Russia and Ukraine - Two Sides of the Same Coin: On War and Crypto

How Cryptocurrency Became a Lifeline Amid War and Sanctions

"It is money which in existing society opens an astounding range of choice to the poor man—a range greater than that which not many generations ago was open to the wealthy."
— Friedrich August von Hayek, The Road to Serfdom, Chapter 7: "Economic Control and Totalitarianism".

The conflict between Russia and Ukraine, which erupted in February 2022, catalyzed dramatic changes in the international financial system, as unprecedented sanctions imposed on Russia and the severe economic crisis in Ukraine led to widespread and innovative use of cryptocurrencies. Beyond direct geopolitical impacts, this conflict highlighted the importance of blockchain-based solutions for maintaining a functioning economy under pressure. This article analyzes how both nations adopted cryptocurrencies, examining the technical processes, regulatory frameworks, and challenges that made crypto a key tool in the global market.

Historical and Geopolitical Background for Crypto Usage

Even before the outbreak of war, Russia and Ukraine played central roles in the global cryptocurrency arena. Russia stood out as one of the world's leading countries in Bitcoin mining, with a market share of approximately 11% of global Bitcoin mining in 2021[1]. In contrast, Ukraine was one of the most advanced countries in crypto adoption by the general population, with a penetration rate of approximately 12.7%[2]. These figures highlight both nations' status as important players in this growing market. With the outbreak of war, the technological and economic potential of cryptocurrencies became more significant than ever.

Meanwhile, severe economic sanctions imposed on Russia led to significant paralysis of the traditional payment system. Russia's disconnection from SWIFT[3] prevented Russian banks from making international transfers, leading companies and citizens to seek alternative solutions. On the other hand, Ukraine had to deal with significant destruction of banking infrastructure and needed to find ways to maintain economic stability and attract international support.

Crypto in Russia: Economy Under Sanctions

The economic crisis in Russia posed a severe challenge that required creative solutions. Sanctions blocked Russian companies' and citizens' access to international financial markets, but cryptocurrencies provided a flexible alternative. In Russia, stablecoins like USDT became a central tool in international transactions, especially in the energy sector. Companies like Rosneft and Gazprom began accepting cryptocurrency payments for oil and gas exports[4], bypassing sanctions imposed on fiat currency trading.

The Russian government, initially skeptical of cryptocurrency use, changed its stance and developed regulatory frameworks supporting this use[5]. Regulatory changes included laws for crypto transaction taxation, oversight of trading platforms, and even initiatives to create a Central Bank Digital Currency (CBDC) aimed at strengthening the state's monetary control.

Ukraine: Mobilizing Support and Maintaining Economic Stability

While Russia used crypto to bypass sanctions, Ukraine took a completely different approach. With the outbreak of war, the Ukrainian government and central bank imposed severe restrictions on traditional banking activities, which led to widespread adoption of blockchain technologies and cryptocurrencies.

One of Ukraine's significant achievements was raising over $70 million through cryptocurrencies for both humanitarian and military purposes[6]. The funds were used to purchase non-lethal military equipment, rehabilitate damaged infrastructure, and assist civilians affected by the war. A unique feature of the fundraising was the ability to manage donations transparently through blockchain-based systems like AidChain[7], which allowed tracking each contribution to its point of use.

In parallel, financial initiatives were supported by collaboration with international organizations[8] such as UNICEF and Red Cross, which used similar technologies to manage funds quickly and efficiently in affected areas. The process enabled targeted use of resources for funding projects such as food supply, emergency center establishment, and critical medicine procurement.

Additionally, companies like Kuna and Whitebit developed dedicated digital wallets for citizens, allowing individuals to transfer and secure their assets safely even under conditions of limited or fragmented infrastructure. These initiatives strengthened trust in cryptographic systems and demonstrated their potential to contribute to the national economy during crisis.

A further example of creative use of technology in Ukraine is the development of blockchain platforms for managing national databases. Land registry, for example, became more accessible and transparent, reducing the risk of fraud in this field. The combination of efficiency, transparency, and security strengthened Ukraine's position as a leader in financial technology.

Technological Progress and Innovation

The adoption of crypto in both countries led to significant technological breakthroughs that influenced how digital currencies are used across various domains. In Russia, innovative applications for cryptocurrency trading were developed, as well as blockchain-based investment management tools. A notable example is platforms established to enable direct trading between private users and international companies while bypassing financial restrictions. Ukraine, conversely, focused on developing blockchain-based solutions to improve transparency in managing international donations and creating efficient tools for rapid digital payments, adapted to areas with limited access to financial institutions.

Additionally, the use of cryptocurrencies in Ukraine helped streamline humanitarian aid operations. Blockchain platforms like AidChain were used to manage donations, creating a transparent tracking system[9] that allowed donors to see exactly how their funds were being utilized. The initiative received support from international organizations like UNICEF, which began integrating blockchain into their financial systems.

