The Russia-Ukraine war is the first-ever crypto war. As expected by crypto analysts, cryptocurrencies are playing a noteworthy part in this war.
This post will cover all the interesting topics about crypto wars, including:
- The benefits and drawbacks of using crypto in war
- How the war has shaped the views of governments and the public about crypto
- How the crypto war will impact the future of cryptocurrencies.
So without any further ado, let’s dive right in!
Recently, a Ukrainian government official praised the speed of crypto transactions. The official said that while the donations made through crypto were modest in comparison to the fiat donations, the crypto donations were incredibly faster.
The government official wasn’t wrong because crypto transactions are insanely faster than fiat transactions. A transaction through a bank could take longer than a week, whereas crypto transactions are completed within a few mins.
That’s great, but how exactly do faster transactions save lives? Government organizations and charities have a limited supply of food and medicine, so they can’t help everyone. The longer it takes for the new funds to arrive, the longer the injured people and ill people will be left unattended, so the death rate will increase.
Cryptocurrencies are lightly regulated, therefore, it’s easy to evade financial sanctions using cryptocurrencies.
There are upsides and downsides to using crypto to evade sanctions. Let’s give both sides a look.
There are two positive outcomes for evading sanctions using crypto. First, ordinary Russian citizens are converting the Rubble into crypto to shield themselves from the harmful effect of inflation.
Second, crypto makes it easier for ordinary Russian citizens to send and take money from friends and family members living abroad.
Cryptocurrencies are reducing the impact of the sanctions on the Russian economy. This makes it easier for Russia to get away with waging an unjustified war against Ukraine.
Here are the options the sanctioned entities have at their disposal to evade sanctions using crypto and blockchain.
Centralized Digital Currency: Centralised Bank Digital Currencies (CBDCs) are digital currencies created and controlled by central banks. These currencies also use blockchain technology, and similar to cryptocurrencies they allow the sanctioned entities to evade sanctions.
Not long ago, Iran purchased imported goods worth $10M using cryptocurrencies. According to various sources, various countries are willing to export goods worth much more than $10M in exchange for crypto and CBDCs.
Ransomware: Using ransomware is an incredibly effective method for acquiring crypto. In the past, countries such as Russia, Iran, and North Korea have launched ransomware attacks and stolen crypto worth billions of dollars.
According to ChainAnalysis, in the last year alone, stolen crypto worth $400M went to entities that are associated with Russia.
Speaking of scams and hacking, here are the top 10 crypto scams to look out for.
Advanced Tools: Several reports claim that Russia has developed software that could hide the important details about a transaction on the blockchain. Details such as the amount and public addresses of the sender and receiver. This makes it extremely hard for the authorities to detect transactions involving sanctioned individuals and entities, so Russia can get USD from crypto exchanges.
However, the tool can’t be used for making big transactions through major cryptocurrencies. Therefore, it’s not good for bringing huge amounts of USD or crypto to the country.
Tumblers: It’s also possible to evade sanctions by using Tumblers’ service. Tumblers receive cryptocurrencies through various accounts, and they scramble the accounts to hide the user’s identity. This way the authorities can’t detect whether the transaction involves a sanctioned entity.
However, this method is not very effective. First, Tumblers can’t manage to carry out big transactions worth hundreds of thousands of dollars. Secondly, their transaction process is extremely slow.
It’s highly unlikely for sanctioned countries to get fiat currencies worth more than tens of millions of dollars per year, by using Tumblers.
Crypto Exchanges: While centralized exchanges have to follow KYC/AML procedures, many of them don’t do a good job at it. Therefore, sanctioned entities could use these exchanges to get USD in their bank accounts.
DEXs: Unlike centralized exchanges, decentralized exchanges don’t even have to implement KYC/AML procedures, so the identity of the DEX’s users stays anonymous.
Since the user’s identity in DEXs is hidden, no one can stop the users from carrying out illegal transactions.
However, the liquidity on DEXs only makes up about 1 percent of the overall liquidity on crypto exchanges. Therefore, the sanctioned entities can’t get a few million dollars per month from DEXs.
Governments from the majority of the countries don’t like the fact that cryptocurrencies are difficult to trace, and the use of crypto in war makes them dislike it even more.
This is especially true for Western countries. There are two reasons why western countries don’t like the way crypto is used in war.
- Crypto is reducing the impact of financial sanctions imposed on the Russian economy.
- When the US and Ukraine’s president asked the crypto exchanges to block the accounts of Russian individuals, crypto exchanges only blocked the accounts that belonged to sanctioned entities, and of the people who know the sanctioned entities. They didn’t block the account of the remaining Russian users.
For these two reasons, cryptocurrencies got a backlash from the public as well, which gives the lawmakers another reason to impose strict regulations so the crypto transactions become traceable.
The strict regulations don’t mean that crypto transactions will be as easy to trace as traditional transactions, as doing so requires eliminating some of the core features of cryptocurrencies. It just means that cryptocurrencies will become more regulated than they are now.
