The crypto conflict unfolding in Ukraine
As the Russia-Ukraine war enters its third week, much of the world is using digital technologies to watch it unfold. Behind the physical soldiers in uniform, there are unseen digital algorithms at work, from artificial intelligence to the movement of money, including cryptocurrency, or “crypto.”
Less visible than tanks, and yet more sophisticated, is a parallel war going on — a digital monetary battle between Russia and the West as a virtual digital currency market has grown in recent years with individuals and countries availing themselves of new ways to move money around without a trace.
Modern warfare means the loss of life as well as treasure in new forms such as virtual currency.
The market value of cryptocurrency topped $2 trillion in 2021 and is expected to continue its volatile growth. What is only a decade-old system of moving money is proving to be a major source of trade and, not surprisingly, it has crept onto the battlefield.
Many of us have heard of Bitcoin, but it is only the tip of the crypto iceberg. Right behind Bitcoin is Ethereum and a range of smaller crypto currencies.
As the size of the crypto market grows, so do its critics and participants, including Russia and Ukraine, which are monetary adversaries as well as military ones. That raises the question of whether growing sanctions on Russia will do what we hope they will do.
Russian President Vladimir Putin no doubt anticipated the freezing of his assets, harsh sanctions and punitive actions like cracking down on his ability to trade goods and services and banking through the international system. To avoid sanctions and international controls, he has invested in digital currency — a kind of e-ruble.
Ukraine, also aware of the power of digital currency, has invested heavily in it. Ukrainian President Zelensky went so far as to plea for e-donations for the war effort and has reportedly raised $42 million in crypto donations, including digital artwork — something most of us cannot even imagine.
But how do you make sure only one side in the conflict benefits from crypto currencies? Can we guarantee that all these sanctions, which may lead to a rise in the price of a gallon of gas, will work?
The hardest question facing Russia is the degree to which it can withstand the economic pressures imposed by the rest of the world in opposition to its illegal invasion of a sovereign country. With all the attention on traditional banking and the expulsion of Russia from the SWIFT financial system, we tend to forget the shadowy, almost parallel world of crypto, where transactions are more difficult to track — making it appealing to those, like ordinary citizens enduring war, who might not be able to get access to their bank accounts, but also appealing to criminals, drug lords and those seeking to avoid being detected while moving money.
Moving money directly, as many of us do with Venmo or PayPal, is even more sophisticated at the level of large digital currency movements that also rely on blockchain algorithms that can make it hard to trace sources and recipients. The U.S. and Europe are aware of Russian interest in cryptocurrencies. Last year the U.S. Treasury Department warned banks and financial institutions to be on guard against the use of digital currency transfers by Russian oligarchs and state actors seeking to evade sanctions. But getting multiple countries to share information and “red flags” of Russian assets can be difficult. With regulation of the entire crypto system still evolving, it is a cat-and-mouse game to rein in the flow of unseen transactions.
Whether its bullets, blogs or Bitcoin, modern warfare is changing, and the winners and losers may depend on how technology gets employed on the battlefield. As observers in this war, our lives will be impacted by it — whether it is the price of fuel or the freedom to use cryptocurrencies.
Some may argue that, even at the risk of empowering crypto-criminals or allowing dictators to avoid sanctions, we need to retain the ability of individuals to move money around using the fastest technologies available.
In the end, what we think about virtual technologies may be irrelevant since they tend to outpace human judgement. What we must do is to give the best weapons to the good guys – in this case Ukraine – and do our best to stop the war before it stops all of us from living secure lives.
Tara D. Sonenshine is a former U.S. under-secretary of state for public diplomacy and public affairs.
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