A major discussion has been sparked by calls to ban Russian users from exchanges thanks to Vice Prime Minister of Ukraine Mykhalio Federov.
- Crypto in the Spotlight of Tragedy
- Mykhalio Federov
- The Persistent Problem with Exchanges
Crypto in the Spotlight of Tragedy
In a surprising turn of events, crypto has found itself playing an important role in the Ukrainian conflict. As we covered today, Ukraine has received more than 10 million dollars in crypto donations at press time. The beauty of this is, with crypto, Ukrainian officials don’t have to fuss with banks, wires, settlement periods or intermediaries to get their money. They can simply post the wallet address on Twitter, and voila.
Another quite interesting wrinkle has been added to crypto’s involvement in this situation. Today, the Vice Prime Minister of Ukraine Mykhalio Federov tweeted out a request for crypto exchanges to ban Russian users. Federov has been somewhat of the canary in the coal mine for Ukraine, engaging with Elon Musk to get Starlink internet access for Ukraine, and putting pressure on Mark Zuckerberg to ban Facebook and Instagram for Russians.
I'm asking all major crypto exchanges to block addresses of Russian users.
It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.
— Mykhailo Fedorov (@FedorovMykhailo) February 27, 2022
The pleas from Federov may seem like a bridge too far, where Russian people are paying the consequences for the actions of their government, but Ukraine is in a desperate situation, and the pressure campaign is an asymmetrical advantage to Ukraine’s clear disadvantage on the battlefield. However, some are still not pleased with such measures, as they are arguably contrary to the core crypto tenets of immutability and neutrality.
Exchanges trying to blacklist ordinary Russians is as cruel as exchanges trying to blacklist ordinary Cubans or Palestinians.
Immoral, as they didn’t get to democratically elect their tyrannical leaders.
Thankfully, because Bitcoin can be used without ID, it can’t fully work.
— Alex Gladstein ⚡ (@gladstein) February 27, 2022
The Persistent Problem of Exchanges
“…whether you agree with Federov or not, this flaw existed before his tweet.”
However, centralized exchanges never participated in the immutability or neutrality of crypto. They are the on-ramps and checkpoints where you have to hand over your ID to get across to the other side. So in that way, Federov’s calls for a ban is nothing too out of the ordinary, because centralized exchanges can ban whomever they want anyways. In fact, Tether can and does blacklist addresses and wallets, so does Circle and USDC.
There are no native on and off-ramps to get back into cash or deposit cash. So the only way around this is basically a circular economy where users never get out of crypto and custody it off of centralized exchanges. Otherwise, the centralized exchange problem will always be a thorn for crypto, whether you agree with Federov or not, this flaw existed before his tweet.
So blocking, for example, Ilya from Moscow, 21y old IT student who uses crypto to bypass the RU regime control and authority will somehow help Ukraine? Honest question, if you care to explain it to me.
— Nikola (@Nikola93630292) February 27, 2022
As the above tweet indicates, people in Russia are actually using crypto to escape the pitfalls of their own government, so this type of action by exchanges could potentially bolster the power of the Kremlin. Unfortunately, this development has turned a wholesome and unified response, in the form of millions of dollars of bitcoin, USDT, and ethereum donated into a situation causing bitter responses on both sides.
The call to withdraw crypto from exchanges is of course being widely shared, as it usually is, but then again as mentioned above, it makes cashing in and out unrealistic and would only would in a circular economy where crypto is used peer-to-peer. When you think about it though, wasn’t that the whole intent of Satoshi’s white-paper? Maybe this is a lesson for all that adoption means regulation and regulation means centralization.
As Thomas Sowell brilliantly stated: “There are no solutions, only trade-offs.”
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