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The invasion of Ukraine shows why we need crypto regulation

Shortly after the Russian invasion of Ukraine, the Ukrainian government began tweeted a request for funds in the form of Bitcoin (BTC), Ether (ETH) and Tether (USDT). Get the sum now stands at more than $60 million, according to Michael Chobanian, founder of the Kyiv-based Kuna Exchange and president of the Blockchain Association of Ukraine, who regularly posts updates via his Twitter account.

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Contrary to pledges of support from governments around the world, these funds were available to the Ukrainian military in minutes, not weeks.

For individuals, cryptocurrencies can be a potentially life-saving way to escape crises. A computer programmer from Lviv said he escaped the fighting thanks to Bitcoin. With heavily restricted ATMs and massive queues at banks, he was able to transfer all his savings and cross the border to Poland, where he now volunteers to help Ukraine win the digital war by countering online propaganda and encouraged Russians to speak out.

However, the same means of quickly moving large sums of money are also available to Russians. As sanctions bite hard in the conventional economy, oligarchs and ordinary people alike are looking for new ways to move money and circumvent the mechanisms designed to cut off Russia from global financial flows. And cryptocurrencies are part of it.

Related: The world braced itself for Russian crypto sanctions

Is that just the nature of the animal? Is crypto inherently value neutral? Or is there a way to combine the fast digital mobility of funds in extreme conditions that cryptocurrencies offer with the ability to impose restrictions?

A poisonous question

Just asking the question will be poison for a significant portion of the crypto community. The whole point of distributed ledger technology, they would argue, is that no central authority can be trusted to impose and maintain controls in a way that is consistent and morally acceptable to all. Morality – we live in a postmodern world – is relative. My morally right perspective could be slightly offensive or repugnant to someone else. No one – including the world’s greatest philosophers – has yet found a satisfactory way to bridge this ethical divide. As a result, we have cryptocurrencies that are available to charities trying to save lives in disaster situations, as well as drug cartels, arms dealers, and gangsters.

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One way to address the issue of crypto assets is through closed user groups. We can create new crypto tokens and decentralized autonomous organizations to run them that embody the values ​​of the founders and participants. The climate token, for example, embodies the belief that continued CO2 emissions are catastrophic for society and the planet. It aims to drive up the price of carbon offsets and permanently remove them from sale once applied to a project.

Related: DeFi: Who, what and how to regulate in a borderless, code-driven world?

But closed user groups are easy to avoid. There are many other cryptocurrencies that are completely neutral on the Ukraine-Russia conflict. Nothing should change in the founding principles of these value-neutral tokens.

Crypto regulation is already having an effect

I believe there is more that can and should be done. As a European regulated financial institution, NexPay acts as an off-ramp, allowing businesses to exchange digital assets such as crypto tokens for fiat currency and send them to bank accounts. That’s because fiat is still the vast majority of real-world transactions. Crypto is maturing fast, but the total value of the global cryptocurrency markets is about $2 trillion, versus about $1.3 trillion in the fiat economy.

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Despite its reputation as a financial wild west, we can already see how much crypto regulation is in place. Anyone who has attempted to open a crypto account knows that it is not easy and there are numerous regulatory hurdles to overcome.

Related: Self-custody, control and identity: How regulators got it wrong

And regulators didn’t hesitate to make clear their views on using crypto to circumvent sanctions in the current conflict. In the United States, a group of Democrats on the influential Senate Banking Committee wrote to Treasury Secretary Janet Yellen expressing concern that cryptocurrencies could be used to circumvent sanctions. In the UK, the Financial Conduct Authority has “contacted every crypto firm registered with us to ensure they are aware of the sanctions and their responsibilities” and is monitoring the situation. European Central Bank President Christine Lagarde has called on the European Union to make urgent progress on its crypto asset markets (MiCA) regulations in the wake of the Russian invasion.

Regulators in some jurisdictions already have the power to prosecute individuals, such as B. Russian oligarchs, to be included in lists of sanctions banned or politically exposed persons, with companies that do not comply with heavy fines, significant damage to their reputation and the possible revocation of operating licenses.

Whether it is because of this pressure or because of their own ethical positions, many major crypto exchanges are now enforcing sanctions. But they resist calls for a blanket ban, arguing that it would harm ordinary Russians. And then there’s the argument that people will just find other ways to break sanctions: “When people want to avoid sanctions, there are always multiple methods,” said Changpeng Zhao, CEO of Binance. “You can do it with cash, with diamonds, with gold. I don’t think crypto is anything special.” However, this view ignores the digital nature of cryptocurrencies, making them much easier and faster to move money than any of these traditional, physical stores of value.

The regulators are far from winning this war. But they are tightening the noose to avoid crypto sanctions. And our own experience tells me that regulatory scrutiny of crypto assets is only one-way.

Related: Is the Ukraine War Putting Regulatory Pressure on Crypto Firms?

It will never create a perfect system that allows funds to go where they are needed while preventing them from being used by bad actors. And that’s only because the world will never agree on who the bad actors are — take, for example, the difficulty the United Nations is having in agreeing on that. But in a case as clear-cut as illegally invading an independent country, we can and must continue to use the power of cryptocurrencies and proper regulation to help refugees rebuild their lives in new homes and hold back financial flows to countries and the geopolitical seem to have aggression on their agenda.

This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Uldis Tēraudkalns is CEO of NexPay, a Lithuanian fintech startup providing banking infrastructure for the digital assets industry. Uldis has over a decade of experience in finance and venture investment management, where he has served on the boards of various companies. Uldis has a master’s degree in finance from the Stockholm School of Economics and is a co-host of The pursuit of scrapa leading business and startup podcast in the Baltics.