Good, bad and ugly of crypto in the Russian-Ukrainian war – InsideSources

Russia’s invasion of Ukraine sparked a series of military, political, humanitarian and economic debates. One of the most recent talks in the immediate aftermath of the invasion related to the interplay between cryptocurrency and the broader geopolitical situation. As the first great power conflict in the cryptocurrency era, this war raises questions about how cryptocurrency can be used to change the nature of war and conflict in the 21st century.

At the beginning of the hostilities, I was optimistic about using cryptocurrency to help Ukraine’s civil defense, while at the same time being concerned about its theoretical ability to facilitate cross – border money laundering and evasion of sanctions. Four months into the conflict, it is clear that many predictions – including some of mine – have been unfounded. Moreover, at a fundamental level, the role of cryptocurrency in this conflict has largely validated the ideals of its proponents rather than legitimizing the concerns of skeptics.

As governments are forced to contend with what is rapidly becoming a protracted war of attrition and a rigid sanctions regime, politicians should consider the good, bad and ugly of cryptocurrencies as a geopolitical tool and take steps to adapt regulations accordingly.

The good

Let’s start with the positive. In the early days of the invasion, cryptocurrency was the most effective tool for getting money into Ukraine. While governments shifted aid through burdensome legislative processes, individuals were able to deposit money in an official Ukrainian state wallet. According to Alex Bornyakov, Deputy Minister of Digital Transformation of Ukraine, “Ukraine was able to raise more than $ 50 million in cryptocurrencies and transferred these funds to fiat currency.” This fast deployment process was only possible because of the speed, efficiency and scalability of the blockchain.

My assumptions that cryptocurrency would be used for the purposeful evasion of sanctions were proven wrong. Despite this fear, neither oligarchs nor kleptocrats used the blockchain in any meaningful way to relieve sanctioned assets or transfer wealth to more favorable jurisdictions. Although we have seen actions taken against individual crypto firms, such as Bitriver, to increase revenue, these sanctions have been the result of non-crypto-specific business activities and not the result of any inherent crypto characteristics.

In fact, the general lack of cryptocurrency-based sanction evasion attempts has forced many regulators and national security authorities to admit – sometimes reluctantly – that crypto is not a malicious tool for sanction evasion. In testimony given to the House of Representatives, the acting director of the Financial Crimes Enforcement Unit stated that he “had not seen large-scale evasion through the use of cryptocurrency.”

While still in its infancy, the broad collection of compliance tools in the private sector and state intelligence agencies has proven effective in capturing and deterring immoral and unethical behavior on the blockchain.

The bad and the ugly

The abundant evidence for the positive role of cryptocurrency in this crisis justifies its existence and validates the arguments of its proponents. However, these largely positive use cases cannot be interpreted as a future exception to making industry-wide improvements to the crypto regulatory compliance.

We have not seen the widespread use of crypto for illegal activity due in part to industry compliance with “know your customer” standards – after all, it took some time before various crypto exchanges were fully in line with Western’s sanctions mood. governments. We have not seen mass use of crypto as an illegal tool is primarily due to the relatively small amount of liquidity in crypto markets. As The Center for Strategic and International Studies noted that in February, SWIFT processed around $ 5 trillion in transactions daily. The trading volume of cryptocurrencies in the same period: $ 24 billion.

If crypto scales to the size the industry expects and advocates, there will be little to prevent it from becoming a tool for far greater economic abuse. For the time being, small problems – such as Bitriver’s role in sanction evasion – will be greatly magnified. If we do not implement adequate security, compliance and know-your-customer measures now, the industry will inevitably have to respond to more serious future problems. If not now, it may be too late to respond. This should serve as an industry-wide rallying cry.

Lessons and the way forward

As the global crypto-regulatory debate heats up, legislators will inevitably point to the Russia-Ukraine war and the associated sanctions framework for advocating and criticizing cryptocurrency as a geopolitical tool. In these debates, one thing must be sufficiently understood: The existing ad hoc legal framework used by private companies and authorities has served the industry well so far. However, the expected growth of crypto requires significant future planning.

Acknowledging both truths is necessary for an appropriate set of rules. It is as inappropriate for crypto-advocates to pretend that the current system is satisfactory, regardless of growth expectations, as it is for skeptics to ignore the largely positive reality of cryptocurrency as a geopolitical tool.