Ukraine Invasion Shows Why We Need Crypto Regulation

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

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

For individuals, cryptocurrencies can provide a potentially life-saving method of escaping crises. A computer programmer from Lviv said he escaped the fighting thanks to Bitcoin. With heavily restricted ATMs and massive queues at banks, he was able to transfer all his savings and cross the border to Poland, where he is now volunteering to help Ukraine win the digital war. countering online propaganda and encouraging Russians to speak out.

However, the same ways to quickly move large sums of money are also available to Russians. While sanctions in the conventional economy are severe, oligarchs and normal people seek to find new ways to move money and avoid mechanisms to cut off Russia from global financial flows. And cryptocurrencies are one of them.

Related: The World In Sync On Russian Crypto Sanctions

Is that just the nature of the beast? Is Crypto Intrinsically Value Neutral? Or is there a way to combine the rapid digital mobility of funds in extreme conditions that cryptocurrencies provide with the ability to impose restrictions?

A poisoned question

Even asking the question will be poison to a significant portion of the crypto community. The whole point of distributed ledger technology, they say, 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 post-modern world – is relative. My morally correct point of view could easily be offensive or repulsive to someone else. No one – including the world’s greatest philosophers – has yet found 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 gangsters.

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One way to approach the issue of cryptographic values ​​is to use closed user groups. We can create new crypto tokens and decentralized autonomous organizations to mine 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 aims to drive up 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 world without borders and governed by a code?

But closed user groups are easily avoided. There are many other cryptocurrencies available that take a completely neutral view of the Ukraine-Russia conflict. Nothing is likely to change the founding principles of these value-neutral tokens.

Crypto regulation is already having an impact

I believe there is more that can and should be done. As a regulated financial institution in Europe, NexPay acts as an exit ramp for businesses to exchange digital assets, such as crypto tokens, into fiat currency and send them to bank accounts. That’s because fiat is still how the vast majority of real-world transactions happen. Crypto is maturing rapidly, but the total value of global cryptocurrency markets is around $2 trillion, compared to around $1.3 quadrillion in the fiat economy.

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Despite its reputation as the Wild West of finance, we can already see how well crypto regulation is in place. Anyone who has tried to open a crypto account is aware that it is not straightforward, with many regulatory hurdles to jump through.

Related: Self-Custody, Control and Identity: How Regulators Got It Wrong

And regulators have been quick to make their views clear on the use of crypto to circumvent sanctions in the current dispute. In the United States, a group of Democrats from the influential Senate Banking Committee wrote to Treasury Secretary Janet Yellen expressing concerns that cryptocurrency 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 penalties and their responsibilities” and are monitoring the situation. European Central Bank President Christine Lagarde has called on the European Union for urgent progress on its regulation of crypto-asset markets (MiCAs) in the wake of the Russian invasion.

Regulators in some jurisdictions already have the power to add individuals, such as Russian oligarchs, to sanctions-prohibited or politically exposed lists, companies that fail to comply face steep fines, material to their reputation and the possible revocation of operating licenses.

Whether it is the result of these pressures or something from their own ethical stances, many major crypto exchanges are now enforcing sanctions. But they are resisting calls for a blanket ban, arguing it would harm ordinary Russians. And then there’s the argument that people will just find other ways to get around sanctions: “If people want to avoid sanctions, there are always multiple ways,” said Changpeng Zhao, CEO of Binance. “You can do it using silver, using diamonds, using gold. I don’t think crypto is anything special. However, this view fails to take into account the digital nature of cryptocurrencies, which makes them much easier and faster to move funds than any of these traditional physical stores of value.

Regulators have not won this war, not by a long shot. But they are tightening the noose on ways to circumvent crypto sanctions. And our own experience tells me that regulatory scrutiny of crypto assets only goes in one direction.

Related: Is the War in Ukraine Intensifying Regulatory Pressure on Crypto Firms?

It will never create a perfect system that allows funds to get where they are needed, while preventing them from being used by bad actors. And that’s simply because the world will never agree on who the bad actors are – take, for example, the difficulty the United Nations has in agreeing on this. But in a case as clear as the illegal invasion of an independent country, we can and must continue to harness the power of cryptocurrencies and proper regulation to help refugees restore their lives in new homes and curb 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 conduct their own research when making a decision.

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

Uldis Tēraudkalns is the CEO of NexPay, a Lithuanian fintech start-up providing banking infrastructure for the digital asset industry. Uldis has over a decade of experience in finance and venture investment management, where he served on the boards of various companies. Uldis holds a Masters in Finance from the Stockholm School of Economics and is a co-host of The pursuit of scrappinessa leading podcast about businesses and startups in the Baltics.

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Ukraine Invasion Shows Why We Need Crypto Regulation

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