Ukraine & Cryptocurrencies

Who hasn’t heard of blockchains, cryptocurrencies, bitcoins or NFTs? Have you ever wondered what they really mean and what the hype is all about? Don’t you feel left out when you hear so many people talking about the topic (even on TikTok of all places) and you don’t understand the slightest bit? Or maybe you just want to impress your Tinder/Grindr date. If so, read on to find out enough to impress even the 24-year-olds still-living-in-their-parent’s-basement crypto millionaires.  

If you are still reading, then my puns have worked (James Bay’s “Peer pressure” blasting in the background). Ironically, many people have that friend/acquaintance that is trading crypto, “on the verge” of becoming really wealthy, but still asking you to foot the restaurant bill and condescendingly arguing that “you couldn’t understand it anyways, Karen”. So, let’s try to change that then. In this article, we will cover blockchains and cryptocurrencies and slightly brush on the topic of NFTs. 

Blockchains: basics explained such that even a 3-year-old can master it, no pressure


The core idea is that a blockchain is a distributed digital ledger that stores data of any kind. When one thinks of blockchains, they would usually think of Bitcoin and other whatnots, but blockchain tech is so much bigger than that. A blockchain can record information about cryptocurrency transactions, NFT ownership, DeFi smart contracts, legal contracts, or even a company’s product inventory. 

Have you ever wondered why the name “blockchain”? Why not “My precious”? Or “Block of power”? (*If you got these nerdy puns, the writer sympathetically urges you to get a life!) The name “blockchain” is hardly accidental as the data is stored in blocks (linked together via cryptography). As new data comes in, it enters a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order; the information and history of the chain are irreversible.  

What makes blockchains so different from other databases (i.e., even old pal Excel records data pretty well), you may wonder? The answer is that they are totally decentralised. This means that rather than the data being kept and regulated at one location (i.e., Central Bank), there are many identical copies of said ledger (blockchain database) on numerous computers throughout the world. As a side note, these computers are called nodes. To validate new entries to a block, a majority of the decentralised network’s computing power would need to agree to it. On top of that, blockchains are also secured by a consensus mechanism such as proof of work (PoW, often referred to as “mining.”) or proof of stake (PoS).

Obviously, one popular application of blockchain technology is cryptocurrencies, but as mentioned before, there are so many other uses for this tech. For instance, one such use could be monitoring food supply chains. Extrapolating, one could monitor logistics of any type of valuable or time-sensitive products where using an immutable and “trustless” (given that the data cannot be tempered with, trust is basically removed from the equation) ledger is beneficial. Other uses would be recording property of goods (i.e., autonomous cars, NFTs, etc) or voting processes, the true bedrock of democracies worldwide. 

Remember the Trump debacle? The former POTUS invoking fraud and putting pressure on vice-president Pence to declare the voting null and void? The subsequent revolt and what was dubbed by the press as the “Capitol siege”? All of these would have been branded Sci-Fi had the US used the blockchain technology in its elections (the technology has its flaws, mind you). Using the immutable piece of technology would prevent people from tampering with the outcome of the elections, while also ensuring pseudo-transparency (each vote being “anonymously” tagged to an individual with no duplication), the individual identities remain anonymous, and the results of the election are undisputable. This would spell the end for election fraud. Fair to say that Lukashenko and Putin would have a word or two against implementing it. 

But the idea is not at all new, blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta. Wanting to implement a system where document timestamps could not be tampered with, they came up with what is commonly known as a consortium (type of blockchain). But it was only two decades later, with the launch of the first cryptocurrency in 2009, that blockchain had its first real-world application: Bitcoin.

Bitcoins & Cryptocurrencies: easy-peasy lemon squeezy


Bitcoin is probably the best-known cryptocurrency in the world and has become almost a perfect synonym for the whole cryptocurrency asset class. Its launch in 2009 was shrewd in mystery and turned out to be the start of the global cryptocurrency hype. Bitcoin is “a new electronic cash system that’s fully peer-to-peer, with no trusted third party” (Satoshi Nakamoto, pseudonymous Bitcoin creator/creators). 

Going back to the concept of blockchains, there is (allegedly) not a single person or group in the entire world that has control over it, rather, all users collectively retain control. Let’s look at how this process works with Bitcoin. When one sends Bitcoins, they pay a small fee (in Bitcoin) for the network of computers to confirm that their transaction is valid, which is then bundled with other transactions pending in a queue to be added to a new block.

