In 2022, crypto-currencies are increasingly ubiquitous, and now it's showing up in war zones. Amidst concerns about crypto-companies dodging sanctions against Russia, Ukraine managed to raise more than $50 million via crypto donations, resulting in an overall mixed-bag for the trustworthiness and reliability of digital currencies.
In crypto's favor, the Ukrainian government and the military non-profit support group Come Back Alive had received a total of $54.7 million in digital currencies as of March 3. More than 102,000 crypto donations had been sent since President Vladimir Putin invaded Ukraine on February 24, including Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), Solana (SOL), and a variety of other stable coins and tokens.
Donations have also been sent in the form of non-fungible tokens (NFT), including a CryptoPunk NFT valued at more than $200,000. An NFT of the Ukrainian flag was recently sold for $6.5 million in ether, with the proceeds being donated to Come Back Alive.
The Ukrainian government didn't accept donations in the form of digital currencies until Feb. 26, when several Ukrainian government Twitter accounts began soliciting crypto donations.
"Cryptocurrency is particularly suited to international fundraising because it doesn't respect national boundaries and it's censorship-resistant - there is no central authority that can block transactions, for example in response to sanctions," the chief scientist for blockchain analytics company Elliptic, Tom Robinson, told CNBC.
While cryptocurrencies have arguably proven their worth as a method for donation gathering, the Russian invasion has raised the question of whether or not crypto can be used to avoid international sanctions.
First, following the invasion, the international banking system effectively closed its doors to Russia, with countless massive financial institutions announcing their withdrawal from the country. Alongside this, sanctions were placed on Russian institutions, making it even more unlikely that U.S. firms will continue to do business in the country.
This is where cryptocurrencies come in. There was some debate over whether or not Russian businesses and figures would use digital currencies to avoid sanctions. The idea is that, because the blockchain is decentralized, meaning not controlled by the banking system, transactions could continue to be carried out while avoiding the sanctions.
There are several flaws with the idea of using crypto to dodge sanctions: the sanctions also apply to crypto companies, the blockchain public ledger of activity means tracking funds is relatively easy, and the crypto market doesn't have enough liquidity to make it a good option for Russian companies and oligarchs.
"It doesn't matter if your company handles dollars, crypto, gold, real estate or even nonfinancial assets. Sanctions laws apply to all U.S. people and businesses," Brian Armstrong, CEO of Coinbase
"That being said, we don't think there's a high risk of Russian oligarchs using crypto to avoid sanctions. Because it is an open ledger, trying to sneak lots of money through crypto would be more traceable than using U.S. dollars cash, art, gold, or other assets," Armstrong continued.
Finally, Bitcoin saw a massive jump in value following the invasion, leading some enthusiasts to ask whether or not it can finally be considered "digital gold". Proponents of the idea say that Bitcoin, like gold, can now serve as a safe haven for assets during economic turmoil. However, some economists say they "completely disagree".
"A safe haven is an asset that retains its value during times of market turbulence," Lux Thiagarajah of crypto financial company BCB, wrote in a statement. "Crypto has aggressively sold off since it was clear the Fed (U.S. Federal Reserve) were going to hike rates faster than anticipated which in turn saw stocks sell off. This is not the definition of a safe haven."
