The war over Ukraine also affects bitcoin and cryptocurrencies. We have collected what has happened so far that is directly or indirectly related to crypto: the scene donates generously to Ukrainian aid organizations, hackers declare cyber war on Russia, financial sanctions shake the ruble — and also reach the first stock exchanges.
I did what I’m sure most of you did over the weekend: I obsessed over the news about Ukraine and the war. In this flood of information, I tried to pick out the news that somehow touched on the topic of our blog: cryptocurrencies, the monetary system, and also “the Internet”.
Constant, continuous and effective pro-Ukraine propaganda flows through the Internet. The information policy of Ukraine is excellent. She plays the keyboard of memes: the soldiers of Snake Island telling a Russian warship to fuck itself; the spirit of Kyiv, which shoots down five Russian aviators in one day; President Zelenskyy with bulletproof vest among soldiers; Kiev Mayor Klitschko at the machine gun. And then Putin, the lonely autocrat giving orders at his long table… if memes and marketing decide a war, Ukraine is currently slapping Russia on the wall, at least in the West.
?? Decided to make a thread with popular Ukrainian creations/memes:
1. Zmiinyi (Snake) Island#snakeislandheros #Zmiinyi pic.twitter.com/jTPF2Ntt3t
— Bogdan Vasylchenko ???? (@BVasylchenko) February 26, 2022
As much as I hope Ukraine does a brilliant job of repelling the invasion, these are memes, this is propaganda, and I hope other leaders don’t base their decisions on them too much.
Crypto donations for charity
In any case, the marketing of Ukraine works great. There has probably never been a war in which the attacked managed so well to present themselves globally in real time and thus trigger a global wave of solidarity. In a world of hope, this conflict becomes proof that the Internet makes invasion impossible.
The wave of solidarity is also reaching the crypto industry. One of the first was George Kikvadze, co-founder of BitFury. He donated bitcoins to the Come Back Alive Foundation address and urged bitcoins to do the same. The Come Back Alive Foundation is raising money through crowdfunding to donate night vision goggles, body armor, GPS navigators, walkie talkies, first aid kits and more to Ukrainian soldiers in Donbass.
George’s company BitFury is interesting in this context: Founded in Georgia as a manufacturer of Asic miners, BitFury became a kind of crypto general store and “ Nato miner ”. BitFury has a permanent presence in Washington, maintains contacts with the White House and organizations such as the Clinton Foundation, the World Economic Forum and numerous other governments. In 2017, for example, BitFury started an allegedly large project with Ukraine . At the same time, BitFury is committed to decentralization, Bitcoin maximalism and Lightning.
George explains why, as a Georgian, he is so committed to Ukraine: “Ukraine was my homeland after Russia invaded Georgia. My first son was born there. My first Maidan was there. My first appreciation of people who love freedom was there.”
Received messages why me as a Georgian care so much about Ukraine & this #BTC drive?
Answer: Ukraine was my home after Russia invaded Georgia. My first son was born there. My first Maidan was there. My first true appreciation of freedom loving people was there.
— George Kikvadze ⚡?? (@BitfuryGeorge) February 26, 2022
The address of Come Back Alive, bc1qkd5az2ml7dk5j5h672yhxmhmxe9tuf97j39fm6 , has received more than 188 bitcoins so far, about 6.5 million euros, and the number is increasing every minute.
The government itself accepts BTC, ETH and USDT
A little later, Ukraine’s official Twitter account @ukraine calls for donations in crypto:
Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT.
BTC – 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1P
ETH and USDT (ERC-20) – 0x165CD37b4C644C2921454429E7F9358d18A45e14
— Ukraine / Україна (@Ukraine) February 26, 2022
He posts a Bitcoin address for BTC and an Ethereum address for ETH and USDT. The crypto scene initially reacted skeptically until the Ukrainian Deputy Prime Minister and Digital Minister Mykhailo Fedorov confirmed the addresses.