The computers (nodes) then start validating the list of transactions in a certain block by solving a complex mathematical problem to come up with a hash (64-digit hexadecimal number). Once solved, the block is added to the network—and the fee paid, combined with all other transaction fees in that block, is the miner’s reward.

For sake of discussion, let’s assume somebody wanted to alter a record at one instance of the database. As the other nodes have not been changed and still present the original version of the dataset, they would prevent said somebody from altering it. If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each other and easily pinpoint the node with the incorrect information.

 Bitcoins & Cryptocurrencies: let’s put the cry in crypto

Now, let us revise some of the core characteristics regarding cryptocurrencies. First, due to the decentralised nature of i.e., Bitcoin’s blockchain, all transactions are transparent and thus traceable. In turn, this is possible because each node (user) on a blockchain has a unique 30-plus-character alphanumeric address that identifies it, meaning that even if Bitcoins were to be stolen and the hacker’s identity unknown, if the stolen coins were to be moved to a digital wallet or spent somewhere, it would be known. In December, for instance, the FBI managed to seize $3.6bn-worth of crypto-assets related to a theft from an exchange in 2016. This feature of the blockchain-enabled currency mitigates its security issues. Yes, security issues. 

We have already discussed what is the process of validating a Bitcoin transaction, which should ensure its security, with it dependent on the size of the network. Logically, the more nodes partaking in the network, the more copies of the actual ledger are distributed and the harder it is to temper with the actual records. Remember, each block contains its own hash, along with the hash of the block before it and their respective time stamp. If you wanted to steal cryptocurrencies or to alter the ledger’s records all of these would need to be changed. And not just on one node, but you would need to change the data in 51% of the nodes where the dataset is stored for the network to accept your change, which requires an immense amount of money and resources and in certain cases is outright impossible. Ultimately, one has to give Satoshi Nakamoto their due for having built the system in such a way that taking part in the network is far more economically attractive than trying to steal from it. Nonetheless, its security remains doubtful as scammers and hackers managed to get hold of a record $14 billion in cryptocurrency in 2021 alone, according to blockchain analytics firm Chainanalysis. 

So far, we have just focused on Bitcoin, the reason being that this currency was the first to be launched using the blockchain-enabled technology and it still is the best known in the world. But there are so many more with arguably better features and blockchains, i.e., Ethereum, egold, Solana, etc. While Bitcoin is without any doubt a decentralised payment system and, as some might argue, a (volatile) store of value, i.e., Ethereum is so much more than a payment system as it allows smart contracts, tokens and apps to be built on it, making it a more sophisticated blockchain.

NFTs: the abridged version of the abridged summary

We will briefly touch on one of the most popular topics of the year, NFTs; but keep in mind that this is just another application of the aforementioned blockchain technology, so most aspects still apply in this respect. An NFT, a.k.a. non-fungible token, is a UNIQUE unit of data employing technology that allows digital content, from videos to songs to images and tweets, to become logged and authenticated on cryptocurrency blockchains, primarily Ethereum. Once the content is logged onto the blockchain, every transaction is recorded on-chain, creating an easily accessible and immutable ledger of provenance and price history. 

Some of the biggest names across industries jumped ship on the trend and launched and sold their digital collectibles, i.e., Eminem, Paris Hilton, Shawn Mendes, John Cena, etc. Even former porn-star turned entrepreneur Lana Rhodes launched her own NFT project which she later abandoned, netting a sweet $1.8 million. 

 Cryptocurrencies vs Centralised banking system: 

In 2008, several failing banks were bailed out— using (mostly) taxpayer money. These are the worries out of which Bitcoin was first conceived and developed. Ultimately, we have the big investment banks and hedge funds to thank for the surge of cryptocurrencies and DeFi. And there has been a lot of developments regarding cryptocurrencies in the past year, from the El Salvador’s government being the first ever country to make Bitcoin a legal tender to the Tesla crypto debacle, which emphasised both the positives and negatives of cryptocurrencies fairly well. 

