This article originally appeared in Nikkei Asia.
The war in Ukraine is the first major conflict in which crypto has featured prominently.
It has been used for humanitarian purposes, with people across the world sending crypto to the Ukrainian government and nongovernmental organizations while a member of the Russian punk activist band Pussy Riot even helping to set up a Decentralized Autonomous Organization that will sell NFTs of pictures of the Ukrainian flag.
But there has been some controversy too, with Ukraine seeking to restrict Russians' access to crypto, as well as concerns that Putin's regime will use it to evade sanctions.
This relatively young asset class, and the industry and community that has grown around it, are being challenged to reconcile the moral imperative of limiting the financial activity of Russian citizens with its own founding ethos of being a decentralized, permissionless system that enables individual freedoms.
Without question, this is crypto's biggest and most serious test yet. But I am confident that its 300 million or so users can rise to the challenge and have a positive impact in this crisis.
As part of the response to Russia's invasion, Ukraine and its allies have imposed an unprecedented range of sanctions on Russia's government, banks and wealthy elite, isolating Russia both economically and financially.
Now, crypto has come into focus. Not only did Ukraine's Vice Prime Minister and Minister of Digital Transformation ask crypto exchanges to block activity by all Russian users, but the U.S. Treasury also name-checked digital currencies in new regulations banning Americans from providing support to sanctioned individuals and entities. Japan and the European Union are considering similar measures.
The crypto industry has no interest in helping anyone avoid justly imposed sanctions. Not everybody, and this is just one view, should be able to freely use an alternative financial system that was created to make the world better and fairer, especially not to launder wealth gained through war, exploitation or suffering. Generally, we do not want evil of any kind in the crypto markets. Of course, some people will disagree and treat it more like free speech, where we simply have to acknowledge that freedom comes as a double-edged sword. However, as human beings interacting with each other on an agnostic network, there are still moral imperatives – and if we can muster consensus around these imperatives, it would still be in line with the spirit of crypto.
Centralized Exchanges can and should do everything possible to block sanctioned individuals from gaining entry through their platforms, just as individuals need to think carefully about who they transact with privately. But at the same time, we must ensure that crypto's collaborative and unrestrained community spirit can continue to thrive because that can clearly do good in Ukraine and elsewhere.
According to London-based blockchain analysts Elliptic, the Ukrainian government and an NGO providing support to the military raised more than $46 million with more than 72,000 crypto donations from Feb. 24 to Mar. 2.
ForkLog, a Russian-language media outlet focusing on crypto and blockchain, estimates that over $58 million worth of crypto donations have flowed to Ukraine since the invasion began.
Crypto is not just a vehicle for donations, though. Blockchain technology makes possible new ways of organizing social investment, such as multi-sig wallets that require the approval of a majority of keyholders to approve a donation before it is paid out. This improves transparency and accountability, and is driven by individuals choosing to act on the basis of their conscience and not by the need to comply with laws or regulations.
It is essential for individuals to accept the accountability that comes with the freedoms that crypto offers. As Vitalik, put it: "Ethereum is neutral, but I am not."
The war in Ukraine has demonstrated that borderless units of value can be transferred immediately and cheaply without relying on intermediaries. And the growing role of cyberattacks as a form of unconventional warfare also reinforces the value of Bitcoin, in particular as a store of value that cannot be hacked.
While peer-to-peer crypto transactions cannot be stopped through direct intervention because the Bitcoin network is open and permissionless, that does not mean there are no ways to make it hard for criminals to move funds through crypto.
After offering rewards for information linking anonymous crypto wallet addresses to Russian and Belarusian politicians, Ukraine claims to have received plenty of tipoffs and plans to use this information to ask exchanges to blacklist those addresses.
he lawyer pursuing this initiative on behalf of the Ukrainian government, told CoinDesk that "if the crypto world can show that without centralization it can stand against crime, then people will trust crypto. If the crypto world fails Ukraine, there may not be any future for crypto."
This perfectly encapsulates the challenge facing the industry.
We believe that Bitcoin and many other cryptocurrencies are designed precisely to support greater freedoms. But making good use of this freedom also means applying good judgment in order to enhance this new technology and improve its reputation for integrity.
We have to show that a community of independent individuals can be effective in preventing criminals from taking advantage of principles that most people in our industry are passionate about.
Our infrastructure may not allow us to stop every crime or misuse of capital, just as traditional banking cannot. But everyone in our community owes it to the people of Ukraine and the promise of crypto as a force for good to rise to the challenge.