Introduction
What is happening in Ukraine right now is heartbreaking. Russian soldiers were unable to take control of major cities due to fierce Ukrainian opposition. The international community’s resistance to Russia’s incursion grew stronger, with the European Union barring Russian planes from its airspace.
The West has not provided military soldiers to aid Ukraine in its conflict with Russia, and Ukraine is currently fighting this battle on its own. What is noteworthy is Ukraine’s direct contribution appeal, which is one of the first of its kind.
Ukraine’s Crowdfunding
Donations of this nature are often made the old-fashioned way: through banks. Cryptocurrency has emerged as a quick and easy means to handle this money in tech-savvy Ukraine.
Image source: twitter
According to statistics from London-based blockchain analysis firm Elliptic, Ukraine’s government has received more than $22 million in cryptocurrencies after publishing social media requests for donations of bitcoin and other digital tokens.
Mykhailo Fedorov, Ukraine’s Vice-Prime Minister, tweeted the wallet addresses. “Stand with the people of Ukraine. Now accepting cryptocurrency donations,” wrote Fedorov, who is also the minister of digital transformation.
By 08:50 GMT Monday, the wallet addresses had received around 17,300 donations totaling $12.8 million, according to London-based Elliptic.
Decentralized Autonomous Organizations
Image source: twitter
Decentralized autonomous organizations (DAOs) have formed to support Ukrainians. One such example is the Russian punk rock group ‘Pussy Riot’ which formed a DAO called UkraineDAO with the aim to use “the power of web3 tech and community to raise funds for Ukrainian organizations,”, which has already raised $3 Million. The idea for Ukraine DAO came from Alona Shevchenko, a Ukrainian activist living in London. Shevchenko says that she had hoped the Ukraine DAO would not be needed and that tensions in the region would deescalate.
“I started reaching out to my friends, and they connected me with Nadya of Pussy Riot and other PleasrDAO people who I knew already… This is exactly what DAOs are for, making change offline in the real world harnessing the power of blockchain.”
Failure of Some Traditional Platforms
Image source: twitter
Patreon, a subscription site for artists and creatives, has de-platformed “Come Back Alive,” a Ukrainian non-profit that is waging a crowdfunding drive to help the country’s troops against a Russian invasion.
The “Come Back Alive” Foundation is one of the largest and most visible aid organizations aiding Ukrainian military. It was formed in 2014 by Vitaliy Deynega, a volunteer from Kyiv who began raising funds and supplying bulletproof vests to Ukrainian soldiers fighting in the Donbas region soon after Russia took Crimea.
According to Taras Chmut, director of “Come Back Alive”, Patreon is the most convenient site for foreigners wishing to donate money.
The backlash from Ukrainians was swift. Critics accused the platform of cutting off a crucial lifeline for self-defense against Russia and questioned why it had made the decision now, given that the page had been online for years.
Protecting Wealth at Times of War
Image source: twitter
For many escaping Ukrainians, cryptocurrency has served as a safe haven. As of February 24, the Ukrainian central bank had banned electronic cash transfers, and ATMs had been shut down.
The National Bank of Ukraine issued a statement including a slew of decisions, including an order suspending the foreign exchange market, limiting cash withdrawals, and prohibiting the issuing of foreign currency from ordinary bank accounts.
Those who chose to flee went to the bank before crossing the border to withdraw money — the trouble was, they were not permitted to do so. Banks across the nation have shut down ATMs and prohibited cash withdrawals. This obviously poses a significant challenge when attempting to flee to a foreign nation to avoid a military invasion. How will you pay for food, rent, and other basics in your life?
Many people who had cryptocurrency in their possession would have been able to take part of it and sell it to get by after crossing the border into neighboring countries like Poland.
Image source: twitter
For some, like the example above, Bitcoin was literally the difference between being able to get out of Ukraine with enough money to get by in the immediate term, versus getting out with nothing, condemning himself to a state of total destitution.
What About Russia?
Russia is the world’s third-largest Bitcoin miner, with over 17 million Russians, or around 12% of the population, owning cryptocurrencies.
The Russian central bank urged a total ban on the usage, creation, and mining of all cryptocurrencies in early January 2022, citing the threats to the country’s financial system and ecology.
Shortly after, during a government meeting, Putin remarked that Russia had “certain competitive advantages” in bitcoin mining.
Soon after, Dmitry Medvedev expressed his displeasure with the Bank of Russia’s decision to ban most crypto activities, and a bill was introduced in parliament, with the Ministry of Finance advocating for cryptocurrency ownership, mining & regulation in Russia.
Decision Has Already Been Made
Image source: commons.wikimedia.org — kremlin.ru
We believe that Putin and his inner circle reached a decision and formulated a plan of action going forward about Bitcoin many years ago. Perhaps as early as 2017. This is due to huge Bitcoin mining operations throughout Russia, which is effectively a multi billion-dollar sector. To understand why this is the case, one must first grasp how the Russian system operates. Any significant corporation must be “in partnership” with the government and collaborate at all times; else, doing business is nearly impossible.
