The world's first "Bitcoin war"? Explaining the role of cryptocurrencies in the Russia-Ukraine conflict

Beijing time on March 7th news, the war between Russia and Ukraine has had a significant impact in the field of cryptocurrency, so that the war is called the world's first "cryptocurrency war".

Let’s start with Ukraine, where the government has already started accepting donations in bitcoin, ethereum and stablecoins, the latter of which will be used to increase the war budget and fill other funding gaps.

It is worth mentioning that Ukraine soon decided to increase the acceptance of donations in other cryptocurrencies, including Polkadot and Dogecoin, which eventually reached millions of dollars.

Russia and Ukraine

For the use of cryptocurrency donations, Ukraine has invested as much as $15 million in the military equipment segment. To date, however, there is no data on the use of donor funds allocated to humanitarian work.

On the other hand, there are speculations of Russia turning to cryptocurrencies to circumvent sanctions imposed by the United States and its allies.

However, there has been no official announcement on the matter yet. One point of view is that it is almost impossible for Russia to use cryptocurrencies effectively to keep its economy going.

The US-led Western world not only restricted Russian banks and oligarchs, but also froze the Russian Central Bank's $630 billion in foreign exchange reserves. Can the Russian side get around these restrictions by using cryptocurrencies?

An industry insider said: “The fact is that cryptocurrencies are too small for Russia. If we look at the current global use of cryptocurrencies, we know that maybe only about 3% of the population has been exposed to some kind of Cryptocurrencies (i.e. owning some cryptocurrencies). Of these, the majority of cryptocurrency users have only a small percentage of their net worth in cryptocurrencies, with an average of less than 10%. Therefore, cryptocurrencies may represent less than 0.3% of global net worth , the same percentage applies to Russia."

In fact, this issue is not new to this war. Countries such as Iran have previously been accused of using bitcoin to circumvent sanctions. Industry insiders pointed out that it is doubtful whether cryptocurrencies can save Russia from sanctions. Aside from the fact that building the necessary infrastructure within Russian banks is not an easy task, many people and institutions that will receive cryptocurrencies will need to set up their own “wallets.”

In addition to this, the daily transaction value of cryptocurrencies is only in the billions of dollars. This may seem like a large amount, but it is a small order of magnitude compared to the entire financial system. Even if Russia is serious about starting to use cryptocurrencies for payments, its domestic market is far from mature enough.