From its founding, the core tenet of bitcoin is that cryptocurrency is a borderless, un-censorable tool of payments that is free from the control of governments.
The war in Ukraine is putting that founding tenet to the test in a way that nothing has before.
On Friday, the U.S., EU, U.K. and Group of Seven, or G7, all put out statements clarifying — if there was any doubt —that sanctions on Russia applied specifically to crypto.
At the same time, Ukrainians and normal Russians have been using them as the crisis impacts the traditional banking and payments sector. And Ukraine has been successfully soliciting millions in crypto to support its fight.
Which raises an inevitable question: Can governments on either side of a conflict — right or wrong — control the flow of crypto, or is it truly the lifeline in time of crisis that it claims to be?
Crypto resistance
While many of the top cryptocurrency exchanges resisted pressure from the Ukrainian government to block all Russian accounts, not just those of sanctioned oligarchs and institutions — citing those principles — they came in for more than a little criticism as a result. Especially as more banks and payments systems, most notably Mastercard, Visa, American Express, Discover/Diners Club and PayPal, have done just that.
Read more: Mastercard, Visa, PayPal, Amex Suspend Russian Operations
See also: Discover/Diners Club Suspends All Actions in Russia
On Feb. 27, the Kraken Exchange’s CEO, Jesse Powell, called Bitcoin “the embodiment of libertarian values” and said on Twitter: “Our mission at @krakenfx is to bridge individual humans out of the legacy financial system and bring them in to the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation.”
See more: Citing Libertarian Values, CEOs of Crypto Exchanges Won’t Cut Off Russian Customers
That could intensify on March 17, when the U.S. Senate Banking Committee holds a hearing on “Understanding the Role of Digital Assets in Illicit Finance” — notably about the effectiveness of sanctions and the ability of cryptocurrency to bypass them. On top of that, frequent crypto critic Sen. Elizabeth Warren (D-Mass.) and is reportedly introducing a bill that would expand sanctions by requiring crypto exchanges cut off all Russian citizens, and another demanding that even private cryptocurrency digital wallets provide KYC identity information, citing potential sanctions violations by wealthy oligarchs.
Read on: Warren Resurrects Calls for KYC Data from Private Crypto Wallets
It’s worth noting that China has banned bitcoin and other cryptocurrencies as the totalitarian government seeks to prevent well-off and wealthy citizens from moving out of the country, and also turns to a central bank digital currency, or CBDC, that it clearly hopes will be the only crypto in use.
Read here: China ‘Blanket’ Crypto Ban Paves Way for CBDCs
Banking backstop
In Ukraine, which was the fourth-largest users of cryptocurrency before the invasion according to blockchain intelligence firm Chainalysis, there are signs that people are turning to crypto as the government limits currency withdrawals, and bans them outright on foreign currency.
More notably, they are using crypto to pull resources that will likely be frozen or even seized as Russia’s likely unstoppable (militarily at least, despite fierce resistance) invasion eventually collapses the Ukrainian banking system.
At that point, bitcoin will likely be used much like it is in Venezuela — where it’s not just the people but the government turning to crypto as the financial crisis deepens — as a currency of last resort that flies under the radar of a totalitarian government.
Also see: Bitcoin Daily: Venezuela’s Simon Bolivar Int’l Airport to Accept Crypto for Flights
“The fact that it can’t be frozen, the fact that it can’t be censored, and the fact that it can be used without ID is very, very important,” Alex Gladstein, chief strategy officer of the Human Rights Foundation, told Vox on March 7. “And they are why bitcoin is such an important humanitarian tool.”
The question is whether it will succeed in that goal, or find itself stopped by the financial and political powers that be as its basic principle is tested like never before.
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