent levels that the mere mention of this destructive force compels even the world's greatest powers to military immobility, economics is becoming the main leverage in today's international conflicts. Meanwhile, with no government or national flag, decentralized currencies have recently emerged as powerful new actors to be factored in this battle.


According to Alex Gladstein, director of the Human Rights Foundation, "the fact that it can't be frozen, the fact that it can't be censored, and the fact that it can be used without identification is very, very important," which he says determines the humanitarian criterion of crypto-currencies and also seems to sum up pretty well why crypto-currency markets are so hot in crisis situations. The Ukrainian government, by soliciting crypto-currency donations, has reportedly already raised the equivalent of $15 million to support the Ukrainian military as well as "hacktivist" groups. Some Ukrainian citizens are also turning to alternative transaction channels, as the government finds itself having to limit people's access to bank accounts and foreign currency.

However, all the things that make cryptos attractive to those under siege also apply to those doing the siege. This is notable in the current scenario, where Russia is escaping many of the sanctions imposed on them.

Cryptocurrencies in Ukraine

Right now in Ukraine, people turning to crypto-currencies have two main motivations. Those aiming to flee the country and convert their crypto-currencies back into fiat currency and those storing their wealth as the Ukrainian economy collapses because the central bank has suspended electronic fund transfers and is blocking its citizens from withdrawing foreign currency. Trading on the Ukrainian crypto-currency platform "Kuna" has reached its highest level since May 2021. "In Ukraine, right now, you can download an open source bitcoin wallet - totally disconnected from your identity - and you can generate an address via a QR code or an alphanumeric string," Gladstein explains. "You can stick that address on me, I can send you $1,000, and it goes through in minutes."

However, using crypto in the midst of a crisis isn’t necessarily easy. Above all, you need an internet connection and a working device. You also need to know how to use crypto-currencies, which involves a steep learning curve and is something that people are not going to be able to learn quickly during a crisis. There are thousands of crypto-currencies, and they don't all work the same way. Crypto-currencies also need to be available for purchase: Right now, even the wealthiest Ukrainians would have trouble buying Tether, a digital currency pegged to the US dollar. And if you're just converting other assets you own into crypto, the rest of the financial system has to work too. "It might work for some people, but they have to unfreeze their assets first, transfer them into digital currency, and then manage to escape the country, which is actually the main problem right now," said Coppi,of the Norwegian Refugee Council. "And then, when they are out, hope that the currency hasn't devalued too much.

This means that for now, crypto might be more useful to people who already have it. That could mean millions of people in Ukraine, which has spent the last few years aggressively promoting its own domestic crypto-currency industry. In February, the country's parliament passed a law "legalising" crypto, and Ukraine now ranks fourth in the world in terms of crypto adoption, according to blockchain research firm Chainalysis.

As the conflict continues, supporters of Ukraine are sending even more cryptocurrencies into the country. On social media sites and platforms like Telegram, people - including leaders of the country's burgeoning crypto industry - are sharing the addresses of their crypto-currency wallets and soliciting donations. An NGO supporting the Ukrainian military has reportedly raised several million in crypto-currencies, and groups are using crypto-currencies to buy a motley collection of military equipment, medical supplies and even a facial recognition app. Some of these fundraisers have been active for months, but they accelerated last week.

Cryptocurrencies in Russia

Even before Russia's invasion of Ukraine, the US government was concerned that crypto-currencies could mitigate the impact of economic sanctions. Iran has already used bitcoin mining to circumvent trade embargoes, according to research by blockchain analytics firm Elliptic.

Many countries have begun slapping Russia with heavy sanctions. In some places, there are concerns that Russia is using crypto-currency to dodge sanctions and move money without being detected. As the New York Times points out, the Russian government has developed a digital ruble, and Russia has created tools to help hide the origin of digital transactions. In fact, if sanctions are meant to prevent countries and companies from dealing with Russia, crypto-currency would be a way to avoid them. Michael Parker, a former federal prosecutor, told the Times that it would be "naive" to think that Russia has not worked out a scenario in which sanctions are imposed and it has to find alternatives.

To avoid this scenario, Mykhailo Fedorov, Ukraine's deputy prime minister and minister of digital transformation, has called on crypto and blockchain platforms to block Russian users' addresses. The Biden administration is also considering how it might sanction Russian crypto-currency assets and has already asked crypto-currency exchanges to ensure that specific, sanctioned Russian individuals and organisations do not use their platforms.

While cutting off Russia's access to crypto-currencies could have real repercussions for the country, crypto-currencies have become increasingly popular in Russia, which is also the world's third-largest miner of bitcoin. Nevertheless not all exchanges confirm the identity of their customers, and it is generally difficult to trace the origin of crypto-currency transactions. Whether a crypto-currency exchange is legally required to comply with sanctions may depend on where it is registered and where it operates. Many exchanges have rebuffed calls to freeze Russian accounts.

Crypto can also be used to raise funds for bad actors. Just as pro-Ukrainian groups have been able to raise funding via crypto, so have pro-Russian separatist groups in Ukraine, including in 2014 when Russia invaded and annexed the Crimean peninsula, said Jess Symington, the head of research at Elliptic. "Pro-Russian groups were particularly active around the 2014 conflict," she said.

Russia has strong links to cryptocurrency-related cybercrimes and illegal activities such as money laundering and ransomware. According to analysis by Chainalysis, three quarters of the money made from ransomware attacks last year went to hackers linked to Russia. In January, the Ukrainian government was targeted by a series of cyber attacks that masqueraded as ransomware demanding bitcoins, before destroying data on government computers.

"Capital flight by economically distressed Ukrainians, or even Russians, is a very different thing from the Russian state trying to launder money or evade sanctions," said Alex Zerden, a former Treasury Department official under the Obama and Trump administrations.

Coppi, warned that people who put their money in crypto can become unsuspecting victims in cyber warfare, and not just in the Russia-Ukraine conflict. "Most conflicts are going to be increasingly linked to cyber warfare," he said. "You risk becoming a target".

That said, it's not as if other currencies can't be used for unsavoury activities. "The US dollar is used for a lot of very interesting economic activities," Zerden said. "It's also used to buy drugs and weapons and, you know, to engage in human trafficking, right?"

Cryptocurrencies in times of war

This isn't the first time people have turned to crypto during an international conflict, but it feels like the first time crypto has taken centre stage, so much so that some have even called Russia's invasion of Ukraine "the world's first crypto war".

This is largely thanks to crypto supporters who have rallied in support of Ukraine and tried to find a role for crypto. Crypto-currency exchange FTX, for example, has given the equivalent of $25 to each Ukrainian user of its platform to use as they see fit, according to its CEO Sam Bankman-Fried. One of the co-founders of the Russian protest group Pussy Riot, Nadya Tolokonnikova, organised a fundraiser to sell 10,000 NFT of the Ukrainian flag. Vitalik Buterin, the Russian-born founder of ethereum, encouraged people to donate to humanitarian efforts in the country with crypto.

Of course, some of the efforts of crypto-currency promoters to inject digital assets into a war effort have been a bit laughable. It doesn't really help that an annoyed NFT monkey is expressing solidarity with Ukraine. Given the dubious nature of parts of the space, it's also hard to know which projects will actually help people in Ukraine and which are just money grabs by opportunists.

For now, we don't know how crypto-currencies will shape international conflicts, or whether they will ultimately help or harm. People fleeing war zones may find a unique use for crypto, but they will first have to figure out how to use it. There are already many other ways to raise and transfer funds without using digital currencies. And while crypto-currencies make it easier to circumvent sanctions, countries have been doing this long before bitcoin arrived.

What we do know is that bitcoin and other crypto-currencies are now a real factor in global economies and conflicts. Whether good or bad in wartime, crypto-currency is doing what its proponents say it is doing, it’s giving people a way to work outside of traditional financial institutions , with no sign of that changing anytime soon.

bottom of page