Bitcoin, ether and tether (USDT) have apparently established themselves as the three leading cryptocurrencies: Bitcoin as gold, ether for the web3, tether as a digital dollar. Incidentally, the Tether Dollars link Ukraine to the opposition in Far Eastern Myanmar.
Stand with the people of Ukraine
Now accepting cryptocurrency donations. Ethereum. Bitcoin and Tether (USDTtrc20)
BTC — 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1P
ETH — 0x165CD37b4C644C2921454429E7F9358d18A45e14
USDT (trc20) — TEFccmfQ38cZS1DTZVhsxKVDckA8Y6VfCy
— Mykhailo Fedorov (@FedorovMykhailo) February 26, 2022
The bitcoin address 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1P received 6,670 transactions and a total of over 126 bitcoins (about 4.3 million euros). Around 2,200 ethers (a good 5.1 million euros) were donated to the ether address 0x165CD37b4C644C2921454429E7F9358d18A45e14 through almost 6,600 transactions. It’s hard to determine how many Tether dollars came in; currently the addresses contains around 280,000 USDT; Etherscan shows deposits of various tokens almost every minute.
Exchange, DAO, Pool
The Binance exchange has launched a Humanity First – Ukraine Emergency Relief Fund . It collects for “logistics, food, fuel, supplies, fugitives, shelter, visas and more,” according to CEO Changpeng Zhao . The exchange itself has donated $10 million, and its users have donated another $6 million, mostly in Bitcoin, Ether, BNB, and BUSD.
And the crypto fundraisers are only just warming up: Russian women’s punk band Pussy Riot and Ukrainian activists are launching UkraineDAO . “We’re using the power of Web3-Tech and the community to raise money for Ukrainian organizations helping those suffering from the war in Ukraine,” including Come Back Alive and Proliska, which helps civilians in Donetsk and Luhansk. Whoever donates can get LOVE tokens, and somehow there’s also an NFT, I think with a picture of a Ukraine flag.
DAOs and NFTs have been extremely powerful fundraising tools for Ross Ulbricht and Julian Assange to raise large amounts of money in a short amount of time. How much UkraineDAO has collected so far is difficult to say. It receives donations via two smart contracts. One has around 250, the other around 112 ethers and a good 90,000 USDC.
Meanwhile, in the Czech Republic, Slush Pool and Braiins are introducing the “ Hashrate for Ukraine ”. “Brainins is proud to operate in Prague, Czech Republic, a country that has a long history of Russian occupation. We know from our own experience what suffering this can inflict on a country and its people. That is why WE become active.”
Slush Pool asks its customers to donate the hashrate. Miners can have their miners – or part of their output – mined for Ukrainian charities, currently again the Come Back Alive Foundation. The pool itself has already donated 10 bitcoin to the above address of the charity and is mining 2.5 petahash for bitcoins for them.
If there’s one thing that’s made crypto stand out since 2021 compared to the wild years before, it’s that bitcoin and cryptocurrencies have become a charity superpower . If you don’t accept them for a good cause, it’s officially your own fault.
Anonymous vs. Russia
Ukraine also gets support from the hackers from Anonymous. They understood the invasion of Ukraine as a declaration of war and are now launching cyber attacks on Russia.
The hacker collective is said to have attacked more than 300 targets in Russian cyberspace within 48 hours . Anonymous claims to have shut down the websites of the Kremlin and the Chechen Republic and hacked TV channels nationwide to replace Russian propaganda with “the truth of what is happening in Ukraine.”
Anonymous allegedly hacked the military radio and played the Ukrainian national anthem on it. In North Ossetia, the hackers seized a gas control station and gained access to the pressure in the pipes.
Anonymous wrote to Russian soldiers: “We encourage you to lay down your arms and walk away. Putin’s crimes don’t have to be your crimes. While the bombs are falling on Ukraine, we, as a collective, will do our best to provide the Russian people with reliable information about Putin’s insane acts…”
After Belarus probably also entered the war alongside Russia, Anonymous also attacks this country. They shut down the websites of three of Belarus’ major banks, Belarus Bank, Prior Bank and Belinvest Bank, and shut down the train network ‘s automatic track system .
