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Implications of Decentralized Finance Censorship – Ukraine-Russia War

Updated: Dec 7, 2022

The international community has largely accused Russia of the unfolding carnage and continued crisis in Ukraine. This has prompted the sympathizers of Ukraine, led by the US, to launch a streak of economic sanctions as their preferred weapon, including barring Russian institutions from global financial and payments markets. As the consequences of these sanctions becomes more apparent on the Russian economy, and many Ukrainians being cut off from traditional banking functions due to the destruction of basic infrastructure in Ukraine, analyzing Bitcoin and decentralized finance economy in the context of the war between Ukraine and Russia is a complicated subject. First, because of the looming censorship of decentralized finance in Russia as part of sanctions by the international community, and second, due to the fact that Bitcoin has been a key channel for Ukraine to receive funds from donors and has been substituting the already affected mainstream financial systems such as banks and its related infrastructure.

The largest credit card networks in the world - Mastercard and Visa - and online payments giants PayPal have already suspended their services in Russia, meaning that debit and credit cards issued by banks in Russia are no longer working outside of Russia. Similarly, SWIFT – an international bank messaging system crucial for transactions has been banned in Russia. Russian businesses also will not be able to accept cards issued from outside the country. As the war between Ukraine and Russia rages on and as both nations’ economies and currencies spiral to new lows, the US has been contemplating adopting sanctions targeting Bitcoin and other decentralized finance to more pressure on Kremlin. This comes as several countries, including particularly neutral Switzerland, imposing heavy punitive economic measures against Moscow.

Since the start of the conflict, Both Russia and Ukraine have used Cryptocurrencies as a decentralized financial weapon for their own gains. Notably, Ukraine legalized cryptocurrencies just one week before the war broke out, while Russia have considered proposals on use of decentralized finance from its central bank, paving the way for a respective legislation. The Ukrainian government on the other hand has received more than $100 million in crypto donations (Bitcoin, Ethereum, and USDT) after appealing for help. Many people in Ukraine feel that their money is safer in cryptocurrencies than in other conventional forms. For instance, there is the thinking that if Russia somehow seizes the Ukrainian banking system, local people will not be able to take out their money, as it happened in Afghanistan when the Taliban took over. Hence, decentralized finance would have the perfect use for people in Ukraine. According to Kaiko, a cryptocurrency trade data provider, cryptocurrency trade volumes for Russian Ruble and Ukrainian Hryvnia spiked to their highest in weeks after the invasion, particularly for stablecoins.

Bitcoin and other Altcoins forms of decentralized finance usage have increased rapidly in emerging markets. While it is true that decentralized finance is a better option for unbanked individuals who cannot have, access, or even the basic identity proof required for opening a bank account, its biggest benefit nowadays for many people is that Bitcoin and other Altcoins forms of decentralized finance are censorship-resistant. Governments or governmental agencies do not have the capacity of controlling, throttle, even monitoring of the digital finance system as they can in the mainstream financial world. Previous attempts of censorships to decentralized finances by various nations have failed - from India to China.

The largest developing economies India and China have taken measures to reduce cash in their economy. In India, with clumsy attempts of limiting the role of cash in the informal economy and tackling counterfeiting, the government removed high-denomination notes from circulation. On the other hand, the Chinese government has been attempting to replace many transactions with its digital alternative (digital yen) under the central bank to control and watch how people spend money.

Despite the censorship of mining and trading of Bitcoin in China, Recent data has actually shown that hundreds of Bitcoin nodes are still operating in China. Because no central authority is capable of blocking transactions in public blockchains, digital currencies are considered to be censorship-resistant. Technology has advanced becoming even more powerful and decentralized in the past few years to support a fully transparent digital economy that is almost impossible to censor. Bitcoin, the world’s most popular and fully decentralized cryptocurrency can be the solution for both Ukraine and Russia, particularly ta this time they are in conflict. Since it is based on peer-to-peer transactions, with no middleman and control by governments - unlike with banks, censorship measures on decentralized finance economy can barely be effective.

The suspension of SWIFT, Paypal, Mastercard, and Visa in Russia has contributed to the increased volume of Bitcoin transactions in Russia. While the US and Ukrainian allies may contemplate censorship on decentralized finance economy in Russia it will hardly work. Russians will keep using Bitcoin and decentralized finance due to its censorship-resistant characteristics to survive the crippling economic sanctions imposed on them by the international community. Likewise, Ukraine sees Bitcoin as their most reliable currency option during this time of political uncertainty and communication and infrastructure breakdown in the war-torn nation. help you understand the impact of decentralized finance , digital transformation as well as freedom empowering tools in a fast changing world.

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