As a result of the conflict in Ukraine, Bitcoin has earned its stripes

By Boris Dzhingarov

Ukraine’s civil war is a grim reminder that fights between nations are won or lost just as much in the financial arena as they are on the battlefield.

Even the wealthiest countries will find themselves in a financial predicament if they continue to wage war. The financing of violence will often be provided by devaluation of national currencies, capital restrictions, and unmanageable foreign debt. As long as superpowers have influence over the global financial system, they may use sanctions to choke off smaller economies, destroying entire industries and encouraging the poorest citizens to topple their governments.

The guns will cease to fire as soon as the money runs out.

The unwarranted and ruthless invasion of Ukraine by Russia will be no exception to this rule. A conflict that has no end is unaffordable for either side. As with previous conflicts, this one is marked by the appearance of new forms of sovereign digital money.

Individual citizens using smartphones and making their own personal decisions without inspection from their government, bank, or law enforcement agency have never previously had the capacity to finance a war and protect themselves from monetary attack. In terms of financial libertarianism, there has never been anything like it since the invention of bitcoin. In the end, whether it will be written about as a force for good or evil by historians depends not on the underlying technology but on how society as a whole uses it.

Deputy Prime Minister Mykhailo Fedorov made a direct appeal to the world’s population – not their political representatives – on February 26th, asking them to give money to Ukraine’s war effort in bitcoin and two other cryptocurrencies.

A request for military assistance was not made by Fedorov’s speech-listeners. He did not seek funds through the wasteful, cumbersome, state-supervised infrastructure that allows bank-account holders in Seattle, Sierra Leone, and Shanghai to send money to Ukraine. As an alternative, he tweeted out a 34-character bitcoin address. A donation might be teleported instantly, for free, and without the involvement of a middleman to anyone on the planet who copied and pasted the address into their digital wallet.

People in democracies like the United States tend to discount the importance of technology advances. People in the West have grown accustomed to the concept of time dilation The world’s first truly peer-to-peer monetary network, Bitcoin is now available to everyone. At the time of this writing, 220 bitcoin worth $9.6 million have been contributed to Ukraine in order to safeguard its citizens from a hostile government. With its borderless and unrestricted nature, it is also shielding the benefactors — many of whom are Russians – from domestic retribution.

In the past, we were used to launching banking apps on our smartphones and swiping away the money we had saved in our accounts. Those who reside in less developed nations have it worse. Because our bank statement revealed a payment to a disgruntled party, Westerners are unfamiliar with being hauled into a police van. Those who live in authoritarian states are more susceptible.

However, nice things do not come without a price.

In the same way that an army can both liberate and annihilate a population, so can bitcoin.

The negative side of monetary independence is revealed in the West’s attempts to economically punish Russia through a range of sanctions and exclusion from the Swift international payment system. Putin and his oligarchs are likely to try to utilize bitcoin to avoid sanctions. ECB President Christine Lagarde believes that the potential of cryptocurrency markets to defy Western policy underscores the necessity of regulation in those markets. According to Fedorov, all Russians should be barred from trading cryptocurrencies because of the high risk involved.

The position taken by Lagarde must be qualified severely. All but the most extreme libertarians accept regulation as a general principle. There’s a lot of fine print involved, however. As a result of bitcoin’s open-ledger transaction history, law enforcement can already follow down criminal funds. “Dirty” bitcoin that is known to represent the proceeds of crime has already been blocked by reputable exchanges. They already abide by anti-money laundering regulations known as the “Know Your Customer” (KYC) rule. As a result, these protocols can, should, and will be used to target sanctioned Russians, locking their ill-gotten assets within the cryptosphere. Lagarde, on the other hand, obviously believes that the ECB has the right to bind Europeans to a monetary system that destroys the value of their savings through negative real interest rates, and that regulation is really a pretext for this goal.

It is time to disregard Fedorov’s proposition completely.

The people of Russia are not the adversary. Vladimir Putin’s actions have nothing to do with them; they didn’t vote him into office, and they’re now paying the price. According to CNBC, one of the top cryptocurrency exchanges, Binance, said in response to his request that it would not unilaterally suspend millions of accounts of innocent individuals. “Crypto is designed to provide people all across the world more financial independence.”

To put it another way, bitcoin is likely to benefit the average Russian even more than the average Ukrainian. As of the end of last year, Russian inflation had already reached an all-time high of 8.2 percent. Supply networks are collapsing; energy prices are rising; and financial markets are in panic.

Civilians on both sides of the border who need to secure their assets from inflation and government overreach find Bitcoin’s fixed supply and seizure-resistant, non-physical design intriguing. Civilians rarely escape the price of war, regardless of whether or not they take up arms. It is up to those who survive the bombings to bear the costs. Assuming they’re lucky, their government will secure an agreement to repay their debts while instituting tax increases that will burden the next generation. If they’re unlucky, hyperinflation will wreak havoc on their finances. After World War II, the Hungarian peng was losing 90 percent of its value every four days, which is exactly what happened in Hungary. When the previous currency was replaced with the forint, the nominal value of the old notes was reduced by 29 zeros.

The implications for Hungarians who had deposited their life savings in peng are well-known.

Russia’s military fortunes had taken a turn for the worse over the weekend, and on February 28th, the ruble lost roughly a quarter of its value in just one day. Its value continues to plummet at an alarming rate. The Russian capital has retaliated by prohibiting foreigners from selling their local interests and increasing the interest rate to 20 percent. The next group to be targeted will be the inhabitants of Russia. Those are the agonizing twists and turns of an economy in flames. No matter what happens to the currency, Russians will lose all of their hard-earned money in an instant.

As the European Central Bank’s Lagarde stated it, Bitcoin is the answer. She said, “If there is an escape, that escape will be used.” To persuade democratic governments that bitcoin is a threat to the existing financial order, she made these remarks. Demonstrating that global citizens can no longer be cheated and exploited with impunity is their goal, not theirs.