Ransomware for the Kremlin
Russia appears to have initiated the cyberwar by attacking Europe’s KA-SAT satellite system over Ukraine on February 24 . That attack fizzled out after Elon Musk made his Starlink satellite system available to Ukraine. This will give the country an internet that cannot be switched off.
I’m not entirely convinced that this actually works as well as claimed. But it would be quite powerful: one of the most important tools of an attacked country – the Internet – becomes indestructible. It will no longer be possible to prevent the world from knowing what happens in an invasion.
Since then, Russia has been relatively passive in cyber warfare. The ransomware hackers are considered allies of the Kremlin. It has long been said that they are in cahoots with and tolerated by Russian intelligence as long as they do not attack domestic targets.
However, there is mostly silence here. Only the operators of the Conti ransomware side with Putin: “The Conti team officially declares its support for the Russian government. If any party launches a cyber attack or any military action against Russia, we will use all resources at our disposal to attack the enemy’s critical infrastructure.”
The Conti #ransomware operation sides with Russia and threatens attacks on critical infrastructure. pic.twitter.com/L8E7lEW1MJ
— Brett Callow (@BrettCallow) February 25, 2022
There are reports that the chip manufacturer Nvidia has fallen victim to a cyber attack. In addition, the US logistics giant Expeditors was hit. He has to shut down his systems and warns that this could cause bottlenecks in global supply chains.
But such attacks are more commonplace. When ransomware hackers find vulnerabilities in Nvidia, Expeditors, or any other corporation’s systems, they don’t wait for a war to exploit them. They’re always active anyway. For this reason, the war does not initially change the threat situation for Western companies and systems.
Security experts are concerned, however, that many ransomware operators often leave their malware dormant in the infected systems for months, if not years, in order to strike at the right moment. It’s possible that far more networks and systems than meets the eye might have malware dormant, and that a digital retaliation from the Kremlin could wake them up.
As a result, the war in Ukraine threatens to become a stress test for the IT infrastructure of all of Europe.
The Destruction of Russian Finance
However, the financial attacks – the sanctions – are likely to be more unpleasant for Russia than the cyber attacks.
After hesitating at first to enact painful sanctions, Western countries have decided in the few days the invasion has lasted so far to launch an unprecedented bundle of financial sanctions: accounts are being frozen, by entrepreneurs, banks, politicians and even Putin itself. There are strong export restrictions, a ban on the purchase of Russian government bonds, the transactions of large banks are being blocked, and a Swift blockade, after much hesitation and procrastination, is now underway, albeit with enough exceptions to shut down commodities trading obtain.
The West is ramping up almost the entire repertoire of traditional financial sanctions in one fell swoop. But the sharpest financial sword appears to be something else: Central banks abroad are freezing the central bank’s foreign exchange reserves.
“This is much bigger than the SWIFT blockade,” writes Balaji Srinivasan. “Russia made the mistake of keeping its assets on computers that others have root access to. They are switched off with a push of a button. Looking back, QWERTY was a much bigger threat than NATO.”
This is much bigger than even the SWIFT shutdown.
Russia made the mistake of holding its assets on computers where others have root access.
With a keypress they got shut down. QWERTY was in retrospect much more of a threat to them than NATO.https://t.co/IzwaI1xxFs https://t.co/lklBlOpfFa pic.twitter.com/7tY86ipoUt
— Balaji Srinivasan (@balajis) February 27, 2022
What is happening here is startling and difficult for someone used to bitcoin to grasp: the central bank does not hold the key to its currency reserves.
Foreign exchange reserves and the ruble
The Central Bank of Russia holds reserves of more than $630 billion, mostly in the major world currencies of dollars, euros, pounds and yuan, as well as 2,300 tons of gold. The US, EU and UK sanctions are now freezing the euro, dollar and pound.
First, we commit to ensuring that a certain number of Russian banks are removed from SWIFT.⁰
It will stop them from operating worldwide and effectively block Russian exports and imports.
