Russians Turned to Crypto, and There Was Nothing There

At the very heart of the original cryptocurrency movement was a mission born out of times of crisis to create a new financial system, heralding an era of financial freedom, where transactions are secure, fast, and accessible to anyone, anywhere. 

And 10 years down the line for the crypto movement, it seemed like it was time for everybody to be able to have their own voice, information to be be transparent, and decentralization to already be the norm — but this is not the case.

With Russia’s invasion of Ukraine last year, cryptocurrency’s promises had seemed like the solution when tens of thousands of Ukrainians, Russians and other displaced people found themselves unable to be banked.

But crypto’s original promise of financial freedom has been threatened — by the crypto industry’s overreliance on centralized exchanges leading to the exclusion of certain nationalities from accessing cryptocurrencies.

‘Banking the unbanked’ is no more

The ideals of the original cryptocurrency movement centered around the concept of “banking the unbanked” and creating a parallel financial system. 

Satoshi’s white paper stated that Bitcoin would “allow any two willing parties to transact directly with each other without the need for a trusted third party.” This meant that anyone with access to the internet could participate in the financial system, regardless of their location or socio-economic status.

This is no longer the case.

Cryptocurrencies were once hailed as a tool for decentralization and financial freedom, but as sanctions against countries like Russia have intensified, the role of crypto in global finance has become increasingly complicated. While sanctions may be meant to restrict access to financial resources for certain individuals or entities, they often end up punishing ordinary citizens who have no control over the policies or actions of their governments, pseudo-democracy or not.

Read more: Russia’s Sanctions Problem Can’t be Solved by Crypto

Is centralized cryptocurrency really cryptocurrency?

The issue of cryptocurrency and sanctions against Russia is complex, and requires a nuanced understanding of the challenges faced by displaced individuals and the impact of financial sanctions on their lives.

The heavy sanctions imposed on Russia by multiple countries at the beginning of the war had raised concerns that the country could use cryptocurrency to evade sanctions and move money undetected. But the use of cryptocurrency as a workaround for any Russians has become increasingly difficult. 

The world’s largest crypto exchange, Binance, imposed restrictions on P2P transactions in US dollars and euros for Russian traders earlier this year. In April of last year, Binance limited access to its services for Russia-linked users with assets exceeding 10,000 euros, as per a previous package of sanctions adopted by the European Union. Earlier that month, EU member states had agreed to ban the provision of “high-value” crypto asset services to Russian businesses and citizens.

Many displaced Russians who oppose the current regime and left the country as a form of protest have been particularly impacted by the financial sanctions (rather than those Russians left at home). Living abroad, they cannot use their Russian bank cards, have trouble opening bank accounts, and now are unable to use cryptocurrency as any real option for financial freedom as more and more crypto providers are falling in line with the rest of the traditional financial sanctions.

My Ukrainian acquaintances, who have suffered from forced relocation to different parts of the world, have also told me about their experiences of limits in transacting with cryptocurrencies on top of experiencing the endless difficulties of simply surviving in an unfamiliar country. In fact, the National Bank of Ukraine has actually killed the part of its system that was essential for withdrawing cryptocurrency into hryvnias by adding new rules for payment operators. (This is separate from crypto donations from abroad to support Ukraine, which have also slowed down since March 2022.)

This exclusion of certain nationalities goes against the principles of decentralization and inclusivity. The industry should not be an arbitrator of who uses cryptocurrencies and who doesn’t. Instead, it should focus on creating a level playing field for all users, regardless of their nationality or background.

Who is to blame?

It’s important to acknowledge that exchanges are not necessarily at fault for following the law. They have legal obligations and may face severe consequences if they fail to comply. 

However, the fact remains that this compliance with sanctions is contributing to the centralization and censorship of the cryptocurrency industry as a whole. While this  compliance may be necessary from a legal standpoint, it ultimately restricts access to financial resources for those who may need it most.

It’s important to note that only a handful of exchanges and companies have the resources and expertise to navigate these complex legal and regulatory frameworks. As a result, they have disproportionate control over the industry, which undermines the very principles of decentralization that cryptocurrencies were originally built upon.

The solution to these issues is not clear-cut. 

An increasing reliance on centralized exchanges — which are required to comply with the laws of whatever territory they are registered in — is not the answer. P2P services are also unreliable, with users in certain countries able to be banned from operating on the platforms or the platforms themselves often being shut down.

It is important to recognize the need for exchanges to comply with sanctions and other regulations, but the centralization and censorship that result from this compliance undermine the very principles that make cryptocurrencies such a powerful tool for financial freedom. 

Perhaps the solution lies in greater collaboration and cooperation between regulatory bodies and the cryptocurrency industry. By working together to find solutions that balance the need for compliance with the need for decentralization and financial freedom, we may be able to create a more equitable and sustainable future for the industry that could actually help unbanked people in times of crisis.

We need a return to the genuine decentralization that cryptocurrency had promised back in Satoshi’s white paper: the idea that any person can exchange value with any other person without the need for a third party. Because right now, this true decentralization is nowhere to be seen for cryptocurrency.