Examples abound, such as Yevgeny Chichvarkin, who departed Russia in 2008 and left a billion-dollar corporation, Evroset, with 5,000 locations, after being driven out by requests for payments from corrupt authorities. Then there’s Pavel Durov, the founder of Vkontakte, one of Russia’s most prominent social media companies, Mikhail Khodorkovsky, Vladimir Gusinsky, and many others. This hasn’t only been the case for Russian businessmen; it’s also been a problem for western corporations that refuse to collaborate. One such example is London based Hermitage Capital and the case of Sergei Magnitsky. They had no choice but to run since none of them wanted to participate or pay extortionate bribes.
When it comes to Bitcoin miners, who not only earn billions in mining profits but also use Russia’s natural resources, the argument made above is clear. The Russian government is very likely behind this too, especially because Gazpromneft, a subsidiary of the state-owned oil and gas behemoth Gazprom, is one such corporation that has been involved in mining Bitcoin since at least 2020.
So What’s the Plan?
We believe the Russian government is primarily interested in Bitcoin for a vast financial gain. In other words, to amass cryptocurrency and increase the wealth of the country, which in turn increases the wealth of the state’s treasury and its key individuals, such as Putin and his inner circle.
This also implies that, at an appropriate time, Russia may form a trade bloc with CIS countries, to settle in Bitcoin for commodities such as oil or gas, which will have a significant influence on Bitcoin’s value for the advantage of the Russian state.
The point is that a long-term strategy is already in place. The Russian government would never endorse cryptocurrencies and Bitcoin mining for no reason, and avoiding sanctions is not one of them.
What about Sanctions?
History has shown that Russia is immensely self-sufficient, as the Soviet Union was for 69 years. Modern Russia is no different, and with Putin in charge, sanctions have never deterred him. This was the case with war in Georgian, annexation of Crimea and invasion of Ukraine.
The Western strategy to Russia is based on the assumption that prolonged pressure would force President Vladimir Putin’s administration to make concessions or perhaps collapse.
The premise underpinning Western sanctions’ success is that the dramatic economic degradation that occurs will turn the Russian populace, particularly the financial and political elite, against the Kremlin. Putin will be unable to overcome escalating opposition from wealthier metropolitan regions and the country’s growing middle class. That couldn’t be farther from the truth.
Image source: statista.com
Opinion polls show that Russians perceive Western pressure and sanctions to be aimed not at Putin and his cronies, but at Russia and its citizens.
Russia’s military buildup near the Ukrainian border has coincided with a gradual rise in Putin’s popularity, with around 71 percent of Russians currently supporting him, up from 61 percent in August 2021, according to Statista.
Sanctions, in truth, have no direct impact on the government, but solely on regular citizens. Despite the suspension of SWIFT for select Russian institutions, Russia still retains access to European and US bank accounts held by Russian oligarchs who have dual EU or US Russian passports, most of whom have not been affected by sanctions.
Putin’s Achilles Heel — Russian Oligarchs
What Putin cares about is his money, i.e. the oligarchs’ money. The moment West started talking about going after the oligarchs’ money and their assets, Putin threatened a nuclear war.
In an interview with Channel 4, Bill Browder, a financier and activist and co-founder of Hermitage Capital Management, which was formerly the largest foreign portfolio investor in Russia, stated:
“Oligarchs look after Putin’s money, they are proxies, nominees, trustees for Vladimir Putin, and they look after his money and when we sanction them we sanction him.”
Ordinary Russians & Bitcoin
Millions of ordinary peaceful Russians who oppose military action and openly protest it have faced terrible consequences, including jail. Many such Russians have been hit with severe economic consequences as a result of the sanctions, including the crash of the ruble, which has dropped by almost 40% to date.
Image source: statista.com
This has resulted in bank runs across Russia and for many Russians having to switch to cryptocurrencies like Bitcoin. According to Arcane Research, an Oslo-based cryptocurrency research organisation, trade volume between ruble and cryptocurrencies on Binance, one of the world’s largest cryptocurrency exchanges, has increased tremendously in recent days. Russians appear to be “trying to get out of the ruble” as a result of its “drastic devaluation after all the sanctions,” according to Bendik Schei, head of research at Arcane.
Russia’s central bank hiked interest rates from 9.5 percent to over 20 percent in a bid to stop a run on the country’s currency, the ruble. The Bank of Russia blamed a “drastic change” on the “external conditions for the economy” for the sudden spike.
And the country’s top economists and finance ministry have ordered exporting companies to sell of 80 percent of their foreign currency reserves.
One thing that does seem clear: among this major conflict it will be Russia that suffers the biggest blow. The price for President Vladimir Putin’s expansionist foreign policy will be paid by the ordinary Russians in many years to come.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.