You might rightly ask yourself, just how viable is the prospect of cryptocurrencies and decentralised finance replacing the current financial paradigm. Spoiler alert, I wouldn’t bet my half-empty Cola on it. And to the people who do not really understand the hype of this DeFi trend, you might be amazed to see how many people are outraged by the fact that i.e., the U.S. dollar is controlled by the Federal Reserve. The reason: under the central authority system, a user’s data and currency are technically “at the whim” of their bank or government. Hypothetically speaking, if a user’s bank is hacked, the client’s private information is at risk. Extrapolating that, the client’s assets are vulnerable to the political and economic conditions within the whole country/region. If the bank collapses or the country in which the client lives in is hit by political or social unrest or is governed by an unstable government, the value of their currency may be at risk, directly impacting their domestic-currency-nominated assets. 

In all honesty, it seems far stretched to say that cryptocurrencies, the volatile digital assets that have also been used to finance illicit activities for a decade, are a hedge against financial and political insecurity. But it’s a debate worth having. 

First, let us discuss the positives. One no longer has to wait for days for a transaction/wire transfer to come through (too bad for Anna Delvey) as i.e., Bitcoin transactions can take as little as 15 minutes and as much as over an hour depending on network congestion with other cryptocurrencies being even more efficient than that. Moreover, there are no set hours for trading cryptocurrencies, the markets being open 24/7, 365 days a year irrespective of whether it’s a weekend, national holiday, etc. Cryptocurrencies imply lower costs as third-party verification is eliminated. For Bitcoin transactions, the transaction fees are determined in an open market by miners and users. Finally, anyone or anything with internet access can trade Bitcoin with no identification whatsoever, no “Know Your Customer” file required and no need to account for the source of your money. Theoretically speaking, even an AI could participate. 

 Now, one must admit that the positives of cryptocurrencies are certainly appealing, so the question remains, why haven’t the cryptocurrencies been applied to a wider extent. Although blockchains can indeed save users’ money on transaction fees, the technology is far from free. For example, the PoW system which the bitcoin network still uses to validate transactions, consumes vast amounts of computational power. It was (partly) because of environmental concerns that Tesla stopped accepting Bitcoin.

 While the cryptocurrencies offer unique access around the world, Bitcoin is a perfect case study for the possible inefficiencies of blockchain. We have already seen that Bitcoin’s PoW system takes about 10 minutes to add a new block to the blockchain. At that rate, it’s estimated that the blockchain network can only manage about seven transactions per second (TPS). For context, Visa can process 65,000 TPS. Nonetheless, other cryptocurrencies (i.e., Ethereum) top Bitcoin’s 7 TPS, with some even boasting more than 30,000 TPS, but the difference is still there. 

 On the one hand, cryptocurrencies give anyone with an internet connection access to financial accounts. On the other hand, this also means that cryptocurrencies allow criminals to transact more easily. The dark web allows users to buy and sell illegal goods without being tracked, i.e., Silk Road, an online dark web illegal-drug and money laundering marketplace that was closed down in 2013 by the FBI. 

Last drawback when it comes to cryptocurrencies is that some digital assets are secured using a cryptographic key, like cryptocurrency in a blockchain wallet. If you are anywhere as clumsy as me, you need to carefully guard this key, i.e., 20% or 3.7 million of the currently minted Bitcoin is already lost (probably forever).

Ultimate Blockchain application: Finance (no jokes about Finance, gents!) 

When people think of cryptocurrencies and decentralised exchanges, they imagine a world devoid of middlemen, i.e., lawyers and banks’ Savile-Row-dressed kind. An utopian fantasy where everyone stores their money in an online wallet not tied to a bank, meaning they are their own bank and have complete control over their money. One certainly understands the appeal, no need for the bank’s permission to access or move it, no third-party commission anymore, no need to explain the source of said money and no need to sweat over a government’s economic policy affecting the value of the assets.

That is probably wishful thinking at its best. A mass blockchain application in Finance would mean 24/7 coverage to banking and financial services; a significant boost to already-existent services rather than an outright replacement thereof. While decentralised cryptocurrencies could spell the end of central banking, they would actually be a god-sent gift for investment banks and maybe even commercial banks. 

