Weaponising 'Money' and its future
According to blockchain analytics company Elliptic, following Russia's invasion of Ukraine, people around the world have transferred more than USD 54 million to the NGO Come Back Alive, which provides support to the Ukrainian government and the Ukrainian military.
Supporters are also found to have donated NFTs and stable coins in their contributions, with Polkadot founder Gavin Wood donating $5.8 million.
While the amount donated may seem small when compared to the billions of dollars the US Government is sending to Ukraine, these activities prove that crypto assets are the 'best way' to get money directly into the hands of those in need.
The Ukrainian Government began to accept crypto assets because donations through traditional banks could be difficult and time-consuming in the current chaos. With crypto assets, money can be transferred to anyone in the world, with pinpoint accuracy, at any time.
Weaponisation of finance
In recent weeks, Western countries have imposed massive economic sanctions on Russia, paralysing its economy. Russia is now the most strongly sanctioned country in the world and its economic situation is far worse than that of Iran or North Korea. The French Finance Minister said earlier this month, "We intend to cause the collapse of the Russian economy." He stated.
Several Russian banks have been excluded from the bank messaging system SWIFT, making it more difficult than ever to carry out international money transfers. The 'weaponisation of finance' by Western countries has caused certain and severe damage to the Russian economy, with the rouble losing around 50% of its value against the US dollar.
This massive weaponisation of finance is probably of concern not only to Russia, but also to many other countries. Countries such as China and India may move towards less reliance on Western financial infrastructure, leading to a 'fragmentation of the global economy' where crypto assets play an active role as an alternative.
Crypto assets do not care about borders
Crypto assets make banking facilities available to people who do not have access to or do not have access to bank accounts, no matter where they live. Crypto assets are censorship-resistant, borderless and neutral. These are precisely the essential elements of the post-dollar, currently fragmented global economy. They function without distinction between Ukrainians who need financial assistance and Russians who want to preserve their money as the rouble plummets.
However, Moscow and Russian oligarchs will not be able to use crypto assets as a workaround for economic sanctions imposed by the West for several reasons: exchanges such as Coinbase and Binance have suspended their operations in Russia following economic sanctions. Indeed, Coinbase has blocked more than 25 000 wallets linked to Russian entities and individuals.
Furthermore, the crypto market does not have sufficient liquidity to move the billions of dollars Russia needs as a country and conglomerate. There is a misconception that transactions are recorded but the subject cannot be revealed and therefore can be misused, but the recording of state transactions on a transparent public ledger is something Russia would like to avoid, and coupled with the low liquidity, it makes sanctions an It is an ineffective tool.
On the other hand, there is little risk for the Russian public. The fact that crypto-asset activity has increased significantly in Russia with the onset of economic sanctions makes the reason for this clear. Ordinary citizens are exchanging rubles, which are about to become scrap paper, for bitcoin, USDT and other stable coins.
In response, Senator Elizabeth Warren, Federal Reserve Chairman Jerome Powell and others have argued that authorities need to tighten regulations on access to crypto assets to ensure the effectiveness of sanctions. It is a sobering reminder that risks to individual assets exist and will continue to exist in traditional financial services and centralised exchanges in the event of a crisis.
In the future, more and more people and countries will use crypto assets and store at least part of their wealth in non-custodial so-called Web3 wallets. This is not an action to commit illegal activities, but to ensure the availability of funds and transactions. This will allow them to retain their freedom to conduct transactions in the event of financial censorship.
For example, the Portal solution, a next-generation blockchain project, is about to emerge to allow people around the world to control their funds and transactions.Portal is a cross-chain DEX built on Bitcoin and a self-hosted Layer 2 wallet that allows for fast, secure and private atomic swaps between Bitcoin and other digital assets. It also provides a full range of DeFi services without being subject to third-party custody or control.
Existence of sanctions workarounds
Over the years, the US and its allies have a history of imposing extensive economic sanctions on Iran. This has left Iran, one of the top oil-producing countries, with an energy surplus. Iran uses its energy surplus to mine bitcoin, mitigating the economic impact of the sanctions. As a result, Iran is one of the world's leading Bitcoin mining destinations.
Similarly, while Western sanctions may have succeeded in paralysing the Russian economy in the short term, Moscow will eventually find a workaround: Russian banks that have been blocked from SWIFT will be able to evade US regulations by using CIPS in China, a 'de facto' Russian ally This is possible. Furthermore, Russian banks have started using the Chinese payment solution UnionPay after the US Visa, MasterCard and American Express shut down their operations in Russia.
Indeed, they are accustomed to financial censorship and Moscow has been preparing economically for sanctions in advance. As if to back this up, Russia, one of the world's leading oil producers, has become the largest oil supplier to China in just a few years.
Putin also holds US Treasuries and US dollars as counter assets. His war chest contains foreign exchange reserves worth USD 630 billion, acting as a financial shield to blunt the impact of sanctions. The country's debt-to-GDP ratio is barely 18%.
According to CNBC, if Putin and his entourage wanted to move money internationally, they would reportedly have already done so within months through paper companies. This partly explains why Putin has yet to back out of Ukraine and show any signs of default, despite the fact that the West has put almost all its financial weapons into Moscow.
Finally
When will Russia stop the war?
Or will it escalate into a nuclear catastrophe, who knows?
But the weaponisation of finance is forcing individuals and countries to rethink their reliance on traditional financial systems. This will undoubtedly accelerate the adoption of cryptocurrencies and non-custodial DeFi platforms in the global economy.
Disclaimer: This article is provided for information purposes only. It is not intended to be provided or used as legal, tax, investment, financial or other advice.