Russia’s invasion of Ukraine has become one of the most televised wars in recent memory. It feels surreal, like something out of a computer game, and yet it’s really happening. It is a huge economic and human impact that has ripple effects across many sectors of society.

A second topic that is hot right now is the role of decentralization in financial system control. For what it’s worth, many governments may have to rethink their stances on the adoption and implementation of cryptocurrency, as well as how it should be run in respect to matters of national security.

Russia’s ongoing invasion of Ukraine has left the rest of the world waiting, and unable to move. The U.S. and other countries are currently walking on eggshells because it could lead to a World War, which nations are trying to avoid; so they have taken the most peaceful approach to justice they can manage – financial sanctions.

These sanctions were designed to damage the Russian bank system, decision-makers and power players.

According to further reports, many countries have severed all ties to Russia, such as the U.S., Japan, and even moved to deny access for Russian financial institutions to SWIFT payments.

Many Russian financial institutions have been blocked from accessing their networks by Mastercard (NYSE 🙂 and Visa, both private sector payment giants. As sanctions continue to roll in, it is safe to say that the Russian economy is bearish at the moment, and the “bear” is angry.

What Russia-Ukraine War means for Hybrid Crypto Economy

To get back to the core of the dispute, away from traditional economic and financial structures, the Russian invasion of Ukraine has been a significant moment in cryptofinance’s history.

Many people see the ongoing conflict as the biggest challenge facing the crypto industry. The Ukrainian people have received assistance through cryptocurrency donations while the Russian oligarchs exchange their wealth to cryptocurrency in order to prevent them from being taken away.

Ukraine’s Vice Prime Minister Mykhailo Fedorov appealed to centralized cryptocurrency exchanges in a tweet on February 27th to freeze digital wallets linked to Russian addresses to prevent Russia making financial transactions and payments through alternative means.

Understanding the nature of cryptocurrency exchanges is essential in order to understand the reasons for this ongoing trend. Also, understanding how these could be used as an evasive tool to allow countries, such Russia, to circumvent financial sanctions must be done.

In a booming deFi economy, understanding the role of centralization

Crypto exchanges can be thought of as digital asset banks that allow access to cryptocurrency. There are two types of crypto exchanges: decentralized and centralized. However, centralized exchanges can be very similar to traditional banks. Technically, they work as intermediaries between the buyer and seller – a basic banking setup.

The exchanges are also subject to rules and regulations. However, they can be used for user money custody and are easy to use. They typically require compliance with ‘Know Your Customer (KYC)’ processes, which requires information from users similar to traditional financial institutes. This was the topic that the tweet addressed by the Ukrainian vice-prime minister.

The decentralized exchanges, on the other side, remove the intermediary completely and function as peer to peer (P2P), marketplaces. Smart contracts and atomic trades are used for transactions. The traders will be responsible for the money they have invested and for paying any fees incurred.

Most of the decentralized exchanges that were created between 2020-2021 are already in existence. Sadly, many decentralized exchanges have no “guardrails” for entering the market, making them largely unregulated.

Now take all of this and put it into the perspective of the Russia-Ukraine war and the latter’s vice prime minister’s tweet on the 27th. The task of shutting down accounts and the actions of decentralized users seems almost impossible.

Because exchanges do not have any centralized system to monitor users, it would be difficult for them to directly target the market participants. Federov realized this and further announced that the “Ukrainian crypto community is ready to provide a generous reward for any information about crypto-wallets of Russian and Belarusian politicians and their surroundings,” which could therefore be used in a decentralized manner.

The opposition plans to track down key Russian players and disable their ability to move digital assets.

Hybrid Financial Ecosystems: What Role Does It Play?

Financial sanctions now extend beyond the original financial warground and include crypto currency, which is much beyond central authorities’ reach.

