In this article, we will look at how war can affect the crypto market and how cryptocurrency can help individuals on the ground in Ukraine. Also, we’ll look at how cryptocurrency can help Russian citizens protect their wealth from the inflationary aspects of the local ruble. Moreover, we’ll explore the various ways people around the world can use cryptocurrency as an invaluable tool for storing wealth, regardless of location or geopolitical stance.
Economic Markets and War
Market psychology dictates that fear, uncertainty, and doubt (FUD) in economic situations leads to a downturn in market trends. This is typical across traditional industries, including stocks and currencies. Plus, the cryptocurrency industry is still small enough to follow under the influence of leading stock exchanges and gold. Unlike the legacy infrastructure, the crypto market operates as a truly free market. This means assets are valued on the supply and demand, with no centralized price manipulation. As such, an entire community of a project could deem it to become worthless overnight due to a “black swan” event. This could result in them selling their assets, and the project will go to zero.
In a less dramatic scenario, price fluctuations can be analogous to a ripple response in water. For example, in a large market with lots of liquidity worth trillions of dollars, a single six-figure transaction from a high net worth individual is like throwing a small stone into the ocean. However, if the same individual were to make the same transaction in a smaller market with substantially less liquidity, it would be akin to throwing a large rock in a small pond. The volatility is much more significant.
Although less than 15 years old, the cryptocurrency market has by far outperformed any other type of economic market in terms of growth during its existence. Nevertheless, the industry is still young and relatively small in comparison to stocks, real estate, or dividends markets. As a result, trends experienced in traditional markets are often amplified in the crypto market.
While wartime is not typically associated with economic growth and technological advancements, the war between Russia and Ukraine has sparked innovation and a rise in crypto adoption.
Cryptocurrency is a form of digital payment and asset investment avenue using blockchain technology, introduced in 2009. The first cryptocurrency was Bitcoin, a revolution to the infamous “double-spending” problem common among computer scientists and cryptographers. As such, cryptocurrencies operate using blockchains as a type of distributed ledger technology (DLT). Crypto allows for mathematically verifiable cross-border payments, operating and managed by a global network of nodes (computers). As a result, this removes the need for third-party intermediaries, charging hefty fees and extending the transaction confirmation time.
Since Bitcoin, thousands of other cryptocurrency projects have emerged. With open-source technology, anyone can create a cryptocurrency token. However, the value of the project comes from its utility and adoption from a community. Therefore, it is critical for anyone considering investing in cryptocurrency to be due diligent and do their own research first.
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Ukraine: Country with One of the Most Crypto Owners
According to a recent blog post by the blockchain research organization, Chainalysis, Ukraine is one of the largest adopters of cryptocurrency. Ranking fourth on the list, the country recognizes cryptocurrency as a legal activity, although not necessarily legal tender. The Ukrainian government is up to speed on current blockchain terminology and its technological possibilities. Accordingly, it had plans to airdrop crypto donations to its citizens before re-evaluating the campaign to put funding to potentially better use.
The crypto space was already quite active in Ukraine prior to the Russian invasion. According to Chainalysis, the country was transacting more than $8 billion in crypto assets annually. However, since the start of the war, the adoption of cryptocurrency has skyrocketed for its wealth-preserving ability. Moreover, Ukraine’s leading crypto exchange, Kuna, exceeded its highest level of trading volume since May 2021 within the first three days of the invasion.
Can Cryptocurrency Help Ukraine?
Some of the key features of cryptocurrency include decentralization, transparency, and near-instant cross-border transactions. Moreover, sending transactions costs far less than using legacy payment providers. As such, there are several ways in which cryptocurrency can help the people of Ukraine. From the residents of the country at war accessing crypto services to the people all over the world wishing to send help.
On March 3rd, 2022, it was confirmed that one million people had fled Ukraine. According to a United Nations (UN) report, another four million are anticipated. For people condensing their livelihood into no more than what is carriable by hand, cryptocurrency is an invaluable way of securing and traveling with their wealth.
