The Ukraine invasion shows why we need crypto regulation


Shortly after the Russian invasion of Ukraine began, the Ukrainian government tweeted a request for funds in the form of Bitcoin (BTC), Ether (ETH), and Tether (USDT). The total received now supports at more than $60 million, according to Michael Chobanian, founder of the kyiv-based Kuna Exchange and president of the Blockchain Association of Ukraine, who posts regular updates via his Twitter account.

Unlike the support promised by governments around the world, these funds were made available to the Ukrainian military in minutes, not weeks.

For people, cryptocurrencies can provide a life-saving escape method from crises. A computer programmer from Lviv said that he had escaped the fight thanks to Bitcoin. With heavily restricted ATMs and massive lines at banks, he was able to transfer all his savings and cross the border to Poland, where he now volunteers to help Ukraine win the digital war by countering online propaganda and encouraging the Russians. to speak.

However, the same means of moving large sums of money quickly are also available to Russians. With sanctions on the mainstream economy running strong, oligarchs and ordinary people alike are looking for new ways to move money around and bypass mechanisms designed to isolate Russia from global financial flows. And cryptocurrencies are part of that.

Related: The World Has Synchronized With Russian Crypto Sanctions

Is that the nature of the beast? Is crypto inherently value neutral? Or is there a way to combine the rapid digital mobility of funds under extreme conditions offered by cryptocurrencies with the ability to impose restrictions?

a poisonous question

Simply asking the question will be poison to a sizable portion of the crypto community. The whole point of distributed ledger technology, they would argue, is that no central authority can be trusted to impose and maintain controls in a way that is consistent and morally acceptable to all. Morality, we live in a postmodern world, is relative. My morally correct point of view could easily be offensive or repellent to someone else. No one, including the world’s greatest philosophers, has yet to find a satisfactory way to reconcile this ethical disconnect. As a result, we have cryptocurrencies that are just as available to charities trying to save lives in catastrophic situations as they are to drug cartels, arms dealers, and mobsters.

One way to approach the issue of crypto values ​​is with closed user groups. We can create new crypto tokens and decentralized autonomous organizations to operate them that embody the values ​​of the founders and participants. The Klima token, for example, embodies the belief that continued carbon emissions are disastrous for society and the planet. It is proposed to increase the price of carbon offsets and permanently remove them from sale once they have been applied to a project.

Related: DeFi: Who, what and how to regulate in a borderless, code-driven world?

But closed user groups are easily avoided. There are many other cryptocurrencies available that have a completely neutral view on the conflict between Ukraine and Russia. Nothing is likely to change the fundamental principles of these security-neutral tokens.

Crypto regulation is already having an impact

I think there is more that can and should be done. As a regulated financial institution in Europe, NexPay acts as an off-ramp allowing businesses to exchange digital assets, such as crypto tokens, into fiat currency and send them to bank accounts. This is because the vast majority of real-world transactions are still fiat. Cryptocurrencies are maturing rapidly, but the total value of the global cryptocurrency markets is roughly $2 trillion, versus around $1.3 quadrillion in the fiat economy.

Despite its reputation as the wild west of finance, we can already see how much crypto regulation exists. Anyone who has tried to open a crypto account knows that it is not easy, with numerous regulatory hurdles to overcome.

Related: Self-custody, control and identity: how regulators got it wrong

And regulators have been quick to make clear their views on the use of cryptocurrencies to circumvent sanctions in the current conflict. In the United States, a group of Democrats from the influential Senate Banking Committee wrote to Treasury Secretary Janet Yellen, expressing concern that cryptocurrencies could be used to evade sanctions. In the UK, the Financial Conduct Authority has “contacted every crypto business registered with us to ensure they are aware of the sanctions and their responsibilities” and is monitoring the situation. European Central Bank President Christine Lagarde has called on the European Union for urgent progress on its Crypto Asset Markets (MiCA) regulations in the wake of the Russian invasion.

Regulators in some jurisdictions already have the power to add individuals, such as Russian oligarchs, to sanctions-banned or politically exposed persons lists, with companies that fail to comply exposing themselves to large fines, substantial reputational damage and possible revocation. of operating licenses.

Whether as a result of these pressures or their own ethical positions, many large cryptocurrency exchanges are now applying sanctions. But they resist calls for a blanket ban, arguing that it would harm ordinary Russians. And then there is the argument that people will simply find other ways to break sanctions: “If people want to avoid sanctions, there are always multiple methods,” said Changpeng Zhao, CEO of Binance. “You can do it using cash, using diamonds, using gold. I don’t think cryptocurrencies are anything special.” However, this view ignores the digital nature of cryptocurrencies, which makes them much easier and faster to move funds than any of those traditional physical stores of value.

Regulators have not won this war, far from it. But they are tightening the noose on ways to circumvent crypto sanctions. And our own experience tells me that the regulatory scrutiny of crypto assets only goes one way.

Related: Is the Ukraine war intensifying regulatory pressure on crypto businesses?

You are never going to create a perfect system that allows funds to get to where they are needed, while preventing them from being used by bad actors. And that’s just because the world will never agree on who the bad actors are; take, for example, the difficulties that the United Nations is having in agreeing on this. But in a case as clear-cut as the illegal invasion of an independent country, we can and must continue to harness the power of cryptocurrencies plus proper regulation to help refugees re-establish their lives in new homes and stem financial flows to countries and people. . who seem to have geopolitical aggression on their agenda.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Uldis Terraudkalns is the CEO of NexPay, a Lithuanian fintech company that provides banking infrastructure for the digital asset industry. Uldis has over a decade of experience working in finance and venture investment management, where he has served on the boards of different companies. Uldis has a Masters in Finance from the Stockholm School of Economics and is a co-host of The search for scrapa leading business and start-up podcast in the Baltic countries.