Bitcoin plays a role in the war in Ukraine in many ways. The Ukrainian government received millions in bitcoin donations, but at the same time there are concerns that Russia is using bitcoin to evade sanctions. For Ukrainian refugees, bitcoin turned out to be a rescue and because of bank runs, residents of both countries are discovering that bitcoin offers a way out. Russian soldiers who surrender themselves or their tanks will receive a reward in bitcoin.

Last week Russia invaded Ukraine and war broke out. It soon became apparent that it is not only a military conflict, but that the economic consequences are also major and that Bitcoin plays a role in various ways.

Financial restrictions

Immediately after the Russian invasion, the Ukrainian government declared a state of emergency and the central bank introduced financial restrictions. The foreign exchange market was shut down and foreign currencies were no longer allowed to be issued to the public. Wire transfers were discontinued and limits were imposed on cash withdrawals; more than a certain amount could not be withdrawn. People stood in long queues in front of the ATMs in vain, because in many cases they were empty.

A disaster for fleeing Ukrainians, who sometimes had to leave all their savings behind and fled empty-handed. For some, bitcoin turned out to be a real resort.

For example, a Ukrainian refugee was unable to withdraw money, but thanks to bitcoin he was able to flee to Poland with an economic buffer. Another refugee in Kazakhstan discovered that Ukrainian credit cards were blocked, but now survives thanks to his cryptocurrency wallet. The Danish newspaper Ekstra Bladet reports that two of their correspondents were able to flee the country because they could buy a car with the help of bitcoin – cash was not available.

Bitcoin donations

On Saturday, the Ukrainian government launched a campaign via Twitter to collect donations in cryptocurrency. The donations poured in quickly: more than 215 BTC, worth more than ???????8.5 million, has since been donated. The Come Back Alive foundation provides body armor, helmets and first aid kits to Ukrainian soldiers, but was banned from donation websites. Nevertheless, they managed to collect 198 BTC (??7.8 million) in donations via bitcoin in a short time. What is new is that the Ukrainian national police has also started a collection campaign via bitcoin.

Sanctions

Shortly after the invasion, economic sanctions from the west followed. Russian assets were frozen, trading was halted and Russia was banned from the SWIFT banking system. However, there are concerns that Russia will use bitcoin to circumvent the sanctions. After all, Bitcoin is a global transaction network and cannot be censored or confiscated.

Moreover, Russia recently took steps to regulate bitcoin. The central bank called for a ban, but Putin pointed out that Russia has a “competitive advantage” because of its many energy surpluses. Given the developments, he possibly also meant a strategic advantage. According to estimates by the Cambridge Alternative Center of Finance, some 11% of the bitcoin network’s computing power comes from bitcoin miners in Russia.

Moreover, some countries that support Russia in the conflict, such as Iran and Venezuela, already have some infrastructure to conduct international trade using bitcoin as a transaction network. Russia could possibly circumvent the sanctions by trading with such countries and paying in bitcoin.

However, Christine Lagarde, president of the ECB, says she is not very concerned about the risk of Russia circumventing sanctions with bitcoin. ?ǣIf there is a ban or restrictions, there are always criminal ways to get around it ,?ǥ she said in response to the issue. ?ǣThat is why it is so important that MiCa is pushed through as quickly as possible so that we have a legal framework in which to trap cryptocurrencies.?ǥ

“By the way, it’s nice and good to have cryptos, but it’s not everything,” she says, “You have to move from crypto to stablecoins and eventually to a fiat currency. There are ways to cut through the smokescreen and make sure ensure that criminal activity is detected and properly dealt with,” said Lagarde. Various experts seem to agree that it is difficult for Russia to convert large amounts via bitcoin.

Russian bank runs

Russia also introduced banking restrictions. The exchange rate of the Russian ruble fell by about a third in a few days and so did the value of the savings of the Russian population. To prevent bank runs, the Russian government has set withdrawal limits, foreign transactions are being blocked and interest has been raised to 20%. Despite this, bank runs also occurred in Russia and people are also waiting in long queues in front of the ATMs in the hope that they will be refilled.

Part of the Russian population seems to be taking refuge in bitcoin. According to some reports, the local price of bitcoin is significantly higher than the average international rate due to high demand.

Uncountable Bribes

A new twist is that Russian soldiers are offered an amount in bitcoin if they surrender themselves. There are two stories going around, but it is unclear if they are different stories.

Masha Efrosinina, a television celebrity and honorary ambassador of the United Nations Population Fund in Ukraine, called on Russian soldiers via Instagram to surrender in exchange for 5 million Russian rubles, either in cash or in crypto. Russian soldiers who surrender will not be prosecuted, according to reports. The money, according to Efrosinina, comes from the Ukrainian Ministry of Defense and ‘the international IT community’.

Hacker group Anonymous would have made a similar offer. Anonymous claims to have carried out hundreds of successful cyber-attacks against Russia and is now offering Russian soldiers 5 million rubles in bitcoin to hand over their tanks to Ukraine. This initiative is also said to be supported by the Ukrainian Ministry of Defense and Russian soldiers also receive amnesty.

Given the similarities, it may be the same story that is reported differently. However, it shows a remarkable use case for bitcoin: uncensorable bribes with a degree of privacy that not even Putin can do anything about.

Decentralized

Money is power and the financial system is a means of political power. Increasingly, people are realizing the risks and dependencies: when governments come under pressure, citizens often lose out – any kind of centralized money can be devalued, taken away, frozen or blocked.

The value of bitcoin is that it is decentralized, so that is not possible. There is no central authority or ruler. Despite price volatility, this offers certainties and guarantees that cannot be challenged.

All over the world, all kinds of activists and protest groups are discovering the usefulness of bitcoin as a politically neutral and censorship-resistant money.