The Time of Rapid Change

Fate certainly has a sense of irony. While Russia, Ukraine, and Belarus are engaged in an armed conflict, their citizens have rushed to explore cryptocurrencies. For Ukrainians, it is a way to bring closer the victory, but for citizens of Russia and Belarus, it is a desperate attempt to break away from their severely compromised states. So, how did it all come about?

Ever since the start of the war on February 24, the author of these lines has found himself increasingly relying on cryptocurrency for transactions. This, despite the fact that bank cards are still working as usual and you can make payments with them the same as before – almost everywhere.

Still, something has changed. Lots of people started transferring money to individuals, foundations, companies, etc. And even though there have been no issues with the banks, one of the main advantages of the blockchain – reliability – has played its role. During wartime, banks and financial companies may cease operations at any moment. It was an especially grave concern in the early days: People were afraid that the enemy could hit a banking data center or communication lines, that the government could restrict transactions and block bank accounts (which, incidentally, ended up happening), or that some banks’ management could decide to close the shop and leave… Whereas the blockchain works as long as you have power and the Internet.

Today, the besieged Kyiv is under curfew, you can’t buy any alcohol and it’s hard to find cigarettes, many foodstuffs, medicines are scarce, shopping centers are closed, there are problems with transport, and many streets are damaged (saw it myself driving around the city). But the cryptocurrency multi-wallet works just fine – not a single failure in almost a month after the hostilities began. Essentially, blockchain and cryptocurrencies have passed their first trial by actual war.

Recently, we witnessed an event no one could have foreseen even a few weeks ago: Mikhail Chobanian, the founder of one of a Ukrainian crypto exchange called KUNA, spoke before the US Senate Committee on Banking, Housing, and Urban Affairs on the topic of “Understanding the Role of Digital Assets in Illicit Finance”

The Ukrainian crypto businessman explained how cryptocurrency donations help Ukraine in times of war, how international sanctions will affect Russian cryptocurrency users, and, most importantly, why digital assets have so quickly become an indispensable part of the global financial system.

The interest of US officials in cryptocurrencies in the current context is not unfounded, as they realize what I have mentioned above: in the event of a global war or some other large-scale shock, the blockchain will continue to work.

With that, let’s once again look at the three warring countries separately. The conflict quickly demonstrated how important cryptocurrencies are in Ukraine’s financial system. For one, tens of millions of dollars in crypto donations have been sent to help the Ukrainian army, hospitals, public institutions, etc., and this total is growing by the hour. It is probably the first time in history when a state government accepted crypto contributions on such a scale.

Secondly, the familiarity many ordinary Ukrainians have with cryptocurrencies greatly softened the blow to the banking system in the early days of the war: rather than overloading the banks, people simply used crypto transfers.

Now, the time seems right for the next stage – connecting cryptocurrencies and the state digital systems. The Ukrainian WhiteBIT crypto exchange has already adopted the national Diia service into its verification process. As a result, all citizens can pass the KYC procedure in just one minute by selecting the “Verification with Diia” option and confirming the transfer of document copies.

In practice, it makes the user experience with WhiteBIT as comfortable as possible, which, in turn, helps the Ukrainian economy and people suffering from the war. Considering the size of the Ukrainian diaspora abroad, other crypto exchanges will now most likely rush to integrate Diia into their KYC protocols.

For Ukraine, developing cryptocurrency circulation only accelerates their adoption. For Russia and Belarus, on the other hand, it is a massive reform. No, not even a reform – a change in the very understanding of what money is and how to use it. The other alternative their citizens are facing is a return to the Soviet “wooden” ruble of 30 years ago. It was called that because the only value USSR money had abroad was numismatic (and not a high one at that).

Those times could return, as the people of Russia and Belarus may need to once again get used to their rubles only being useful for buying rationed bread in the store or some vegetables in the market. Under a ban on cash operations (except for those with national fiat currency), crypto coins seem like the only available way out.

Russian financial experts have already recorded rapid growth in the demand for cryptocurrencies following a severe crisis in the country’s financial system and restrictions imposed on the circulation of the dollar and the euro. Currently, crypto is primarily used to transfer funds abroad in lieu of more common fiat currencies, as many wealthier Russians are looking to emigrate.

In this case, experts believe that Russian regulators are unlikely to effectively prevent such operations. The difficulty is, many crypto-exchanges that perceive Russians as aggressors have been willingly blocking them ever since the first days of the war. And, as I have written before, DEXes will not completely solve this problem.

One of the reasons is that in response to Russia’s aggression, Western countries (the USA, Canada, European Union, Great Britain, Japan) hit them with new, tougher sanctions, particularly financial and economic ones. Among others, they targeted leading Russian banks, including Sberbank, VTB, Novikombank, FC Otkritie, and Sovcombank.

The EU countries, along with the US, also agreed to cut the sanctioned Russian (and some Belarusian) banks off from the international system of interbank transactions and information exchange SWIFT. Finally, the EU has pledged to take action against the so-called “golden passports” that allow wealthy Russians with government ties to become citizens of the EU member states with access to their financial systems.

All those actions have an additional effect of severing Russia and Belarus from a significant part of cryptocurrency operations. Although, if people kept most of their money in cryptocurrencies in the first place, it would not have become an issue. As they say: “War is the best teacher”.