How crypto has become enmeshed in the war in Ukraine



Angie Lau: Hundreds of thousands of people displaced from their homes, families torn apart as rockets rain down, pleas for help, sanctions, and support finally flowing in. This, in brief, describes what the people of Ukraine are going through. 

At least 12 countries have now joined a new wave of sanctions on Russia, with some Russian banks cut off from international banking network SWIFT. The ruble has devalued against the U.S. dollar by over 30% in the past five days, and the humanitarian crisis at the borders of Ukraine is mounting in what has become the first global conflict in the age of cryptocurrency. 

We’re now seeing just how the technology behind it is not only funding battles on the ground and aiding those who have been left with no access to banks due to sanctions, but it is also unprecedented, and history in the making. 

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau. 

Today we bring you a special edition, with prominent voices from the crypto world to discuss its critical role in this conflict. First, we’re joined now by Ben Caselin, head of research and strategy at crypto exchange AAX. He joins in as we stand at the cusp of geopolitics and crypto. 

Good to see you, Ben. 

Ben Caselin: Hi Angie. Thank you so much. It’s been a while.

Lau: I want to dive in right away. It is intensifying — this geopolitical tension, this conflict that’s mounting in Ukraine, obviously — and it’s coming to a head. We’re seeing accessibility, security, privacy and transparency. Just a few benefits of cryptocurrencies here, and they’ve never been more important than they are right now. 

So, as we watch from all over the world, people from different pockets of the world can actually join forces to donate to Ukraine and its people during this terrible conflict. We’re seeing crypto donations to the country have hit now US$20 million and counting. 

What are we seeing right now, in your view? Is it unprecedented? Is it history in the making? How is crypto playing a role here? 

Caselin: Actually, the way I would look at it, and first and foremost, as we talk about crypto in these times, even as we see a price surge, it’s nothing to be bullish about, nor to necessarily rejoice at this time. What we can see is over time — and not necessarily only now — the interweaving of crypto and politics at various levels.

We’ve seen that taking shape in South America versus the U.S., where El Salvador sought (a form of financial) independence (involving the reduction of its dependence on the U.S dollar in its economy in terms of its kind of sovereign abilities as a currency holder. We look at the situation in Canada, where we saw a movement with truckers that also solicited Bitcoin.

Donations like these have happened before, many years ago, as well, during protests in various countries, including Nigeria. But of course, the scale is different, and the type of attention it’s getting is very significant at this point.

Lau: And it really feels like a matter of life and death, which, for many people, it is, and it takes on a whole new level. It is critical for a lot of people to be able to access resources. How do you pay for that? And for the first time, as you said, we’re starting to see the emergence of cryptocurrency really play a role in supporting sides. Is that a good thing or a bad thing? 

Caselin: No, it is. It is, by design, the nature of the whole premise that at least Bitcoin was built on. It’s the idea that it’s a permissionless network that’s open, that’s apolitical, that’s agnostic to the reality on the ground, but that kind of supports the sovereign individual and the ability for people to hold their own wealth, for it to be portable, for it to be sent across borders.

It’s like voting with capital. And for the Ukrainian government to solicit donations in Bitcoin and Ethereum opens up the gateways there. The rails are there and they cannot be destroyed because this network is strong.

And so that’s one kind of manifestation that we see in these days. We hear stories of people that — maybe prior to the invasion or slightly after the invasion happened — were able to transfer some of their funds into Bitcoin and maybe other cryptocurrencies, such as USDT, which makes it more portable to bring your wealth with you.

We’ve seen this in other wars as well, but then it was in the form of jewelry and gold, and these types of valuable assets. So we’re not seeing something new — we’re just seeing the upgraded version of it.

It’s worrying in the sense that we should all be involved, and the world should be involved. And communication networks, they emanate — or they’re an expression of — that connectivity. And now, you know what Bitcoin represents and what cryptocurrency represents — the various protocols that are accessible to anybody — is that we share that common value, we share that network. And if something happens in Ukraine, we can all respond quite directly. But we see other use cases as well — also in Russia, in that sense. Bitcoin doesn’t really choose a side. It’s just part of the process now.