— Ursula von der Leyen (@vonderleyen) February 26, 2022
Yes. Literally. In order to transfer euros or dollars, the Central Bank of Russia, like any other bank, has to make a transfer to the ECB or the FED. It’s like storing your bitcoins in an online wallet. With the ETB and FED now freezing the accounts of the Russian Central Bank – by blocking transactions by the Russian Central Bank and government – their euros and dollars are worthless.
The purpose of a central bank’s foreign exchange reserve is, among other things, to stabilize its own currency, for example by exchanging dollars for rubles on currency markets. The ruble fell sharply after the start of the invasion. Now that the central bank has lost most of its reserves, it is in danger of bottoming out.
Balaji therefore calls this sanction a “financial neutron bomb”. She ruins people without blowing up buildings. She hits all 145 Russians at once, every single owner ruble owner. It is the maximum scenario that will potentially collapse the Russian economy.”
Still processing the implications.
This is a financial neutron bomb. Bankrupts people without blowing up buildings. Hits all 145M Russians at once, every ruble holder. In a maximalist scenario, possible collapse of the Russian economy.
Btw, Russia is a nuclear weapons state. https://t.co/lklBlOpfFa
— Balaji Srinivasan (@balajis) February 27, 2022
According to official rates, the Russian ruble has already lost more than 20 percent against the dollar today. A week ago, a dollar cost about 75 rubles, today it is already more than 100.
But this seems to be only the official rate. Some banks are already charging 166 rubles per dollar, according to Max Seddon, head of the Financial Times’ Moscow bureau.
The idea is sanctions will make Putin change course. But we’re eight years in and he’s given no sign he’ll do anything but double down. And they’re easy to spin as a hostile measure from the west, which Russians will blame for the huge suffering they’re about to go through.
— max seddon (@maxseddon) February 28, 2022
In order to prevent the ruble from sinking further, the central bank of Russia has increased the interest rate from 9.5 to 20 percent. So the ruble is a bit reminiscent of those shitcoins that you get on DeFi platforms as interest for “yield farming” and can stake for crazy interest rates while their value rushes away. So far, however, the central bank’s intervention seems to be stabilizing the ruble to some extent.
Share prices collapse, banks are threatened with bank run
Further consequences of the sanctions are quickly becoming apparent: The ECB estimates that Sberbank Europe and its subsidiaries in Croatia and Slovenia “are or will become insolvent as their liquidity is collapsing.” The skyrocketing prices for credit default swaps for Sberbank confirm the impending default.
#ECB assesses that Sberbank Europe AG and its subsidiaries in Croatia and Slovenia are failing or likely to fail. The ECB took the decision after determining that, in the near future, the bank is likely to be unable to pay its debts or other liabilities as they fall due. pic.twitter.com/Rf6AfN8nGy
— Holger Zschaepitz (@Schuldensuehner) February 27, 2022
Shares in Russia’s Sberbank — Russia’s largest bank — and Tinkoff — another bank — fall 75 and 80 percent respectively on the London Stock Exchange. The Russian stock indices RTS and MOEX have already fallen by around 25-40 percent, and the Moscow Stock Exchange is suspending trading for today. The risk of a further collapse in prices is too great.
Shares in Sberbank and Tinkoff, Russia’s two most popular financial stocks among foreign investors, fell as much as 75% and 80% respectively in London today pic.twitter.com/HQ5neEtVWU
— max seddon (@maxseddon) February 28, 2022
These impacts are already closing in on consumers: the Swift blockades are cutting off people and businesses from global payments; there are already reports of an incipient bank run. But like so many things at the moment, that could also be propaganda, at least in part.
Allegedly, Sberbank suspended withdrawing money from investment accounts for 10 days.
#Sberbank bans withdrawals from investment accounts for the next 10 days.
— NEXTA (@nexta_tv) February 28, 2022
There are early reports of bank panic, and images of queues at ATMs. But it’s hard to say how valid and reliable they are.