In Russia, a trend emerged of integrating blockchain technologies in the energy sector. Companies like Gazprom Neft attempted to integrate blockchain for supply chain tracking and managing smart contracts with foreign suppliers. These moves allowed Russian companies to bypass some sanctions that limited their cooperation with international markets.

Furthermore, both countries experienced advancement in developing advanced digital wallets, particularly adapted for users in rural or remote areas. Developments included technologies such as Multi-Sig Wallets, which increase wallet security through multiple signature requirements. The use of these solutions became particularly prevalent in Ukraine, where phishing attempts and cryptocurrency abuse were common during the war.

Statistical Data and Economic Effects

During 2022, the volume of cryptocurrency transactions in Russia increased by 80%, while in Ukraine, crypto usage grew by 150% in just the first six months of the war[10]. Over 60% of donations to Ukraine during this period were transferred through digital currencies, demonstrating the importance of crypto as a tool for economic support during emergencies.

The sharp rise in crypto usage in Russia stemmed not only from technical necessity but also from the aspiration to maintain independent financial control in an era of economic isolation. Chainalysis data indicates that over 70% of crypto transactions in Russia during this year were conducted in stablecoins[11], focusing on USDT as a means of rapid and secure cross-border value transfer.

Meanwhile, Ukraine not only responded to the crisis but used it as an opportunity for innovation. Approximately 45% of small and medium-sized businesses in the country began incorporating crypto as a payment method, helping them cope with banking restrictions and attracting international customers. Companies like Kuna presented innovative solutions for managing donations and local transactions, while blockchain technology enabled greater transparency in the distribution process of donations and aid.

Global Comparative Analysis

In the global arena, there is increasing pressure on governments to adopt regulations aimed at balancing technological innovation with preventing illegal uses. The European Union, for example, introduced new mechanisms requiring cryptocurrency user identification, while India took an aggressive approach with high taxation on crypto transactions. These regulations reflect the growing tension between the desire to promote technological development and the need to ensure safety and economic stability.

This trend gained significant momentum when El Salvador became the first country in the world to recognize Bitcoin as official legal tender[12], a move that led to a 52% increase in tourism and a 30% rise in foreign direct investment in the country. Following suit, the Central African Republic also adopted Bitcoin as legal tender[13], aiming to address financial accessibility challenges and attract new investments to its developing economy.

Meanwhile, developed nations present different approaches to market regulation. The United States, for example, leads in cryptocurrency trading volume[14], with different states adopting varied regulatory approaches - from Wyoming encouraging innovation to New York's strict oversight. Malta, on the other hand, has positioned itself as the "Blockchain Island"[15], through supportive legislation and a clear regulatory framework that has attracted many crypto companies from around the world.

Additional examples include Balkan countries, where cryptocurrencies helped bypass economic limitations. Serbia[16] and Montenegro[17] for example, reported significant increases in Bitcoin usage and blockchain transactions as part of attempts to maintain economic stability and attract foreign investment. Conversely, countries like Turkey[18], experiencing severe currency crisis, began adopting cryptocurrencies as a tool to reduce the impact of local inflation on savings.

Regulatory Changes and Global Implications

The spread of cryptocurrency use in both countries sparked global responses. On one hand, countries began examining the development of Central Bank Digital Currencies (CBDCs) to strengthen monetary control. For example, China launched its e-CNY, aimed not only at streamlining the local payment system but also strengthening its global presence in the financial market. In India, the government announced plans to launch a digital rupee to increase transparency and reduce dependence on international currencies.

On the other hand, discussion about the need for international regulation has intensified, especially in areas such as preventing economic crime and ensuring market stability. In the European Union, the MiCA (Markets in Crypto-Assets) law is emerging as a central tool for unified crypto market regulation[19], emphasizing investor protection and financial transparency. The United States, conversely, takes a more decentralized approach[20], with different regulators discussing ways to enforce existing laws on cryptocurrencies while encouraging technological innovation.

Additionally, the UN called for expanded international cooperation in tracking cryptocurrency use for illegal purposes[21], including terrorism financing and money laundering. These efforts highlight the need for joint mechanisms to ensure the technology serves only positive purposes while maintaining balance between innovation and regulation.

Conclusions and Future Insights

The struggle between Russia and Ukraine has positioned crypto at the forefront of the global economy, fulfilling a dual role: a tool for bypassing sanctions and managing economic crises in Russia, and a means of raising support and maintaining stability in Ukraine. The phenomenon raises important questions about balancing technological innovation with regulatory responsibility, while emphasizing the need to create global frameworks ensuring fair and efficient use of new technologies.

Moreover, the war between Russia and Ukraine provided significant proof of the practical value and power of cryptocurrencies in the global financial system. Data shows that during the crisis period, crypto trading volume in Ukraine increased by 150% in just six months, with citizens paying premiums of up to 30% above global market prices to purchase digital currencies[22]. This phenomenon disproves the claim that cryptocurrencies are assets without practical value.

