Will the Russia-Ukraine conflict lead to the weaponization of cryptocurrencies?
The ongoing Russia-Ukraine conflict drags on, with perhaps Putin encountering stronger than anticipated resistance from Ukraine. Meanwhile, the West has responded with unprecedented, crippling economic sanctions on Russia. Many experts are heralding the ongoing conflict as the first salvo in a “new Cold War”. The jury is still out on that, but one thing is clear: this is primarily an economic and financial war, as there is no appetite for direct military or nuclear conflict – at least for now.
If the conflict prolongs, Western sanctions will really start to bite Russia, and Putin will need to think about alternate ways to trade with willing countries like China, India and others. However, being locked out of most of the global financial system will not help. Already, Russian calls to countries to deal in rubles have so far been met with a lukewarm response at best.
This creates a ripe situation for Russia, already a strong player in the cryptocurrency space, to lean heavily into developing a crypto-based international trading and settlement system that is completely independent of the West, and therefore cannot be brought under the purview of any sanctions.
Strategically, this would be very desirable for countries like Russia, China, North Korea, Venezuela, Iran and other nations who have long suffered – and continue to – under the weight of US-led economic sanctions. By the same token, Western powers will start to see crypto as a strategic and security threat in a way they do not today.
If this is a new Cold War, and the main battleground is an economic one, then the strategy of the West rests on Russia being unable to withstand crushing sanctions for too long before either imploding or capitulating.
If Putin develops a crypto-based system as his secret weapon to thwart the West, this would effectively mean the weaponization of cryptocurrency: the crypto-ecosystem would become the battleground of this global power struggle.
In a way, it is only fitting that a 21st century Cold War be fought virtually and on a digital platform. But what would be the exact terrain of this arcane and virtual battleground? Who would be the warriors, and what weapons and strategies would they use to battle each other? Who will win?
And what does this all mean for civilian participants (aka regular investors) caught in the middle of this global, digital, financial conflict?
These are intriguing questions which we need to start thinking about. I will share further thoughts on this as I develop them, and would be delighted to hear your thoughts in parallel.