The question of how to control the cryptocurrency economy has become a worldwide issue. But perhaps it isn’t as bad as we think? Well, let’s take a look at the advantages of centralization and decentralization before forming a judgement:

The benefits of centralization

• Centralized exchanges offer greater security and reliability when it comes to trading and transactions. A well-developed central platform facilitates transactions and provides more comfort for consolidated exchanges.
• For beginners, centralized exchanges can be very convenient for trading and investing in cryptocurrency. Centralized exchanges allow users to log in to their accounts and conduct transactions through websites and applications. This is in contrast to using crypto wallets or peer-to-peer transfer, which may be more difficult.
• Closed systems, such as this, force developers to conform to demands from the corporation or central government.

Decentralization has many benefits

• These networks and others are also open-source. Anyone can access them to make apps, goods, or services. Their growth potential is almost endless. Bitcoin has at least a dozen firms, which includes cryptocurrency exchanges that were built on its network.
• Many corporate investors are willing to work with companies that use Bitcoin because it encourages a positive and open culture. Bitcoin and other decentralized projects aim to enhance the user experience.
• Because there’s no central authority to supervise and monitor financial activity, it is impossible for anyone to be able watch over them.
• Bitcoin’s decentralization allows it to be used in any region of the world, because all that is required to join the network is a smartphone or computer with an internet connection.
• In Bitcoin’s decentralized system, each member has democratic power and financial sovereignty.

The Impact

In October 2008, an esoteric white paper, published online under the pseudonym ‘Satoshi Nakamoto’, birthed the idea of a digital currency that could not be controlled by one leader or government, an idea that was widely accepted. This was a Robin Hood-like idea to aid the poor and disenfranchised in their quest for a way out of the highly lucrative, ruthless banking system.

“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party,” an industry expert once said.

It has been nearly 14 years since that white paper was published, and we’re fairly sure that Nakamoto did not intend the two parties to include Russian Oligarchs ready to burn a democratic nation to the ground. Of course, that may seem a little dramatic unless you live in Ukraine, then you realize it’s the reality of the situation.

At the core of the ongoing war – like something out of a SciFi movie, and against all expectations – various cryptocurrencies are playing a major role in times of war, and serving both sides to different ends. They facilitate the humanitarian aid for refugees, and on the other they provide Russian oligarchs (perhaps including Putin) with an escape route from the West’s sanctions.

Many see these sanctions as an alternative to World War III and the possibility of nuclear war with Putin. There is probably nothing that anyone can do, except to allow Putin and the oligarchs to use Bitcoin or other blockchain-based currencies.

“Neither dictators nor human rights activists will encounter any censor on the Bitcoin network,” Matthew Sigel, head of digital assets research at investment manager ‘VanEck’, told Bloomberg in a report.

Reports say that four U.S. Democratic senators signed a letter to Janet Yellen asking for information on digital assets.

“We are seeking information on the steps the Treasury is taking to enforce sanctions compliance by the cryptocurrency industry,” the lawmakers wrote in the letter, further reinforcing what the Ukrainian prime minister said in his Tweet.

At the moment, cryptocurrency exchanges limit access to a few individuals and only a handful of activities. Binance has, however, agreed to target Russian clients sanctioned in the West. However, the exchange stated it wouldn’t freeze accounts of regular Russians as many requested.

Coinbase (NASDAQ:) insisted last week that it would “not impose a blanket ban on all Coinbase transactions using Russian addresses,” but stated that it would limit accounts and activities associated with sanctioned individuals.

Although this caused an uproar in the community, people still wondered why Russian cryptocurrency addresses were not being closed down entirely. But, while this would be against the idea of creating decentralized payment methods, it could also lead to sanctions on specific individuals.

The world is now seeing that the society is transitioning into a new age. We must make decisions about whether or not the established rules need to be changed. For example, Russia could be seen as being good and Ukraine evil. This is the context for DEX vs. CEX.

It is clear that this reality is in all white papers since 2008. We chose to ignore it and have to confront the facts. This is the reality and we don’t know what to do about it.

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