Crypto has already infiltrated every nook and cranny of society and discussion. Then Russia invaded Ukraine, and crypto went to war as well.

The sector’s engagement in the battle has highlighted the evolution and maturity of digital assets while reigniting – but not settling – the debate about their position in the global financial system. As Russia invaded Ukraine, the world saw in real time as a standing army was sponsored by bitcoin contributions that purchased military supplies for Ukraine. Digital currencies lived true to their reputation for making it easy to move money over international boundaries, but they also sparked a discussion about whether they may be used to avoid penalties.

Meanwhile, cryptocurrency exchanges were thrown into the limelight as the sector battled with whether or not the limits imposed by Western governments extended to them, as well as how to monitor specific clients’ transactions. And, when markets felt the strain of global anxiety about the conflict, cryptocurrencies emerged — at least initially — as safe havens, underlining their potential to reduce the relevance of the dollar-run world.

“This moment has really highlighted the finest features of crypto while also reinforcing some of the areas that still need development,” said Stephanie Hurder, partner and founder economist at Prysm Group, an economic consulting focusing on blockchain and distributed ledger initiatives. “There is potential in the transfer of wealth, but many of the challenges that we are aware of remain.”

Since the invasion started, two financial systems have been at odds: conventional and digital. The former made Russia a financial pariah by isolating it from the global banking system with punitive sanctions. In collaboration with European partners, US President Joe Biden’s administration barred people and businesses from doing business with Russia’s central bank and barred key Russian banks from using the SWIFT financial messaging service.

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Bitcoin climbed as much as 20% in crypto markets at the start of last week, hitting $45,000 for a brief time even as risk assets fell on fears that sanctions and a falling ruble would push Russians into cryptocurrency. Although Bitcoin ultimately relinquished almost all of its gains, the coin’s diverging route from speculative assets, albeit fleeting, reignited discussion over its position in the global financial system. Its return to Earth demonstrates that the argument is far from over.

“The dispute is focusing a lot of attention on the bitcoin business,” said Alex Zerden, an Adjunct Senior Fellow at the Center for a New American Security. “A lot of people want to observe what’s going on in order to maintain their narrative or their beliefs about crypto.” It’s supporting narratives right now, not transforming them.”

Bitcoin emerged as an alternative currency outside of the established monetary system in the aftermath of the global financial crisis. Since then, it has been touted as a medium of exchange, an inflation hedge, and a non-government controlled store of value. According to crypto data provider Kaiko, as soon as sanctions were implemented, trade volumes in Bitcoin using the ruble increased to the greatest level since May, while those based on Ukraine’s hryvnia increased to a level not seen since October. To be sure, the quantities were still rather low.

“If you’re in Russia or Ukraine right now, I don’t believe Bitcoin’s volatility will be that much of a worry to you compared to your political and economic volatility,” said Matthew Pines, a Bitcoin Policy Institute fellow. “It’ll let people secure their money from the sinking ruble, put it in a form that the Russian government will find difficult to grab, and maybe even help them move it out of the country in the first place.”

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Because of the simplicity of use of open source wallets that can be downloaded straight to people’s phones, cryptocurrency has been utilized as a peer-to-peer payment to assist activists in a number of nations. A wallet address, once created, may accept cash in the form of cryptocurrency from anybody in the globe, including family members and relatives. However, converting to fiat currency might add a practical degree of complexity for those in danger zones who require internet connectivity to guarantee their handsets are correctly configured.

“If you want to use it to purchase lunch and the merchant doesn’t take Bitcoin, you’ll have to change it into local cash,” Pines said. “It depends on where you are, and it also relies on how stable the jurisdiction is.”

The short surge also sparked debate about whether cryptocurrency may be used to circumvent the sanctions imposed on Russia by the US and its NATO partners. Even politicians have expressed worry, with Massachusetts Senator Elizabeth Warren describing cryptocurrency as a “shadow world” that Russians and other governments may use to “sanction-proof” themselves. The suggestion was rejected by FTX CEO Sam Bankman-Fried and Brett Harrison, head of the exchange’s American branch.

Exchanges such as FTX and other crypto businesses were also thrown into the limelight as they attempted to find out how to comply with Western sanctions imposed on Russia after its invasion of Ukraine. Crypto exchanges situated in areas outside the purview of sanctions, as well as those that do not demand user identification, were left unsure of how to impose restrictions on their consumers. Furthermore, given the hazy legislative framework that often applies to cryptocurrencies, several businesses are unsure how to even comply with the constraints.

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“A lot of the potential restrictions or advantages of cryptocurrency will be determined by how exchanges decide to regulate and implement fines,” said Prysm’s Hurder.

Clarity in rules may help define the function of digital assets – and it is on the way, if not immediately. On Wednesday, Biden signed an executive order establishing a government-wide approach to crypto supervision, requiring departments to collaborate. However, it also required a series of sector assessments that may take up to a year. Global regulation is still uneven.

Since the invasion, cryptocurrency has likely been most noticeable as a mechanism for fundraising, and it has been highly effective in that function. Digital currencies have become the vehicle of choice for many and a low-friction tool for people and organisations to raise money, using a QR code or a string of letters. According to Elliptic, a blockchain analytics business, the Ukrainian government has received more than US$60 million so far via more than 118,000 contributions.

The Ukrainian government’s coordinated outreach not only collected funds, but also galvanized people all over the globe to support their war efforts and inspire others to participate with audiences on social media. But, like with anything in crypto, there are two sides to every tale.

“For the first time in history, a nation’s military budget is now determined by the quality of memes that this country can make,” said Dror Poleg, creator of Hype Free Crypto, a cryptocurrency online teaching platform. “However, the system itself is scary because who knows what people on Twitter may become enthusiastic about or want to fund tomorrow?”

The future of money may be in flux, but the fight over cryptocurrency is far from done.

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