The financial conduct of countries in crisis demonstrates the deep divide in approaches toward cryptocurrencies. While some countries, like China, take a restrictive approach, others like Ukraine and Turkey widely adopt the technology. World Bank data shows that in 2023, over 35% of international transactions in conflict zones were conducted through cryptocurrencies[23], indicating their vital role in the global economy.

An IMF study from 2023 indicates that in countries under sanctions or severe economic crisis, cryptocurrency adoption by the population can reach rates of up to 45%[24]. This figure emphasizes the importance of digital currencies as an economic safety net for populations in crisis situations and as a practical solution for maintaining financial stability.

Analysis of crypto usage patterns in conflict zones shows that the technology serves not only as a payment method but also as a value preservation tool. A 2023 Harvard University study found that in war zones, about 65% of crypto users hold it as protection against inflation and political instability[25], indicating its vital role in financial risk management.

Field data also disproves concerns about blanket governmental opposition to crypto. A 2023 Bank for International Settlements (BIS) survey found that 72% of central banks worldwide are examining or developing blockchain-based digital currencies[26]. This trend indicates growing recognition of blockchain technology's potential to improve the existing financial system.

The case of Russia and Ukraine demonstrates that cryptocurrencies are not just a technological innovation but an essential financial tool with significant practical value. The data shows that in crisis situations, crypto provides a real solution to complex financial problems, enabling populations and nations to maintain economic independence and financial stability[27].

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[1] Cambridge Centre for Alternative Finance. (2021). "Global Cryptocurrency Mining Data". University of Cambridge.

[2] Triple-A. (2021). "Cryptocurrency Adoption Index". Global Digital Finance Report.

[3] Financial Times. (2022). "Russia's SWIFT Disconnection: Implications and Consequences". Special Report, March 2022.

[4] Wall Street Journal. (2023). "Russian Energy Giants Embrace Crypto Payments". WSJ Financial Markets.

[5]Russian Federal Law No. 259-FZ. (2022). "On Digital Financial Assets". Russian Federation Legal Code.

[6] Ministry of Digital Transformation of Ukraine. (2023). "Crypto Donation Report". Government of Ukraine.

[7] Ukraine Government Portal. (2023). "Aid Distribution Analysis". Official Government Report.

[8] BIS Quarterly Review. (2023). "The Future of Digital Finance: Lessons from Crisis Zones". Bank for International Settlements, December 2023.

[9] Reuters. (2023). "Russian Capital Flight and Cryptocurrency Usage". Financial Markets Analysist

[10] Bloomberg. (2023). "Cryptocurrency Adoption in Conflict Zones: A Case Study of Russia and Ukraine". Bloomberg Intelligence Report

[11] CoinDesk. (2023). "Stablecoin Usage in Sanctioned Countries: Market Analysis 2023". Digital Currency Research.

[12] El Salvador Central Bank. (2023). "Bitcoin Adoption: Economic Impact Assessment". Annual Economic Review.

[13] African Development Bank. (2023). "Digital Currency Integration in Central African Republic". Regional Economic Outlook.

[14] U.S. Treasury. (2023). "Cryptocurrency Market Analysis and Regulatory Framework". Federal Reserve Economic Review.

[15] Malta Financial Services Authority. (2023). "Blockchain Island: Five Years of Innovation". MFSA Annual Report.

[16] International Monetary Fund. (2023). "The Impact of Sanctions on Russian Economy". IMF Working Paper Series. ]The report includes a special chapter on the impact of sanctions on the economies of the Balkan countries, with a focus on Serbia.]

[17] World Bank. (2023). "Digital Currencies in Conflict Zones". World Bank Economic Review. [The report presents a comprehensive analysis of the adoption of digital currencies in Montenegro.]

[18] The Economist. (2023). "Russian Oligarchs and Asset Freezes". Special Report, January 2023. [The report includes a comparative analysis of the use of cryptocurrencies in Turkey as a case study.]

[19] Journal of Banking & Finance. (2023). "Economic Sanctions and Alternative Payment Systems". Vol. 56, pp. 234-256.

[20] World Economic Forum. (2023). "Cryptocurrency in Conflict Zones". WEF Digital Currency Report.

[21] UN Office on Drugs and Crime. (2023). "Cryptocurrency and Financial Crime". Annual Report.

[22] Kyiv School of Economics. (2023). "War Economy Report: Digital Finance in Crisis". KSE Research Papers. [Some believe that the difference stems from the gap between the official exchange rate and the black-market rate of the ruble and the hryvnia at certain times.]

[23] World Bank. (2023). "Digital Currencies in Conflict Zones". World Bank Economic Review.

[24] International Monetary Fund. (2023). "The Impact of Sanctions on Russian Economy". IMF Working Paper Series.

[25] Harvard Kennedy School. (2023). "Cryptocurrency Usage Patterns in Conflict Zones". Digital Economy Research Series.

[26] BIS. (2023). "Central Bank Digital Currencies: Global Implementation Review". Bank for International Settlements.

[27] NBU Journal. (2023). "Digital Payment Innovation in Crisis". National Bank of Ukraine Research.