The war between Russia and Ukraine, and now how the world reacts to how to stir up blockchain technology

When Russia launched an unprovoked invasion of Ukraine and its neighbors and trading partners, the world's response was one of fear and anger. The West, led by the United States and the European Union, immediately imposed severe sanctions on President Vladimir Putin's regime, including a ban on access to foreign exchange reserves. The global economy has been affected by soaring energy and commodity prices, and capital markets are grappling with the uncertainty and long-term effects of Putin's aggression and the continent's worst military tragedy since World War II.

The cryptocurrency community has also been troubled by this tragedy. Due to the peer-to-peer nature of blockchain technology, there are many questions about the utility of Bitcoin and other digital assets in the war zone, as well as in Russia itself, and ordinary citizens have lost the purchasing power and access to the ruble crater financial infrastructure, such as the Swift system.

In this report, we dissect macroeconomic forces and analyze how blockchain-based solutions will play an important role as the war continues.

Blockchain and web3 demonstrate in unprecedented ways their value in contributing to humanitarian efforts to provide assistance to Ukrainian refugees and support ukrainian citizens who defend the country from Russian troops.

Before we explore the specifics of these initiatives, let's take a look at how Russia and Ukraine are affecting the macroeconomic situation.

Dramatic changes in the global market

As a major energy and commodity producer, Russia is one of the largest economies, while Ukraine is a global leader in wheat production. Russia is the world's third-largest oil producer, with about 5% of the world's reserves. Half of its oil exports are consumed by European countries, accounting for one-third of Europe's oil consumption.

Russia is also the largest producer of natural gas, controlling 25% of the world's natural gas reserves. With the entry into force of economic sanctions, crude oil prices have skyrocketed. The same is true for gasoline, natural gas, coal and heating oil. A sharp rise in electricity prices will affect proof-of-work blockchains like Bitcoin that require high-energy inputs.

Due to its high nitrogen production, Russia also has a firm grip on the fertilizer industry and is also a large exporter of copper, nickel, palladium and platinum, which are needed to produce chips and graphics cards for mining cryptocurrencies or playing games. End the game. At the same time, Ukraine is the sixth largest producer of titanium, a metal mainly used in manufacturing, and the third largest producer of neon gas.

Too big to fail?

Global leaders also sanctioned Russian banks, while payment service providers halted operations in the country. It is estimated that by mid-2021, the Central Bank of Russia will hold about $650 billion in reserves; however, these limits will limit this amount to about $230 billion, as 65% of these reserves are held overseas in currencies such as dollars, euros, pounds and gold.

The sanctions also mean that at least seven of Russia's most important financial institutions will no longer be part of SWIFT, a global information system vital to cross-border payments. Swift is used by more than 11,000 institutions and generates more than 35 million transactions per day.

In a similar way, payment giants Visa, MasterCard, American Express and PayPal have all halted operations in sanctioned countries, leaving millions of users without key currency channels. While Russian citizens and businesses may eventually find alternatives to Swift, fiscal constraints will seriously damage their economy.

The case of a decentralized monetary system

One of the advantages that blockchain brings is the ability to enable seamless peer-to-peer transactions without intermediaries, creating assets that are virtually borderless. This decentralized financial ecosystem could prove helpful to the millions of Ukrainians and Russians deprived of direct payment gateways.

However, the situation in Russia is more serious and complex. In addition to PayPal, Visa and Mastercard, payment and remittance services from organizations such as Apple (Pay), Google (Pay), Wise, Remitly and TransferGo have also stopped operating in the country, creating additional barriers for the Russian working class, who can also face credit default risk.

As a result, the most prestigious rating agencies drastically lowered Credit Rates in Russia. Standard & Poor's and Moody's downgraded Russia's sovereign rating to junk, while Fitch downgraded Ukraine's credit rating. Over the past 7 days, the Russian ruble has depreciated sharply by almost 33% and is likely to fall further.

To offset the inflationary effects of currency depreciation, cryptocurrencies such as stablecoins and even other types of digital assets such as NFTs can be used as hedging tools. We have already seen this in hyperinflation scenarios in countries such as Zimbabwe and Venezuela.

However, the advantages presented by blockchain in terms of accessibility, decentralization, security, and storage value go beyond the economic context of digital currencies. We are witnessing the social potential of an organized crypto community.

Cryptocurrency community unites Ukraine

Blockchain has shown its potential to have a positive impact on society on different occasions. This time, the world has witnessed how celebrities, entrepreneurs and people from different backgrounds have joined forces to create a web3 organization called the DAO to support the Ukrainian people and their troubled government.

At a historic moment, Ukraine began to receive donations on different networks. The Ukrainian government received about $10 million in tokens and NFTs (including about $212,000 worth of CryptoPunk #5364) in its Ethereum wallet, most of which was collected after announcing a possible airdrop to contributors. The central authority also provides available wallets for the Bitcoin, Polkadot, and Tron networks.