First, crypto wallets are portable and accessible regardless of geographic location. Users can store cryptocurrency assets on small physical hardware devices (no bigger than a credit card) or using online Web3 wallets. Many Ukrainians fleeing their country can put their savings into cryptocurrency assets and then exchange them for fiat currency when they arrive in another country. Plus, as the adoption of crypto becomes more widespread, refugees can use their crypto to pay for services and goods directly. In addition, families who have separated due to the conflict can transfer wealth between each other without any need for intermediaries.
Second, as the war continues, so too does the downturn of Ukraine’s economy, with its central bank reportedly halting electronic cash transfers. Furthermore, Ukrainian citizens have been banned from withdrawing foreign currencies. For the remaining residents in the country, transferring their local fiat savings into deflationary assets such as Bitcoin will hedge against inflation and help preserve wealth.
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Bitcoin Donations Pouring into Ukraine
Cryptocurrency wallet addresses operate using a public key (like an account number) and a private key (like a PIN). Furthermore, public keys can be a QR code, a human-readable address (e.g., “myname.crypto”), or a long string of digits. As such, people can share their crypto wallet addresses online securely and conveniently for anyone to send assets to. This is commonplace for influencers and creators. However, the government of Ukraine has made its crypto addresses publicly available for people worldwide to make donations. With that said, neither the national bank of Ukraine nor the Ukrainian Ministry of Defense currently accepts cryptocurrency donations. Donations are going towards military aid, medical equipment, and technological developments for defense.
Since the beginning of the war, Ukraine has seen more than $15 million worth of donations in different crypto assets. People anywhere in the world can donate Bitcoin (BTC), Ethereum (ETH), Tether (USDT), and Polkadot (DOT). Polkadot founder Dr. Gavin Wood donated $5.8 million in Polkadot (DOT) to Ukraine to thank Ukraine for accepting crypto. Also, Dogecoin (DOGE) is the latest crypto Ukraine accepts for donations. Plus, the project has a strong social media community to drive awareness. At the time of writing, Ukraine’s Dogecoin wallet has raised just over $80,000.
After generous crypto donations pouring into Ukraine, the government initially announced it would offer its citizens an airdrop. However, a few hours after this announcement, the campaign was retracted. Instead, funds are being used towards releasing non-fungible token (NFT) assets to fundraise the Armed Forces of Ukraine. While Ukraine has yet to confirm the type of NFT asset, initial reports from the BBC news suggest it could go towards NFT financial war bonds. The news outlet states, “each one-year bond has a nominal value of 1,000 Ukrainian hryvnia and offered an 11% interest rate”. In response, the Ministry of Finance of Ukraine says, “the proceeds from the bonds will be used to meet the needs of the Armed Forces of Ukraine”.
Another type of innovative NFT fundraising activity is through auctioning art. The decentralized autonomous organization (DAO), Ukraine DAO, raised more than $6 million during an NFT auction between February 26th and March 2nd. The NFT was of the Ukrainian flag, representing a sign of solidarity. Set up by a Ukrainian activist living in England, Ukraine DAO has received millions in donations from individuals and organizations alike. According to block explorer Etherscan, this includes the adult website OnlyFans, donating 500 ETH (nearly $1.5 million) from its crypto address, “only.eth”, in late February. For readers wanting to know more about the world of NFTs, save our “Most Expensive NFTs Sold” article for later!
Passive and Active Income
During times of hardship and uncertainty, cryptocurrency can, with proper due diligence, offer a fairly reliable form of income. Moreover, depending on the circumstances and opportunities, cryptocurrency can offer a form of both active and passive income.
First, the cryptocurrency industry is notorious for being able to put idle assets to work, offering returns while you sleep. Moreover, the crypto industry’s interest rates and annual percentage yield (APY) far exceed those within the legacy financial infrastructure. Anyone can earn a passive income with cryptocurrency using various protocols. This includes staking assets by locking funds up for a set period and earning interest. Also, this could be through mining crypto. The process and initial investments for mining vary drastically depending upon the blockchain (see our “Bitcoin Mining Companies” article to see how to achieve mining on an industrial scale!).
Theoretically, another form of passive income could be investing in deflationary assets, such as Bitcoin. The investment value will increase as the value of local fiat currency decreases. However, as the crypto market is still relatively young, it can be incredibly volatile. Therefore, it is worth grasping the basics of technical analysis and market cycles before investing.