By integrating blockchain into banking and provided the efficiency issues are solved, consumers could see their transactions processed in as little as 10 minutes (the time it takes to add a block to the blockchain) regardless of holidays or the time of day or week. With blockchain, banks can also  exchange funds between institutions more quickly and securely. In the stock trading business, for instance, the settlement and clearing process can take up to three days, meaning that the money and shares are frozen for that period. In turn, the banks could settle trades in real time and underwrite loans in a day (instead of waiting two weeks), all with minimal risk. While the safety issues are concerned, the governments could still monitor financial activity for indications of money laundering, it is just that the identity of the individual traders or purchasers is unknown.

Cryptocurrencies and NFTs in Ukraine: angel in disguise?


One does not need to look too far to see the importance of cryptocurrencies and NFTs: the war in Ukraine. The Ukrainian government was planning to launch this year a central bank digital currency, the e-hryvnia. Unfortunately, such initiatives have been massively derailed by the war. 

Nonetheless, blockchains still proved useful in helping fund the war effort. Since Russia’s invasion on February 24th, Ukraine has raised more than $100 million in donations spread across assets such as bitcoin, ether, polkadot, solana, dogecoin, tether and more. To ensure that the funds are not stolen, the digital wallet for the donations were set with the help of the largest exchange in the country, Kuna. Ultimately, these funds have gone to help humanitarian agencies distributing aid in the country and to procure necessary supplies for battle-worn soldiers and brave volunteers.

The government has also announced plans to sell NFTs to help the army, a global first military NFT collection. But according to government officials, these sales will more likely be used after the war as part of a museum or way to preserve the memory and history of the conflict as opposed to something designed to help soldiers now.

But just as Ukrainians can use the instantaneous means of digital payment to fund its war effort, so can the Russians use it to bypass West’s punitive measures. West’s response to the war has mainly consisted of heavy financial sanctions levied on the Russian economy and its oligarchs and the Russian. With the US's embargo on Russian oil and gas, the aforementioned sanctions and the Rubble crushing to historical lows, there are growing fears among Western governments and regulators that Russians have turned to crypto to sidestep sanctions that have cut off its economy from the rest of the financial world. Trading volume in the Ruble-Bitcoin currency pair on Binance (biggest crypto-exchange by volume) soared about ten times their normal level since the onset of the conflict. Surely, that must limit the effect of the West's financial pressure on Russia. Funny enough, it is not the first time a country makes use of cryptocurrencies to bypass economic sanctions, i.e., Iran (blockchain analytics firm Elliptic). In a way to address such concerns and to maximise the effect of the sanctions levied on Russia, the Biden administration empowered regulators to, among other goals, minimise illicit use of crypto via an executive order laying out some regulatory principles. In light of said regulatory changes, Binance and Coinbase have committed to freeze the assets of any individuals who have been targeted with sanctions, while still refusing to pull out of Russia altogether. 

Outlook: if you have the attention span of a 15-year TikTok-er,  just read this

Throughout the article we have tried to balance the positives and negatives of blockchains and blockchain-enabled cryptocurrencies, so let us draw some concluding remarks regarding the subject. Blockchains have some amazing potential uses and if environmental, efficiency and safety issues are addressed, could very well shape the next financial era. Now, cryptocurrencies. They have certainly proven their usefulness, especially when dodging financial sections is in order. Nonetheless, they are vastly inefficient and far, far, far away from being “digital gold”, meaning that they are a way to hedge against inflation and, please do not laugh, market volatility (implying that if the stock market crashes, cryptocurrencies wouldn’t). Generally, cryptocurrencies have shown themselves to be super volatile and are more often than not correlated to market risk assets, especially stocks. I will grant you that over a longer time horizon, the correlation decreases to a large extent, but in the words of the J.M. Keynes, “in the long run, we are all dead”. Jokes aside, for the cryptocurrencies to be considered a safe haven (i.e., gold, silver, US Dollar, CHF, etc.), it needs to provide protection in case of a market crash. The current conflict has only brought more evidence against it, i.e., Bitcoin fell when Russia invaded Ukraine, as did the S&P 500 and major US stocks; when S&P 500 rebounded later in the week, so did Bitcoin. Ultimately, while cryptocurrencies might not be the “digital gold” and further imminent cryptocurrency regulations could spell the end of crypto speculation, they could certainly become more efficient means of transaction and financing once the blockchain technology is more advanced. So, let’s wait and see. 

About this article

Written by:
  • Aaron Stefan Popa
| Published on: Mar 22, 2022