Lau: Well, to your point, Asia’s no stranger to conflict. Its history is peppered with movements of wide swaths of people evacuating areas in times of conflict. And to your point, it was jewelry, it was money, and much of it had to be left behind because it was hard to flee with your wealth. And, of course, if you do bring it, you become a mark. There are probably lots of countries in Asia where families in history have tried to hide their wealth. Now, today, this can be transported digitally in crypto. 

You bring up Russia. This is also the other side of the story. The Russian central bank has also nearly doubled its key interest rate to 20% as the ruble tumbled on sanctions and penalties. How do you see this playing out in crypto use in Russia as people look out for safety and liquidity — for individual Russians to actually try to conserve and reserve and preserve their wealth? 

Caselin: Well, in the weeks leading up to the invasion, we’d already heard various kinds of messages coming from Russia’s central bank around Bitcoin, and these types of potential for regulation and stuff. And that was remarkable — and not necessarily in the positive sense. The connection to SWIFT was not very far fetched already, then. 

But maybe instead of looking at it from a kind of ‘evasion’ type of perspective, ordinary people in Russia have been moving their money into crypto — and particularly Bitcoin — or some stablecoins. Volume was up today. We’ve seen the dramatic rise in Bitcoin, which hasn’t happened to this extent in over a year, which is quite significant. For small tokens to move 20% or 30 percent, it doesn’t take a lot of funds, but for Bitcoin to move like that, that’s a big movement. It (doesn’t necessarily tell us about how) people know it’s a store of wealth. People know that it’s accessible. People are looking for a store of wealth. There’s many types, and this is very accessible. That’s a reality on the ground. 

What it means for companies that are currently being sanctioned (is that) there may be some speculation that they could potentially do trade with Bitcoin. Of course they can trade. They can trade rocks with each other. They can drive trucks to one another full of goods. These are all types of things you can do. 

The question is — and perhaps that’s the most important point — this is a culture in crypto where we celebrate permissionlessness, and we celebrate the openness of the network, and we celebrate that freedom that comes with it. But it’s similar to freedom of speech, and so we should also push for a culture of accountability and for a culture of responsibility. And so, yes, you may be able to do business with a sanctioned company and exchange Bitcoin, but should you or not? And that moral question is then no longer imposed by you, by a central authority in this case, but it’s a determination that you have to make yourself, and that’s something that crypto stands for.

The emphasis on individuality comes out in many different ways, as well as just ordinary people living in the U.K. or in Hong Kong that hold crypto. What they want to do with that is their choice, and they have to make that choice in the correct way.

Lau: And we’re seeing it. We’re seeing it in an unprecedented move. 

Select Russian banks have been barred from SWIFT. This is a global payment network, as you know, which more than half of Russia’s financial systems actually participate in. This will likely cripple the country’s access to financial and settlement with trade partners, and really upend their global connectivity. Is crypto going to step in here? What’s the role that crypto is going to play? 

Caselin: Well, this is very difficult, because crypto, in a sense, is just a commodity that doesn’t really have any agency, right? Crypto would then also have to include central bank digital currencies and all these types of rails. So, really, it’s an infrastructure question — if Russian companies and sanctioned individuals log on or onboard onto new networks, that’s what they do.

But once again, eventually trade comes down to trade between people. That’s why people need to be very cautious. So to say, ‘Where’s crypto going with this?’ is a bit difficult because it really depends on what people are going to do with their crypto. Where’s money going to flow to? But for ordinary people in Russia that are holding onto Bitcoin, they’re not trading. Bitcoin is not a thing that you want to trade when you’re either fleeing from war or you’re incredibly afraid of kind of hyperinflation or something like that. We’ve seen that in Venezuela. This is not a futures trader’s heaven.

Bitcoin matters, and the whole cryptocurrency market lifts off of that, and it has always done that. Also, the significance of your question is that the question itself is something we need to think about and to think that, ‘We have this tool now, we have this new innovation — is it just for trading? Is it just something we talk about for investment, or are we going to see the kind of the humanitarian dimensions of it and the economic implications?’ Right now, I guess the sanctions are harsh and effective, and they really have an effect. But as all these financial sectors evolve, that may not be the case in 20, 30 years. And so we’re going to have to rely on different mechanisms, and this is all something to think about.

