Russia is one of the richest countries in the world. In a report by Investopedia, Russia’s GDP has reached a whopping $1.48 trillion in 2020 and is ranked number 11 among rich countries. The country is a major producer of cobalt, chrome, copper, gold, lead, manganese, nickel, platinum, tungsten, vanadium, and zinc. It is also one of the major exporters of crude oil, refined petroleum, natural gas, and coal. It is also a key producer of wheat and fertilizers.
Ukraine, a neighboring country turned nemesis has a GDP of $112 billion which is a far cry from that of Russia. The country is also one of the biggest players in the food market which exports leading cereal crops like wheat, maize (corn), and barley. But on top of this, it is also one of the world’s leading producers and exporters of sunflower oil.
The tension between the two neighboring countries began in 2014 when Russia invaded and subsequently annexed the Crimean Peninsula from Ukraine. Eight years later, Russia once again launched a massive attack on Ukraine and its main goal was the “liberation of Donbas” consisting of the eastern regions of Luhansk and Donetsk. This comes amid Ukraine’s attempt to become part of NATO, a scenario forbidden by Russia.
On Feb. 10, Russia and Belarus began 10 days of military maneuvers. On Feb. 17, fighting escalated in separatist regions of eastern Ukraine. Despite Putin’s denial of its planned invasion, on Feb. 24, Russia invaded Ukraine resulting in massive deaths and damage to properties. The international community condemned Russia for its action and has implemented economic sanctions.
Ukraine called for crypto exchanges to join companies worldwide in enforcing a sanction on Russia and restricting its citizens from their platforms. The Biden administration has also sought these platforms to circumvent any attempts from Russia to get access to their services amid fear that cryptocurrencies will be used to avoid sanctions. Ukraine in the middle of a war has turned to crypto as a donation as they are less likely to be affected by geopolitical or macroeconomic factors. But let’s take a look backward at how these two warring countries formerly viewed cryptocurrencies and how changes were implemented during the war.
In a published blog by Freeman Law, before the war took place, no regulation was implemented on cryptocurrencies. But when the war broke out, the country passed a law as crypto donations continued to pour in. Under the new crypto law, all exchanges were allowed to operate legally. Even banks were allowed to open accounts for crypto businesses. Ukraine’s National Securities and Stock Market Commission is in charge of regulating the market in the country and its duties include the issuance of licenses to crypto businesses and the implementation of state policy in the industry. In a report by Coindesk, the country has so far received $100M worth of crypto donations. In March, Ukraine partnered with trading platform FTX, Everstake, and Kuna Exchange, a local exchange to launch a new crypto donations website. Crypto donations are converted by FTX into fiat and deposited to the National Bank of Ukraine. All proceeds are used for humanitarian causes and support its armed forces. Oleksandr Bornyakov, an official at the digital ministry, commented on the importance of cryptocurrencies in sustaining the country in the middle of a war.
“Crypto assets proved extremely helpful in facilitation of funding flows to Ukrainian citizens and soldiers, as well as in raising awareness and engaging people worldwide.”
In January 2021, under its first proposed crypto regulation, Russians can mine, trade, and hold crypto assets but using them as payment is deemed illegal. Russian President Vladimir Putin expressed tolerance when he stated that they “have the right to exist and can be used as a means of payment” according to a report by Yahoo. But using cryptocurrencies, particularly BTC (bitcoin) for bulk trading of oil and other commodities is definitely a “no”.
But in January, the Putin administration had a change of heart about digital assets. The country joined other countries from Asia and the United States in implementing a crackdown against cryptocurrencies. The country proposed a ban on digital assets and mining stating risks to financial stability as one of the main reasons. But when the war broke out, Russia proposed a bill on cryptocurrencies titled “On the Digital Currency” which aims to regulate crypto trading and mining despite opposition from the Bank of Russia. Under the proposed bill, digital currency is viewed as property and electronic data stored in an information system that can be used as payment but is not a legal tender in the Russian federation. It is also defined as an investment tool without any entity backing it. But foreign crypto exchanges are not allowed to operate as crypto intermediaries.
As the tension escalates after Russia finally invaded Ukraine, the country is now faced with economic sanctions from countries worldwide. Russia has now offered the option of BTC (bitcoin) as payment for exports to friendly countries like China and Turkey. Putin in his statement. This was announced by Pavel Zavalny, a deputy for the United Russia party in the 7th State Duma of the Russian Federation and the head of the country’s Committee on Energy.
“The set of currencies may vary, and that’s normal practice. If there are bitcoins – we will trade in bitcoins.”
In his statement with CNBC in October 2021, Russian President Vladimir Putin stated:
“I believe that it has value. But I don’t believe it can be used in the oil trade.”
But with the country’s recent move, it is highly evident that its point of view on cryptocurrencies has now changed. Russia and Ukraine are now exploring cryptocurrencies: an alternative for the former but a lifeline for the latter. The whole world is watching how the war will finally come to an end while witnessing the unprecedented role of cryptocurrencies in these countries’ survival. This has raised optimism in an embattled industry with regulations remain a threat to its existence. The unheard voices of the Ukrainians and Russians who definitely dreaded the war more than the whole world does speak volumes as we read and hear their testimonies about how cryptocurrencies helped them to cope financially in the midst of a war. While fleeing from the devastating and ugly effects of the war, these groups have turned to digital assets as a refuge despite their volatilities. It’s better to get 50% or even less of your money than to get nothing at all.
With chaos brought about by war resulting in the collapse of economies and financial institutions, cryptocurrencies will now become a prominent fixture of these events. But will this help in its national adoption or will hinder its entry into the mainstream even more? This remains to be seen.