The Crypto Warfare of Ukraine in Historical Context

Written by: TechFlow Intern

"The world's first crypto war," this is how The Washington Post describes the Russia-Ukraine conflict.

I have an immature premonition: the war in Ukraine will, to some extent, rewrite or accelerate the historical process of Crypto.

One thing that most people overlook is that before the conflict with Russia, Ukraine announced the legalization of cryptocurrency.

On February 17, the Ukrainian government’s official website announced that the parliament had overwhelmingly passed the virtual assets law amendment proposed by the president. This law recognizes the legality of virtual assets in Ukraine.

The timing seems a bit subtle.

Later, I made a conjecture on Twitter that the Ukrainian government and military had previously been receiving Bitcoin and other cryptocurrency donations from around the world to support their armed conflict with Russia.

For example, there is an organization called Come Back Alive, established in 2014, aimed at providing military equipment, training services, and medical supplies to the Ukrainian army. This foundation began accepting cryptocurrency donations in 2018 and received a large number of cryptocurrency donations just before the situation escalated.

Subsequently, the Ukrainian government even took to Twitter to publish the wallet address for donations, receiving over $22 million in contributions within two days.

The entire Crypto industry is almost overwhelmingly supportive of Ukraine.

FTX CEO Sam Bankman-Fried stated on Twitter that the company would give $25 to every Ukrainian with an account on the exchange.

Ethereum founder Vitalik Buterin called on social media to support local Ukrainians through UkraineDAO.

Tron founder Justin Sun announced a donation of $200,000 to Ukraine.

Binance donated $10 million and launched the first crowdfunding for the Ukraine Emergency Relief Fund, with founder CZ stating, "This is where blockchain shines, global fundraising."

Uniswap even specifically built an interface that allows any ERC-20 token to be exchanged for ETH and sent directly to the Ukrainian government in a single transaction.

The Crypto industry is currently generally pro-Western in ideology. As Vitalik said, Ethereum is neutral, but it is not.

1. The War of Money

Cryptocurrency and war remind me of computers and the internet, both products of war. The internet's main predecessor was ARPANET, the world's first operational packet-switching network developed by the U.S. Defense Advanced Research Projects Agency, which is the ancestor of the global internet.

In 1974, Robert Kahn of ARPA and Vinton Cerf of Stanford University developed the TCP/IP protocol. On January 1, 1983, ARPANET changed its core network protocol from Network Control Protocol to TCP/IP, which became the core of today’s internet.

The internet transmits information, while blockchain transmits value. Information and value are the most important intangible battlefields of modern warfare, and may even be more important than physical warfare.

Before hot wars, there are cyber wars, security offensives, and public opinion wars.

Image: Director of 360 Cybersecurity Research Institute

War is a money-burning machine. For example, during the Iraq War in 2003, the U.S. incurred costs between $28 billion and $30 billion in less than two months of offensive operations.

Therefore, how to raise money, maintain national financial stability, and disrupt the financial stability of other countries has become an invisible financial battlefield.

Cryptographic assets are becoming a powerful emerging crowdfunding tool for warfare, as concluded by the crypto technology service company Elliptic.

When faced with financial sanctions, unlicensed Crypto may become a hedge against sanctions.

Thus, it is hard to say whether Crypto is beneficial for Ukraine or Russia, but Bitcoin once again stands in the spotlight.

2. SWIFT, Switzerland, and Bitcoin

Do you remember the Cyprus debt crisis in 2013? Bitcoin's first major bull market was sparked by this event, and many people began to understand Bitcoin because of it.

In March of that year, the "tax haven" Cyprus experienced a severe debt crisis, with its economy shrinking for three consecutive years and unemployment rates soaring.

To cope with this dire situation, on April 17, Cypriot President Nicos announced in a televised address that to obtain a €10 billion emergency loan from the EU, the government would impose a deposit tax on local bank depositors; the tax rate for deposits of €100,000 or more would be 9.9%, while the rate for deposits below €100,000 would be 6.75%.

The public was not pleased and began to withdraw cash frantically. Meanwhile, the Bitcoin network experienced its first massive influx since its inception. Some Cypriots who were aware of Bitcoin rushed to the Bitcoin network, exchanging part of their currency for BTC to avoid policy risks. As a result, Bitcoin's price skyrocketed from over $30 to $265 in just a few days, achieving nearly tenfold growth.

Bitcoin was born during the 2008 financial crisis and evolved through the Cyprus debt crisis in 2013, the U.S. government shutdown crisis, the Greek debt crisis in 2015, and the Brexit referendum in 2016.

This time, it is a war crisis, and Bitcoin has found its "perfect narrative."

On February 26, the U.S., EU, UK, and Canada issued a joint statement announcing a ban on Russia's use of the SWIFT international settlement system.

If a country is excluded from the SWIFT system, it can be likened to a natural person being banned from social media. SWIFT is therefore considered a "financial nuclear bomb" among sanctions, having previously been applied to North Korea and Iran.

Switzerland, the global vault for the wealthy, rarely abandoned its neutral stance and decided to follow the EU in sanctioning Russia by freezing Russian assets.

Meanwhile, Russia imposed foreign exchange controls, prohibiting residents from transferring money to foreign bank accounts and banning the carrying of large amounts of foreign currency out of the country.

…

With traditional financial value transfer mechanisms paralyzed, assets frozen by centralized institutions, and capital controls in place… this perfectly aligns with the original narrative of Bitcoin or blockchain, a permissionless, decentralized value transfer network.

Technology is neutral, and so is Bitcoin, but for Western governments, their concern lies in how to prevent Russia from evading sanctions using cryptocurrency.

The U.S. Treasury Department issued new regulations prohibiting Americans from providing any support to Russian oligarchs and entities, including transactions using digital currencies or assets. Additionally, the U.S. Treasury required major crypto exchanges like Binance, FTX, and Coinbase to block sanctioned individuals and addresses.

The Ukrainian side was even more aggressive, with the Ministry of Digital Transformation sending formal letters to eight trading platforms, including Coinbase, Binance, Huobi, KuCoin, Bybit, Gate.io, and the Ukrainian exchange Kuna, requesting them to stop providing services to Russian users due to "concerns that crypto assets may be used to evade sanctions."

Coinbase, Binance, and Kraken expressed "protests," stating that "exchanges cannot freeze Russian customers' accounts without legal requirements."

Bitcoin is decentralized, but exchanges are centralized, and exchanges are facing the collision test between decentralization and centralized power.

3. Money Freedom

In 1791, the freedoms of Speech, Religion, Press, Assembly, and Petition were written into the constitutions of some countries.

But it seems something is missing? Money Freedom.

It wasn't until 2008 that Money Freedom became technically possible.

In the words of Li Xiaolai, Bitcoin is the first time in human history that technology has achieved the sacred and inviolable nature of private property.

Especially in a war environment, when sovereign nations face threats, currencies relying on sovereign credit are hard to escape, and super-sovereign hard currencies become a lifeline. Previously, there seemed to be only gold; now there is another option. Artyom Fedosov, a developer at the Silicon Valley startup Portside, deeply understands this:

As a friend said, holding Bitcoin is not about expecting it to skyrocket; it is about the possibility that one day, it could save lives, even the lives of his entire family.

Finally, I hope the war ends soon.

In war, politicians provide ammunition,

The rich provide food,

And the poor provide their children…

After the war, politicians retrieve the remaining ammunition,

The rich will grow more food,

And the poor can only search for their children's graves.

MAKE LOVE, NOT WAR!