Lau: Yeah, I mean, to your point, Ben, there have been frozen accounts, freezing of assets. There have also been reports of Russian citizens unable to use digital payments systems like Apple Pay or Google Pay. How do you see this impacting crypto usage on the ground in Russia — individual access to digital payments? 

Caselin: Well, it’s unimpeded, of course. So, generally, you know, if you have a Bitcoin wallet or, like, a decentralized wallet, or you’re participating on a DEX (decentralized exchange) somewhere with your MetaMask, you know it’s unimpeded, and that that’s also by design. That’s how it works. But when it comes to kind of centralized exchanges, I think people have to understand that while there’s a culture that’s perhaps even a bit of an anti-sanction culture in the crypto community as a base, as an exchange, you do form part. You have a team structure, even if you’re self-regulated. You have to abide by the regulation that does apply to you and law. And so these are things all exchanges will be paying attention to. 

But for PayPal and Apple, they ride the rails that are controlled. And these protocols, whether it’s Ethereum or Bitcoin, they don’t ride those same rails.

Lau: And I want to ask you about those crypto exchanges. The Ukrainian government has asked crypto exchanges — more specifically everyone from Binance, Coinbase, Huobi, among others — to block Russian users. Are you doing that? Are you blocking Russian users? How do you feel about being asked to actively block customers with Russian nationality? 

Caselin: Well, I mean, it’s an understandable request, and, of course, we’ve looked at what the exchanges around us are saying, as well. But it’s pretty unified and kind of it’s the same answer everywhere, which is that the sanctions applied to Russian systems and the people that may find a disadvantage from that are the ordinary people. But no, even though no government is targeting the ordinary people, it is a byproduct. And the hope is that people become disgruntled, that they perhaps rise up to their government in discontent.

To drag exchanges into this is understandable, but for exchanges to get involved is extremely complicated. Exchanges already operate in a very gray area. The user base is in the hundreds of millions across countries. Just like other exchanges, we have Ukrainian users, we have Russian users, we have Ukrainians living in Russia, we have Russians living in Ukraine. These are our user base. 

Especially on the part of Russia, that has invaded Ukraine, this is the situation. For us, we know that for many people, crypto is a lifeline. Our traders are mostly small traders. These are people that trade a little bit, that hold some Bitcoin. They live in various cities across these regions. We can’t find a justification to target them. Specifically, we’re not the one to decide on sanctions. If we find that certain accounts in our exchange don’t check up against these global watch lists, of course, we take action, but that’s normal, that’s everyday business. So, that’s as far as we can go at this moment. This is the way we look at it at the moment.

Lau: And finally, Ben, you’re a holder of Bitcoin. We’re seeing the markets react in real time as they try to preserve and conserve their value. But then, also, how do you hedge in this kind of macro environment? How do you regard gold? We’re seeing money flow into safe havens. How do you regard Bitcoin? Do you still think Bitcoin is a safe haven as we watch this conflict unfold? 

Caselin: Absolutely. The problem is that Bitcoin is also a speculative asset. And the problem is that it’s also something people like to trade with leverage. But in essence, Bitcoin is a safe-haven asset, and we’ve seen that response today — or it was yesterday, actually when the ruble collapsed 30% down and we saw this spike in Bitcoin? That’s a real reaction. It didn’t happen in any other market — significantly none of the big commodities or the S&P. Yes, it is a safe haven for the people that actually really will benefit from it. And you know where the kind of hedge funds stand, and the kind of macro investors that may take longer, but for sure, for somebody running away from bombardments, it’s a safe haven, more so than anything else in the monetary sphere of life, of course.

Lau: Ben Caselin, thank you so much for your insights. That’s Ben Caselin of AAX. 

All right. Time for a quick breather, but when we return, we’re going to get the view from Adrian Brink of Anoma.

Lau: Welcome back. Russia’s unprovoked attack on Ukraine has invoked a number of economic sanctions and penalties. Some of the biggest Russian banks have been barred from the SWIFT system — a system which some 300 Russian financial institutions depend on. 

