The Russian-Ukraine war is a litmus test for cryptos

From fears that Russia could evade sanctions using cryptocurrencies to their use in facilitating cross-border donations to Ukraine, they passed with flying colours.
There are no questions about the importance of cryptocurrencies in the financial economy, says the author. Image: Wei Leng Tay/Bloomberg

The first cryptocurrency, Bitcoin, was created over a decade ago and since then cryptocurrencies have begun to revolutionise the world. Digital currencies have proven themselves a prime investment choice and effective payment method, promising financial freedom. However, they haven’t received the warmest embrace from central banks and governing authorities, who have primarily been sceptical and threatened by cryptocurrencies.

While certain countries like El Salvador have taken the bold step of recognising its potential and chose to accept it as legal tender, others have straight-out banned it, like Morocco and China. Some have even implemented regulatory practices to make it challenging to trade cryptocurrencies.

The Central Bank of Russia once proposed a complete ban on cryptocurrency and recommended stiff penalties for persons who defaulted. However, this was overhauled with the government deciding to recognise cryptocurrencies, thus creating a regulatory framework.

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In truth, there are no questions about the importance of cryptocurrencies in the financial economy, though governing authorities are concerned about the impact they may have on the traditional financial system. Several of these doubts in the last few weeks have been cleared following the power tussle between Ukraine and Russia.

The Russia-Ukraine war

In February, the world was shaken by the possibility of World War III. The last two wars were simply devastating. Making it even more terrifying are the innovations and technologies of war that have come into existence since then.

The news of Russia’s attack on Ukraine was immediately evident in the crypto space, as several weak hands began a massive sell-off for fears of what the news of the war might do to the volatile market conditions.

This resulted in a major price decline of major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) among several others. As expected, after the attack on Ukraine several countries were riled up and rose to Ukraine’s defence with the United Nations proposing sanctions to stifle Russia.

What was crypto’s role in this?

At the start, the governing authorities considered cryptocurrencies a stumbling block in their attempt to sanction Russia. It was believed Russia could evade sanctions using cryptocurrencies, prompting calls for Russians to be exiled from the crypto space.

Read: Crypto sleuth may have found tokens of sanctioned Russians

Even the US Security and Exchange Commission mandated crypto exchanges to ban Russians using their crypto-wallets.

Yet, the call to ban Russian users, though perhaps understandable from an emotional point of view, proved unfair to Russian citizens.

Crypto exchanges like Binance resisted the proposed ban on innocent Russian users. Rather, Russian crypto users who were found to have violated or were charged with violations were the only ones banned.

Cryptocurrencies are decentralised in nature and free from the control of central authorities, which meant that Russian users were not unfairly excluded from the ability to transact.

Ukraine embraces cryptos

Ukraine, previously ambivalent about cryptos from a regulatory perspective, quickly decided to recognise and legalise cryptocurrencies as digital assets. This is considered a great win for the crypto space – yet another country has joined the crypto revolution.

Following this, Ukraine launched a website where people from across the globe could send funds in local currencies and cryptocurrencies.

Since its creation, there has been almost $150 million in crypto donations.

Ukraine also set up a MetaHistory NFT museum, the first of its kind, that features the war between Russia and Ukraine in non-fungible tokens (NFTs).

Profits made from the donations and NFT sales will be used to support Ukraine with aid and amenities for its citizens, and to repair war-damaged structures.

Increasing adoption

With each passing month, it seems more countries are moving towards crypto adoption.

Many feared that cryptos would crumble under the weight of the Russia-Ukraine war. Instead, it has become a tool to support the injured in the war and fight for human rights. Cryptocurrencies have been used to facilitate cross-border donations to Ukraine, underscoring crypto’s promise of financial freedom.

Read: Ukraine’s crypto army is both inspiration and cautionary tale

As crypto adoption thrives in Ukraine, several countries across the globe, most notably African countries such as Tanzania and South Africa, have begun in-depth research into harnessing the benefits of cryptocurrencies. While the central authorities debate which is the best strategy for crypto regulations – a heavy hand or a light touch? – the imminent arrival of regulations will likely spur far greater crypto adoption.

The Russia-Ukraine war was a crucial testing ground for cryptos, and it passed with flying colours.

Favour Jolaoso is a contributor to crypto exchange Yellow Card.

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