Credit cards such as Visa and Mastercard, which are issued by Russian banks, apparently no longer work abroad.
As of today, Visa and Mastercard cards of #Russian banks, which are under sanctions, will no longer work abroad.
— NEXTA (@nexta_tv) February 26, 2022
These harsh financial sanctions undoubtedly hit Russia hard. But they could take revenge for the West in the long term. Because they could initiate the end of the SWIFT system. China and Russia are already switching their trade to the yuan: the Industrial & Commercial Bank of China no longer accepts dollar-denominated bills, and China may have little interest in switching international trade back to the dollar, even if sanctions are lifted.
“Industrial & Commercial Bank of China Ltd.’s offshore units stopped issuing U.S. dollar-denominated letters of credit for purchases of physical Russian commodities ready for export, Yuan-denominated letters of credit are still available for some clients.”
— Luke Gromen (@LukeGromen) February 26, 2022
Mining as geopolitics
What this means for Bitcoin and cryptocurrencies from this side cannot yet be estimated.
Will Russia, the state, the companies, the private individuals, use Bitcoin, Ether or Tether to circumvent the sanctions? Will people, companies and government bodies realize that in the event of war their assets, whether in rubles or foreign currency, will not survive because they will either devalue or freeze?
But is Bitcoin really resilient? Suppose the Central Bank of Russia held bitcoins. What would the West be able to do?
Governments could ask miners not to confirm Bitcoin transactions from the Central Bank of Russia and, moreover, to reject any block containing such transactions as well. Something like this could be quickly released as open source code, and there are already US miners promising not to confirm transactions of criminalized bitcoins and to implement the Treasury Department’s blacklist .
If 51 percent of miners agree, they can freeze money in the same way the ECB and Fed are currently doing. Mining is geopolitics. You can’t say that often enough.
How crypto companies (have to) react
Bitcoin, on the other hand, is not politics. Bitcoin is not on either side. Ukraine and Russia are both crypto nations.
Ukrainian politicians (allegedly) hold billions of dollars in bitcoin , and Ukrainian charities have already received tens of thousands of dollars in crypto donations. A Bitcoin ban in the West would hit its own ally much harder than its opponent.
But what will happen if bitcoins are used to circumvent sanctions? Will there be “the Fud of the Century”? Will this be the impetus that leads to Bitcoin being banned after all?
Probably not. Certainly, however, governments will do everything they can to prevent cryptocurrencies from helping Russia. Regulation will ramp up. You should be able to use Bitcoins – but only to donate to Ukraine, not Russia.
The timetable to get there has long been in place: Own, i.e. autonomous and “self-hosted” wallets are disadvantaged in terms of the travel rule . Exchanges need to provide stricter evidence of where which coins are going. And so forth. This noose has slowly been tightening around the crypto scene for a number of years, then accelerating, and the war in Ukraine is expected to accelerate this.
Before that, however, begins a fight for the favor of the stock exchanges. For example, Ukrainian Deputy Prime Minister Fedorov called on crypto exchanges to block Russian citizens: “It is crucial not only to freeze the addresses of Russian and Belarusian politicians, but also to block ordinary users.”
I’m asking all major crypto exchanges to block addresses of Russian users.
It’s crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.
— Mykhailo Fedorov (@FedorovMykhailo) February 27, 2022
Apparently, this is already happening to the first crypto companies. For example, Nexo, an online wallet and interest/loan platform, has warned users that the sanctions will cause problems with Russian and Belarusian banks.
The Binance exchange, on the other hand , is implementing the official sanctions by freezing the accounts of Russian politicians and banks. But it is not blocking the accounts of Russian citizens across the board, as Fedorov had demanded. Kraken handles it in a similar way, explains CEO Jesse Powell: You cannot freeze the accounts of Russian customers unless there is a legal requirement to do so. However, Russian users should be aware that this could happen at any time, which is why Powell urges them to manage their keys themselves. #NYKNYC.
Crypto companies are trying to remain neutral in this conflict. But this will not be entirely possible.