Earlier, Forkast’s Megha Chaddah caught up with Anoma Protocol’s Adrian Brink, to get his views on the unfolding situation and what this could all mean for the future of crypto. 

Megha Chaddah: Adrian, you’ve been quite vocal in your views of SWIFT being an antiquated system. However, Russia’s exclusion from the global financial system hit the ruble hard as the Russian currency plunged 30% against the U.S. dollar to record lows, so it clearly seems to be having an impact here. 

Adrian Brink: Oh, absolutely. I mean, SWIFT is still the predominant system for global money transfer. What I mean by antiquated is, it’s a system that’s ancient at this point, and comes with all the characteristics that you sort of imagine that antiquated systems have. But of course, at the moment, it’s still a very important tool to move money around.

(The restrictions on SWIFT have) even resulted in things like Ukrainians losing access to their banking infrastructure, because the U.S. enforced sanctions against the eastern part of Ukraine, which then resulted in American services just suspending services for all Ukrainians. I think global conflict highlights the need for sovereign financial systems much more than before, because even if you link it back to something that happened in Canada, with the protestors’ bank accounts being blocked, it seems that governments are very willing nowadays to start going after the financial infrastructure first to deal with things that they don’t like. And of course, if you’re on the end dishing it out, this is great. But if you end up on the end receiving it, this is very bad for you. And I think we shouldn’t assume that we’re always on the end dishing it out and not receiving it, so I think everyone should be preparing for a future where they may get rightfully targeted and have to figure out what a sovereign financial system looks like to them. And I think also, as a result, you’ve seen quite a bit of interest in Bitcoin, and generally decentralized currencies, for pretty much the same reason.

Chaddah: This conflict is bringing the tussle between centralized and decentralized systems to the fore. The fact that centralized systems, the systems that are based on fiat, are trying to control digital currencies. We just saw Ukraine ask crypto exchanges to bar Russian users from their platforms. We also saw (U.S. Senator) Elizabeth Warren tweeting about cryptocurrencies possibly undermining the power of sanctions. 

So, there are a couple of questions that I have here. One is, firstly, is it possible for the exchanges to actually bar someone from their crypto holdings? And secondly, and more importantly, is the question of financial sovereignty. Does the act of trying to sanction cryptocurrencies undermine that financial sovereignty? 

Brink: Absolutely it’s possible for exchanges to ban individuals. They’ve done this in the past. They can always do this. If you hold your assets within an exchange, you have the same risk model as if you hold your assets with the bank. That institution can fail. That institution can revoke your access. They can do arbitrary things. 

I think it’s probably a very bad precedent if we start banning every citizen’s access to financial assistance as soon as countries start doing bad things, because it seems like a blanket ban on the civilian population that is in no way justified. So I’m personally very much against blanket banning people’s access. Also on the exchange side, because I think it creates a lot of collateral damage that doesn’t really have any useful outcome. Like, it doesn’t do anything to improve the situation except make, like, 140 million people’s lives way harder.

And on the notion of sanctions, I think Elizabeth Warren, specifically, she’s in favor. She’s tweeting about the fact that crypto may be used to undermine sanctions in order to gain brownie points on Twitter and gain votes in the next election. Realistically, this is not a concern that I think anyone that actually understands how cryptocurrencies and the financial systems work (has), because the volumes that the Russian government would need to move are just tremendously large, and there are still better options than cryptocurrencies in the existing financial system.

Chaddah: Well, this crisis has certainly brought cryptocurrencies to the center stage as those caught in the crossfire look to protect and access their money. Adrian Brink, thanks so much for your insights. 

Angie Lau: Welcome back. Earlier this week, I spoke with Kelvin Lam, CEO of Lithium Finance, to discuss how the unfolding humanitarian crisis in Eastern Europe, sanctions from the West, and Russia’s unraveling economic situation will all play out in crypto. Good to see you again Kelvin.

Really important story, so we appreciate you being here. We’ve got NATO and the West having imposed sanctions on the Russian state, and billionaires backing Vladimir Putin. Will these penalties really be able to work on assets held in crypto and those that are traded on decentralized exchanges? 

