Ukraine-Russia Crisis: Crypto Playing Key Enabler for Both War-Hit Economies

Ukraine and Russia rank high in the list of countries with the highest crypto adoption rates.

By Shomik Sen Bhattacharjee | Updated: 25 February 2022 16:24 IST

Ukraine-Russia Crisis: Crypto Playing Key Enabler for Both War-Hit Economies

Photo Credit: Reuters

People gather at a bus station as they try to leave the city of Kyiv, Ukraine

Highlights

Russia has invaded Ukraine under President Vladimir Putin's orders
Bitcoin donations to the Ukrainian army have soared recently
Russia could use Bitcoin to reduce blow of economic sanctions

Russia's invasion of Ukraine has urged a host of nations to announce heavy sanctions to cripple the country's economy but Russia's high crypto-adoption rates could very well help its billionaire tycoons feel very little of the financial blow intended through sanctions. The US and the European Union (EU) rely heavily on banks to enforce sanctions but because digital currencies operate outside the realm of standard global banking rules, crypto is likely to emerge as a key enabler of Russia's economy.

"If two people or organisations want to do business with each other and are not able to do so through the banks, they can do it with Bitcoin,” Mati Greenspan, founder and CEO of financial advisory firm Quantum Economics told to Bloomberg. “If a wealthy individual is concerned that their accounts may be frozen due to sanctions, they can simply hold their wealth in Bitcoin in order to be protected from such actions."

As highlighted by a Cointelegraph report, it is also worth noting that over half of the Bitcoin network's computing power comes from three countries primarily —US, Kazakhstan, and Russia. Since Russia makes up the top three, crypto industry watchers have been keeping a close check for any disruptions to the network.

Ukraine-Russia Crisis: Limited Impact on Chips Yet as Future Uncertain

As things stand, Bitcoin mining in Russia appears to be mostly steady, although sanctions could change that for miners who often deal with exchanges and other entities connected to the traditional financial system as they exchange BTC for cash.

According to the Cambridge Centre for Alternative Finance, Russia was responsible for over 11 percent of the global Bitcoin hashrate as of July 2021. Hashrate is a measure of the computing power dedicated to the network, as "miners" run software on specialised hardware in an attempt to win freshly minted Bitcoin — by doing so, they help secure the network from attack.

That said, Russia's contribution to hash-power could start seeing blips down the line if sanctions influence pool providers.

Ukraine Websites Hit by More Cyberattacks, Destructive Malware

While the role crypto plays in the context of economic sanctions for Russia is clear, Ukraine's response to the attack also appears to be benefitting by way of Bitcoin donations pouring in from the international community. A Bitcoin wallet listed by a charity organisation claiming to support the Ukrainian military has received more than 19 Bitcoins worth around $700,000 (roughly Rs. 5 crore), according to data from Blockchain.com.

The address in question has been active since at least August 2021, but the vast majority of the 600 recorded transactions took place in February this year, many of them in the last 48 hours. The charity received close to $400,000 (roughly Rs. 3 crore) in Bitcoin on February 24 alone.

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