Knowledge of cryptocurrency is in high demand and offers ample remote working opportunities. Therefore, the people of Ukraine who are cryptocurrency-savvy and have lost their source of work due to the war can potentially transfer these skills into a new career path. With the uncertainty of local income opportunities in Ukraine and finding work in a new country, careers in blockchain and cryptocurrency are in-demand worldwide across many sectors.
Can Cryptocurrency Help Russian Citizens?
Regardless of where people stand on the side of war, cryptocurrency is indiscriminate. Numerous countries around the globe have put economic sanctions on Russia in an attempt to drain its financial resources to stop the invasion of Ukraine. This includes a ban on SWIFT (the Society of Worldwide Interbank Financial Telecommunications), the world’s largest international payments network. As a result, there are hundreds of reports of Russian residents unable to access Visa, Mastercard, Google Pay, or Apple Pay. Moreover, the value of the local ruble has plummeted in the last two weeks. As such, Russian residents have to spend nearly twice as much on the same amount of goods.
With the Russian stock market closed and reports of “no more dollars left”, citizens of the country are turning to cryptocurrency as a safe haven. Blockchain technology allows anyone to create decentralized financial applications that are censorship-resistant. This means Russian residents don’t need to worry about the government freezing their accounts or being unable to access funds. Moreover, these platforms offer activity without the need for identification. Therefore, when carrying out additional precautionary measures, users can interact anonymously.
Potential Drawbacks of Cryptocurrency
For a long time, cryptocurrency had a bad reputation for being used solely for malicious intent. Blockchain technology is truly open-source, non-discriminate, and accessible to anyone with an internet connection. On the one hand, this presents revolutionary opportunities for two-thirds of the world without access to banking facilities. On the other hand, it presents a loophole for economic sanctioning and fundraising avenues for military operations on both sides of the war.
In addition, Russia has existing affiliations with crypto-related cybercrimes. A Chainalysis report in February 2022 states, “Russian links accounted for 74% of revenue from ransomware attacks in 2021”. Consequently, this raises fears surrounding cyber warfare attacks to those investing in crypto and interacting with cryptocurrency platforms. Moreover, the government of Ukraine fell victim to a series of cyberattacks demanding Bitcoin in January this year. Unfortunately, data on government computers was resultantly destroyed.
Another downfall of cryptocurrency is the scams and rug pull projects within the industry. Sadly, just before reports of Ukraine’s airdrop being canceled, a scammer airdropped free “Peaceful World” tokens to Ukrainian residents. As a result, many believed these tokens to be the government airdrop, reaching $500,000 in trading volume on Uniswap. Shortly after, crypto media outlet CoinDesk published that block explorer Etherscan, following the transactions, reported the project as a scam.
Finally, another potential drawback of cryptocurrency is volatility. With market uncertainty and relatively small adoption, donations of substantial amounts may suddenly be worth half as much the following day.
Exploring Ukraine and Cryptocurrency – Summary
With fear, loss, and uncertainty on both sides of the war, cryptocurrency offers a safe haven of wealth for all who need it. Particularly for Ukrainians, knowledge of cryptocurrency can be crucial for refugees moving to another country. Moreover, with the government of Ukraine fully embracing the opportunities of cryptocurrency, donations from around the world are pouring in to help. In addition, the government is introducing “never before seen” non-fungible token (NFT) war bonds to fund its military action. Also, residents in Ukraine suffering from its economic downturn can preserve their wealth in liquid deflationary assets.
Meanwhile, citizens in Russia bearing the brunt of extreme economic sanctioning and currency debasement can also turn to crypto to preserve their wealth. Further, several reports state that crypto exchanges are dismissing orders to freeze Russian account holders. Globally-operating decentralized finance (DeFi) applications don’t always require the identity of users. Accordingly, it is challenging to track the origins of transactions and comply with economic sanctioning.
Understanding and education in cryptocurrency can be vital in times of economic uncertainty. See our “Top Crypto YouTube Channels” article for a collection of the best crypto YouTubers to broaden your knowledge! Or, try our Blockchain & Bitcoin Fundamentals course for an easy introduction to the basics of this cutting-edge technology. Check out the leading Web3 development and blockchain education suite at Moralis Academy today!