In case you’re interested in navigating the world of crypto regulations, here is your go-to guide.
While western governments don’t like the overall role of cryptocurrencies in the crypto war, the crypto sector is already experiencing growth because of the war, and it’ll probably experience much more growth in the future.
There are three ways the crypto war has accelerated growth in the crypto sector and will continue to do so.
- Donations For Ukraine
- Conversion of Ruble to Crypto
- US Interest In Digital Dollar
The demand for crypto has experienced a bit of an increase because of the donations that went to Ukraine. According to sources, crypto worth over $160M has been donated to Ukraine. If people keep making donations at this rate, crypto worth hundreds of millions of dollars will be purchased and donated to Ukraine by the end of the crypto war.
Since the war began, the trading volume between the Rubble and major cryptocurrencies has experienced a massive increase. In the past few months, the average weekly traded volume of Rubble and cryptocurrencies is around 15B rubles (over $240M). These numbers are over 3 times higher than before the war.
Russian citizens are converting the Rubble into various cryptocurrencies, but the majority of the conversion is from Rubble to Bitcoin and the United States Dollar Tether (USDT).
The average weekly volume of the USTD for the last few months is around 3B rubles. This is a massive increase from before the war started.
As for Bitcoin, according to FiatMarketCap, it has surpassed Rubble in terms of market cap. In their list, Bitcoin is ranked 14th and Rubble 17th.
While the conversion rate of the Ruble to crypto has already experienced a massive increase, the conversion rate is likely to grow much more.
According to Gleb Jout, the head of the crypto exchange Bitget in Russia, more Russian people are going to convert Rubles to crypto. His exact words were, “The adoption is coming and it’s very, very real. Especially in Russia, because you have a population of 145 million and I expect that maybe within this year 15% to 25% of them are going to be totally onboarded into cryptocurrency.”
If this is true, then the crypto market in Russia will experience massive growth by the end of this year.
According to Financial Times and other sources, the US is secretly thinking about creating the Digital Dollar. First, let’s talk about how the Digital Dollar and the war are correlated, and then we’ll talk about how the Digital Dollar can help accelerate growth in the crypto sector.
Correlation Between War And Digital Dollar
To understand the correlation between war and Digital dollars, it’s important to understand the relationship between war, China, and the US.
The recent war events have made China interested in improving and expanding the Digital Yuan. China has noticed that the talk about strict financial sanctions by the western countries isn’t just talk. But more importantly, they have noticed that a digital currency is an effective way to reduce the impact of sanctions.
This is where the US comes into the picture. As mentioned earlier, the news about the Digital Dollar came right after China’s announcement about the improvement and expansion of the Digital Yuan. This is an indicator that the US is threatened by China’s Digital Yuan.
The US is threatened by the Digital Yuan because the Digital Yuan will accelerate the growth of the Chinese economy. If the US doesn’t create a Digital Dollar, the chances are it’ll lose to China in the economic race (the race that China is already winning).
How will the Digital Dollar help accelerate US economic growth? The Digital Dollar will provide faster transactions, cheaper transactions, and more safety from hackers than the traditional dollar. Because of these reasons the demand for the US dollar will increase, which will lead to an increase in the USD’s price.
Since the recent war events have made China interested in improving the Digital Yuan, and China’s sudden interest in the Digital Yuan has made the US interested in creating a digital dollar, this is how the war has made the US interested in the digital dollar.
A Common Concern
Before discussing how the creation of a digital dollar will be a good thing for blockchain, let’s address a common concern related to the creation of the digital Dollar.
Blockchain enthusiasts believe that the digital dollar will reduce the user base of cryptocurrencies within the US. This is not true. Digital dollars can’t provide the benefits that BTC, ETH, and various other cryptocurrencies can provide. People can’t earn invest in a digital dollar, and the digital dollars don’t attract hardcore blockchain users as well.
For these reasons, the creation of the Digital Dollar won’t have any negative impact on volatile cryptocurrencies. However, the same can’t be said for stablecoins.
The majority of the stablecoin holders only purchase the stablecoins for 3 reasons. Speed, fee, and stability. The Digital Dollar will go toe-to-toe on speed and fee with stablecoins and as for stability, Digital Dollar will be a fiat currency so it’ll be much more stable than any stablecoin. One more benefit of stablecoins will be that they’ll be used as a medium of exchange.
Since Digital Dollar will have clear benefits over stablecoins, a huge percentage of stablecoin’s users will leave stablecoins for the digital dollar.
How Digital Dollar Help The Crypto Sector Grow
Now, let’s address the positive impact the digital dollar will have on the blockchain community. The digital dollar will use blockchain technology. Since the government will need to innovate new products that are going to be compatible with blockchain, this will result in the growth of the blockchain industry in various ways. Many new blockchain-based products and networks will be released, and the user base for blockchain will increase as well.
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Disclaimer: Please note that the content of this article is for informational purposes only. It should not be construed by anyone as legal, tax, investment, financial, or any other type of advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments.