The world watched in horror last week as Russian military forces invaded Ukraine, taking hold of swaths of territory and launching missiles at Kyiv. Social media has erupted into an outpouring of support for Ukraine and in particular for its president Volodymyr Zelenskyy, a comedian-turned politician who turned down a U.S. evacuation offer and remained in his country’s capital fighting alongside his constituents.
There are a lot of notable aspects to this attack. It’s one of Russia’s most nakedly aggressive moves toward reunifying the Soviet Union, at least since invading and annexing Crimea in 2014. It’s the first time since the Cuban Missile Crisis in 1962 when global powers have danced with the possibility of World War III — and nuclear war. (U.S. disaster officials recently updated their “nuclear explosion” public service advisory to include making sure to wear masks to protect against Covid in the fallout shelter. Helpful.)
It’s also perhaps the first time cryptocurrency has had the potential to play a significant role in the outcome of a major armed conflict. Over the weekend, headlines and tweets came fast and furious over the ways crypto could either help Russia or provide a lifeline to Ukraine. Here are the specific ways crypto could make a difference.
A path around sanctions
At the Bloomberg New Economy Forum last year, former U.S. Secretary of State Hillary Clinton warned that crypto, “in the wrong hands or alliances with the wrong people, could be direct threats to many of our nation states” as well as global currency markets. Certainly, because crypto exists outside of the traditional finance sector, and is largely unregulated, it offers ample opportunity for evading economic sanctions.
In an effort to limit bloodshed (and the prospect of WWIII), Western powers are relying primarily on sanctions to hit back at Russia. Those include provisions aimed at banking, energy, transportation and other sectors that are invaluable to the Russian economy. Western nations have also moved to block Russian banks from the SWIFT international payment system (a primary means of transferring money overseas), which helped cause the ruble to plummet 30% against the U.S. dollar.
But crypto could blunt the impact of those measures. Russian oligarchs with enough cryptocurrency at their disposal could theoretically prop up the country’s economy and allow for the transfer of assets anyway, regardless of SWIFT. Although Ukrainian officials have asked global crypto exchanges to block users from Russia or freeze their accounts, executives at exchanges Binance and Kraken said they would do so only on a limited basis, for individuals targeted by sanctions or legal actions.
Enhancing risk of cyber-attacks
Western leaders have also warned of heightened potential for cyberattacks in connection with the conflict, especially in retaliation for sanctions. Even before the invasion, Russia was considered a hotbed of hacker activity. According to blockchain data platform Chainalysis, nearly three-quarters of ransomware payments go to groups affiliated with Russia.
Cryptocurrency can be economic fuel for hackers, so it could play a big role here. Ransomware extortionists typically demand payment in Bitcoin, which is easy to move across borders and can be shifted between anonymous accounts and laundered through a variety of transactions, making detection difficult. Indeed, earlier this month U.S. law enforcement arrested a New York-based couple, Illya Lichtenstein and Heather Morgan, and accused them of laundering $3.5 billion from a 2016 hack of crypto exchange Bitfinex (though no one is claiming they’re working with the Russian government).
Working on the assumption that crime is like a cockroach infestation — if you see one, there are bound to be thousands more in the walls — one might surmise Lichtenstein and Morgan represent only the tip of the iceberg when it comes to money laundering in crypto. And Russian hackers might have a particular edge. According to Chainalysis, Russian dark web market Hydra is a particularly attractive place to launder crypto obtained through illegal means or for nefarious purposes.
Crowdfunding for Ukraine
On the flip side, crypto also offers a quick and easy way to aid Ukraine’s defense efforts. And there has been an outpouring of support from around the world. Decrypt reported Monday morning that crypto donations to Ukraine now top $20 million.
Using its official Twitter account, the Ukrainian government posted wallet addresses for receiving crypto donations on Saturday, and the notice swiftly went viral. One NGO accepting funds on Ukraine’s behalf apparently received a donation in Bitcoin worth $3 million. (Some scam artists have also tried to get in on the game, but social media users appear to be quickly rooting them out.)
Some of the credit for the surge of generosity probably goes to Zelenskyy, whose display of brave determination, conveyed in videos posted to social media, turned him into an international hero overnight. Twitter users gushed over him and Reddit was flooded with memes praising him. If past crypto crowdfunding efforts are any indication, where the memes go, so too, go vast amounts of crypto – though the humanitarian crisis probably provides plenty of motivation as well.