The creation of a blockchain wallet in Ukraine was one of the occasions when governments in recognized countries used cryptocurrencies for the first time, joining El Salvador and Venezuela. However, ukraine's case marks the first time the government has used them for humanitarian purposes.

In addition, established blockchain projects like Uniswap and independent DAOs that act like NGOs have joined the ukrainian cause. The Ukrainian DAO is an initiative launched by Pussy Riot, which has repeatedly faced jail time for publicly protesting the Putin regime and has raised more than $7 million, which will be used entirely to help Ukrainians.

Unchain Ukraine, a DAO created by Illia Polusokhin, co-founder and experienced web3 individual of the Near blockchain, is another example. Unchain Ukraine has raised more than $2.1 million, most of it in NEAR, and has received donations from nine networks.

Support for the Ukraine crisis also comes from the NFT space. For example, Reli3f, a humanitarian aid program launched by Andrew Wang and members of the web3 community. The project consists of 7,400 NFTs from 37 different NFT artists, including Fvckrender, Pablo Stanley and Defaced, and has raised and distributed at least $1 million in ETH in support of the Ukrainian people.

NFT artists from different circles are also quite active. Activist and artist Shepard Fairey will donate proceeds from his next series to humanitarian crises in Eastern Europe. Meanwhile, 200 Ukrainian artists from the country's most renowned art gallery have come together to create an NFT that will be auctioned off later.

According to Elliptic, Ukraine has received nearly $60 million in crypto assets from more than 118,000 wallets, including $5 million from NFT, Polkadot founder Gavin Wood, and $10 million from Binance. Finally, Ukraine's use of cryptocurrencies to raise funds for its military and humanitarian needs is a testament to the massive potential of blockchain technology.

So, after considering all the macroeconomic implications and being aware of the support from web3-type organizations, what are the expectations for blockchain and cryptocurrencies in the short term?

What does this mean for blockchain and cryptocurrencies?

The crisis will create a domino effect in different industries and cement cryptocurrencies as a potential tool to provide relief to Ukrainians and ordinary Russian families.

Demand for cryptocurrencies has been on the rise since recent events, especially in affected areas. The number of bitcoins bought in the hryvnia and rubles reached its highest level in nine months. The number of bitcoins bought in rubles has at least tripled since February 24, while demand in Ukraine has almost doubled. Soaring bitcoin demand has triggered a 6% premium in both regions. In the case of WhiteBit in Russia, Binance and Kuna slashed the BTC-UAH pair at a premium of 6% in Ukraine.

Asset prices are resisting due to the sudden increase in demand for cryptocurrencies, and some help from Biden's cryptocurrency orders, challenging the bear market trend that has been perceptible since November. Bitcoin recovered its support line above $38,000, while Ethereum surpassed $2,500. Still, a period of high volatility is widely expected, which presents an interesting challenge from a trading perspective.

Moreover, the devastating effects of the current business situation and the volatile financial environment could trigger consequences ranging from people defaulting to larger bank runs and bailouts. This situation will create greater distrust of centralized banking systems, paving the way for the adoption and identification of digital assets and cryptocurrencies.

However, if Russia chooses to do so, it is not far-fetched that opposing states may try to ban cryptocurrencies used to circumvent sanctions, especially if there is a deal with China. While leading exchanges such as Kraken and Binance have refused to restrict Russians from using their platforms, companies such as OpenSea and Consensys have begun cutting off blacklisted areas.

It is also worth mentioning that Russia is no stranger to cryptocurrencies. The exact number of cryptocurrencies owned by Russians varies depending on the source, from $22B to $220B or 12% of the world's crypto assets. Therefore, they may be due to the consideration of the numerical approach. In addition, Russia is responsible for mining nearly 14% of the hash power of BTC needed to mine blocks, making it the world's third-largest bitcoin mining center after the United States and Kazakhstan.

The adoption of blockchain technology seems imminent. Not long ago, or rather, in 2019, two key executives at JPMorgan Chase called Bitcoin a fraud, an asset whose value could only flourish in a dystopian environment characterized by a loss of confidence in all major reserve assets. Three years later, the stance of one of America's leading banks took a 180° turn. JPMorgan Chase & Co. is believed to have a major stake in Consensys and also became the first financial institution to officially open a space in the metacosm by showcasing the Onyx Lounge in Decentraland.

After two years of battling the COVID pandemic that has devastated the economy, supply chains and the lives of millions of people, Ukraine's war is looking for a more digital society to fight one of the highest inflation times in recent years. Even a few years later, the financial implications of Russia's decision will be felt and have the potential to change the traditional financial ecosystem.

It is too early to judge the full impact of this conflict and how the world will react. For now, we are all focused on one thing; the war ends with as little loss of life as possible.