Kelvin Lam: Well, currently, there are a few different sanction orders at play here. So, the first type of these sanctions prohibits primarily banks and financial institutions from facilitating transactions, as well as dealing in capital markets in relation to major Russian banks and corporates. While they’re very, very powerful. I think that cryptos themselves are not directly concerned.

The second type of sanctions, however, are broader, more general sanctions that practically require anyone in control of these sanctioned persons’ assets to block their access. Now, authorities have indicated in the past that these sanctions apply to crypto just like any other assets, and they’ve demonstrated some success in tracking and pursuing enforcement, most likely against centralized exchanges and payment processes, in the past.

Now, as far as decentralized protocols are concerned, I think enforcement will likely be harder, as these are argued to be without any central authority. It is, however, unclear if people or organizations involved in these decentralized protocols would be considered broadly again as being in control. Now and then, with that, they would be held to the same obligations to uphold these sanctions.

Obviously, again, if these wallet addresses remain anonymous, enforcement would likely be very, very difficult. We know, however, that authorities have already maintained and published a list of all the wallet addresses associated with sanctioned persons. Ukraine has, interestingly, also just launched a program offering bounties to identify these addresses, so I think it would be very interesting to see how sanctions would play out in the situation.

Lau:  It’s absolutely fascinating to watch how this technology is being assessed in this conflict. The West has banded together to ban select, key Russian banks from the SWIFT network. This would significantly impact the Russian economy. How could this ban impact the decentralized financial systems in operation right now? Would this be an even bigger push for DeFi (decentralized finance)?

Lam: It’s been reported that Russians are re-storing foreign currencies just over these past few days in fear of a collapse of the local currency. It’s speculated that Russians on a personal level would be using more and more crypto to move and hold assets internationally.

However, I think industry experts generally believe it’s unlikely for the nation and institutions to turn to digital assets for general trade and finance, as it just hasn’t yet been a commercially practical solution just yet.

Having said that, however, I think it’s been reported also that Washington is considering expanding sanctions to directly restrict Russia’s access to digital assets. Now, the U.S. Office of Foreign Assets Control, for example, has already published guidance to encourage exchanges, miners, wallet providers and practically everyone in the crypto space to implement some form of sanctions compliance program, and I believe we might be seeing more and more proactive encouragement from the authorities in this situation.

Lau: And we’re also watching crypto donations flowing into Ukraine. A Ukraine DAO has also been  set up. What role do you see DeFi playing in gathering and deploying funds in a war-impacted zone?

Lam: We’re definitely seeing more and more charitable organizations accept crypto donations. In an armed conflict situation like this, you’ll have banks, infrastructure and international intermediaries becoming unreliable. And even with that, crypto always remains a viable channel. For example, we’ve seen that a Ukrainian NGO was blocked by one of its payment platforms from accepting donations as the conflict escalates. But that NGO has been able to continue receiving donations through Bitcoin and other crypto assets … that would probably be impossible with certain other donation channels.

Now, I believe we’ll be seeing more and more of these crypto donations in a similar situation. They’re just really easy and inexpensive to set up. They’re internationally accessible. It’s very, very easy for cross-border donations, and, most important of all, they’re highly reliable, even in an unstable situation like that.

Lau: It’s incredible to watch this play out in real time. That was Kelvin Lam of Lithium Finance, whom I spoke with earlier this week. And now crypto is playing another critical role on the ground in Ukraine. Trippy Labs has created Ukraine DAO, a decentralized autonomous organization that’s working to support Ukrainian civilians who have joined military efforts. 

Forkast was able to get a one-on-one via social media and find out a little bit more about these efforts, and Trippy Labs told us that all funds — 100% of it — will go to the initiative Come Back Alive, and be used to distribute food and medical supplies to local efforts to help residents under siege. Why a DAO? The team said ‘We don’t have time for traditional means of fundraising, and crypto has already proven to be the most efficient tool to offer immediate help.’

And that’s really what we’re talking about here. This is, in the age of cryptocurrency and the use of technology, how it’s reshaping the front lines of a conflict. Thank you, everyone for joining us on this latest episode of Word on the Block. I’m Angie Lau. Editor-in-Chief of Forkast. Until the next time.


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