Ukraine war –
The dual role of cryptocurrencies

Back in the fall, the US Treasury warned that cryptocurrencies threaten the effectiveness of sanctions. In fact, Bitcoin & Co. play a central role in the Ukraine war.

States have always financed wars with the help of more or less voluntary donations. With special taxes, for example, or with war bonds with promised interest. In this respect, Ukraine's appeal after Russia's attack is not unusual – if the government did not explicitly ask for cryptocurrencies.

"A shield for people"
"I still wouldn't call it a crypto war, more like a shield for people," says Alex Gladstein of the New York-based Human Rights Foundation. He helped organize the appeal for donations for Ukraine – successfully: so far, the equivalent of almost 60 million US dollars in various cryptocurrencies has been collected for the war chest. "The Ukrainian government has used the money to buy military equipment to defend the country," Gladstein explains.But that's not all: "Crypto is also providing peaceful humanitarian aid to hundreds of thousands of people who have fled, been displaced or are suffering terrible economic conditions." For example, there are special funds to help civilians flee and provide them with food and fuel.

"Blacklisting doesn't help at all"
But the brave new crypto world also has its downsides, says Hanna Halaburda, a professor of economic technology at New York University. "Even before the Ukraine war, crytocurrencies have been used for good and for bad because they bypass government control and regulation," she said. "And in this conflict, it's again very clear: You can do better and worse things with crypto. "That's because cryptocurrencies are also being used in Russia – where they are being used to circumvent drastic sanctions imposed by the West. Thus, with the invasion of Ukraine, more rubles have been exchanged for bitcoin than ever before. "Let's take the oligarchs: They can exchange money into cryptocurrencies to get around sanctions," Halaburda says. It would be hard to prevent that. Because for that you would need, first, the addresses of the virtual wallets of these oligarchs. "Then you would have to – secondly – block them in all trading platforms. And thirdly, there are not only bitcoins; there are cryptocurrencies that are so protected that a blacklist is useless."

Access to cryptocurrencies unregulable?
As early as last October, the U.S. Treasury Department warned that cryptocurrencies posed a threat to the effectiveness of sanctions. Entire departments are now busy tracking down suspicious transactions.Trading platforms are not much help. "We are a private company," Kraken CEO Jesse Powell, for example, clarifies. "It's not our job to freeze the accounts of Russian citizens. That would go too far." Denying someone access to their finances is different "than no longer selling them shoes or camera lenses," Powell says. "We will only take such an extreme measure if we are forced to do so by the government. "Meanwhile, several thousand crypto accounts have been blocked under pressure from Washington, but most Russian oligarchs and Putin supporters likely continued to go unchallenged, says expert Halaburda. "Bitcoin, after all, was invented precisely to circumvent government regulations." The Bitcoin community could theoretically introduce blacklists now. But to do so, it would first have to coordinate, she said. "And then there are all the second-generation cryptocurrencies. So we're pretty much powerless to restrict the use of cryptocurrencies."