Crypto, the invasion of Ukraine and Government control

Crypto chess

Most of you reading this article use a payment system connected to a bank in some way or another. Such examples include:

  • Transferring money between your bank accounts.
  • Withdrawing money from an ATM.
  • Paying for a good or service using a debit or credit card. 

The latter example involves instructing the bank to transfer money from your bank account to the merchant’s bank account.

The Russian invasion and sanctions

Climate change
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Russia invaded Ukraine on the 24th of February 2022. A few days later, the Ukrainian Government successfully lobbied Western Governments (mainly the US, UK and the EU) to introduce sanctions against Russia as a punitive punishment and disconnect it from the world.

The most damaging sanctions were banning Russia from SWIFT (Society for Worldwide Interbank Financial Telecommunications). 

SWIFT is a banking messaging system that allows financial institutions like banks to transmit and receive secure messages such as money transfers between local banks and abroad. Banning Russia means that money can not travel from one bank to bank or from one person to another. 

Russian creditors can’t receive amounts payable from exports, and foreign companies in Russia cannot send payments to their home country. The ban caused the Moscow Stock Exchange to lose one-third of its value, around USD 140 billion in one day. Consequently, the Bank of Russia, its central bank, asked the stock exchange to halt trading and close its doors.

The only options available for the Russians to transact was by using Visa and Mastercard. However, they pulled out soon after.

Russian companies listed in London lost around 90% of their value, and the Russian Ruble lost 50% of its value.

The Government introduced limits on money withdrawals from its banks to contain its financial system. These actions caused a massive panic for ordinary citizens, which resulted in bank runs, hoarding, shortages and inflation. 

The financial iron curtain fell on Russia. 

The actions intended to punish the few influential people that decided to enter into an unnecessary war instead punished millions of ordinary citizens. Those in the inner circle knew before what would happen and had plenty of time to prepare themselves.

While financial sanctions have been introduced gradually on countries like Iran and Iraq, it’s the first time sanctions were introduced in a few days. 

These sanctions won’t be the last. In the future, similar sanctions may force sovereign Governments to comply with the wishes of those in control of the financial system, undermining the democratic system.

Enter Bitcoin and crypto

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Many people see Bitcoin as a speculative asset to “get rich quick”. However, only a few appreciate Bitcoin’s purpose and how it can help ordinary people.

Bitcoin came into existence in 2008, during the financial crisis. The idea behind Bitcoin is to get rid of the intermediaries who are to blame for the recession. The middle-men refers to banks and other financial institutions. 

Banks are in a strong position since they control the money flow and can dictate what people do with their own money. They allow two individuals to transact with each other. Without banks, this wouldn’t be possible. 

On the other hand, Bitcoin is decentralised, meaning that a middleman doesn’t exist. Two more people can transact with each other without any boundaries and limits. All one needs is a computer, an internet connection and open-source software to transmit transactions. 

The only way for Governments to ban Bitcoin is to switch off all power plants and turn off the world’s internet which is impossible to do.

One must remember that Bitcoin is useless if kept on a crypto exchange. A Government can ask a crypto exchange to freeze one’s assets. It was similar to what the Canadian Government did to its truckers when they protested in Ottawa. The Canadian Government asked banks and crypto exchanges to freeze funds and cryptos belonging to protestors and supporters.

Bitcoin and other cryptos’ should be moved outside of crypto exchanges on devices like a Nano ledger or paper wallets.

Stable coins

Some people may argue that Bitcoin is volatile. They’re right. However, other cryptocurrencies exist beyond Bitcoin, Ether, Cardano that aren’t volatile and whose price isn’t affected by market conditions. These are known as stable coins.

There are stable coins denominated in Euros, but the famous ones are US dollars. Two examples of such coins are Tether and USDC. The value of one Tether or one USDC is always equivalent to one US dollar. As the name implies, the price of stable coins remains the same regardless of market forces.

Similar to Bitcoin, they are decentralised and exist on the Ethereum blockchain. 

Tools to avoid sanctions

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Cryptocurrencies can be a tool to avoid sanctions. However, unlike banks where transactions are secretive, and Government require court decisions to get data from banks, Bitcoin and Ethereum blockchain transactions are public.

The only way that Governments can control cryptocurrencies is through exchanges when fiat (Government printed money) enters an exchange and converts into crypto; and when crypto converts into fiat and leaves the exchange. 

Since Bitcoin and Ethereum are publicly available, law enforcement agencies can black-list specific crypto addresses and trace illicit transactions.

Once crypto is on the blockchain, Governments can’t do anything. Two people can transact without any interference, making it censorship-resistant.

Crypto is a tool for financial freedom. Governments and law enforcement agencies can seize people’s assets for causes like proceeds derived from crime; Governments can use the same methods to justify seizing assets from critics.

Ukraine and crypto

The article focused on everyday citizens. However, the Ukrainian Government asked for crypto donations to help the war effort. 

The Ukrainian Government has received almost $60 billion in cryptocurrency donations.


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