What the Russia-Ukraine conflict has revealed about crypto

The Russia-Ukraine conflict has tested the capabilities of crypto in a real-world conflict where sanctions and inventive blockchain crowdfunding models abound.

The war, which is entering its ninth month, has revealed a number of blockchain benefits, such as the capacity to support humanitarian efforts. It has also revealed how much control national governments can exercise over crypto networks.

Vadym Synegin, co-founder of IT and crypto solutions provider Tecor, told Cointelegraph that cryptocurrencies have a unique advantage in situations where there is an increased risk of interruption of money transfers due to centralization of conventional systems.

“With most markets controlled by centralized authorities that can easily buckle under the political tensions, crypto markets remain more or less decentralized, which means their operational efficiency in times of crisis is further enhanced,” he said.

So, what other aspects has the Russia-Ukraine conflict revealed about crypto?

Crypto donations for humanitarian aid

The Russia-Ukraine conflict has shown that cryptocurrencies can be used for fundraising in military conflicts. In particular, the Ukrainian government began accepting crypto donations at the beginning of the year in an effort to increase donor inclusivity, and this led to the creation of the Crypto Fund of Ukraine.

The country’s Ministry of Digital Transformation is currently in charge of the fund, which was created in partnership with Kuna, FTX and Everstake to support Ukraine’s humanitarian aid and military programs. The project has enabled the Ukrainian government to collect over $100 million in cryptocurrency donations so far.

That said, some pro-Ukraine crypto-fundraising groups have turned to new crypto-instruments like decentralized autonomous organizations (DAOs) to raise money for the nation.

UkraineDAO, which is among the most prominent of the parties, was created in February with the sole purpose of providing financial support to Ukrainian soldiers. The project’s co-founders include the Russian critic Nadya Tolokonnikova, who is also a founding member of the feminist protest group Pussy Riot. Other founding members of UkraineDAO include PleasrDAO and Trippy Labs, a generative NFT studio. The project has raised over $8 million so far.

Among the most notable successes of UkraineDAO was the recent sale of a non-fungible token (NFT) of the Ukrainian flag that fetched just over $6 million in Ether (ETH). It is currently ranked in the top 20 most expensive NFTs of all time.

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Cointelegraph had the chance to speak with Kayla Kroot, the co-founder of Koii Network, regarding the current use of crypto in the Ukraine situation. Her company is involved in the development of new blockchain models, including Web3.

According to management, cryptocurrencies have enabled citizens caught up in the war to maintain access to their money during these difficult times:

“Cryptocurrency was developed to help global citizens maintain control over their money.”

Kroot also noted the increased use of digital coins by humanitarian groups operating in the nation. “Organisations such as World Central Kitchen carried out crowdfunding campaigns. In WCK’s case, this meant accepting donations in ETH. These funds were dispersed with fewer restrictions and oversight, allowing money to more easily get into the hands of those who needed it most, she added.

Fraudsters take advantage of well-wishers

While crypto donations have been helpful in advancing the Ukrainian cause, some nefarious entities have ruined the noble efforts of well-wishers.

Some fraud syndicates have tried to trick donors by posing as representatives of authorized crypto exchanges involved in Ukraine’s fundraising efforts. Cybersecurity experts estimate that millions of deceptive emails using the tactic have been sent out so far.

Some of the emails contain emergency messages from cybercriminals posing as Ukrainians in need of financial assistance.

The influx of such messages undermines the cause of helping Ukrainians by making it more difficult for the real victims to get the help they need.

There have also been reports of scam messages being spread on social media platforms. At this point, it is important to note that well-wishers should only donate their crypto through official Ukrainian government channels to avoid possible fraud.

Besides scam posts appearing on social media, scam messages asking for crypto are also popping up on the dark web.

The dark web is an overarching internet network consisting of unindexed websites that are invisible to standard browsers and search engines and can only be accessed using special browsers.

The dark web is intentionally hidden from regular users for a good reason. It houses all kinds of illegal activity that includes black markets for illegal drugs and weapons. Blackhats also use the dark web to sell stolen personal credentials.

As such, it’s little surprise that scammers are spreading fake messages on the dark web to trick Ukraine’s supporters out of money. Many of the messages have been found to contain links to phishing sites designed to steal crypto.

According to a McAfee investigation into the schemes, some of the sites use fake chat boxes to simulate user activity, while others use mock-up donation verifiers to appear more authentic.

Early in the war between Russia and Ukraine, a more sophisticated group of fraudsters attempted to conduct a fraudulent fundraiser using the Peaceful World (WORLD) token. This is after the Ukrainian government announced an airdrop and then canceled it.

The fraudsters launched the fake airdrop hours before the government scrapped the move in favor of NFTs. Industry experts and security analysts were quick to point out anomalies in the fake giveaway, thus preventing the scheme.

Authorities can restrict crypto

Satoshi Nakamoto, the pseudonymous creator of Bitcoin (BTC), developed the first cryptocurrency to divide control of money away from governments and centralized financial institutions.

However, the Russia-Ukraine conflict has shown that it is possible for regional blocs and major jurisdictions to impose bans and exercise control over cryptocurrencies.

In October, the European Commission announced comprehensive sanctions targeting Russian crypto wallets under the control of European companies and exchanges. EU blockchain companies were additionally banned from providing crypto custody services to Russian entities.

The new laws were passed in response to Russia’s invasion of Ukraine to prevent Russia from evading sanctions.

Previous restrictions set a limit on trading and deposits of up to 10,000 euros on Russian crypto wallets and accounts.

Recent EU crypto rulings have forced some major exchanges, such as Binance and Coinbase, which operate in Europe, to limit services to Russian individuals and companies to avoid a regulatory clash.

Other regulated crypto exchanges such as Kraken, Crypto.com and Blockchain.com have also stopped offering crypto services to Russian citizens as a result.

Meanwhile, Russian authorities seem unsure how to deal with the flurry of bans on crypto wallets and the occlusion of major Russian banks from the SWIFT money transfer system. The ban on these systems has effectively shut the nation out of major international financial markets.

In July, the Kremlin passed a law banning the use of cryptocurrencies to make payments. However, the Russian government recently changed its tune. In September, the Russian Central Bank and the Ministry of Finance agreed to allow the use of cryptocurrencies for cross-border payments.

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The move was designed to promote the use of local crypto exchanges amid rising geopolitical tensions that left many Russians with limited options.

The Russia-Ukraine conflict has showcased the use of crypto in community effort environments for the common good. While the Ukrainian government has raised millions of dollars from direct crypto donations, some digital currency fundraising has been subverted by fraudsters to cash in on the war.

More crypto advantages and limitations are likely to emerge as use cases emerge in more diverse environments.