Anarchic Capitalism

As for Bitcoin, it is usually associated with a right-wing anti-statist brand of libertarianism — which might make it seem odd to support one government by donating cryptocurrencies that are purposefully designed to subvert governments in general. But the ideological underpinnings of crypto become clearer with recent refusals by major exchanges to freeze Russian accounts. Cayman Islands–based exchange Binance has justified its stance, stating, “Crypto is meant to provide greater financial freedom for people across the globe. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.” US exchanges like Coinbase and Kraken have stated they wouldn’t comply with Ukrainian requests to cut Russians off from their crypto wallets unless they were legally compelled to do so by the US government.

Examples from around the world suggest that donating crypto to governments can have unexpected consequences. Your everyday crypto enthusiast is rarely an expert in international relations or humanitarian aid. But with crypto giving, donors can bypass the experts while enabling despotic regimes that they don’t understand, just because they’ve joined the crypto bandwagon. History shows crypto enthusiasts tend to support corrupt TikTok despots of any ideological persuasion, so long as it suits the agenda of “number go up,” helping to fund ISIS operations and the Taliban in Afghanistan as well as tyrannical presidents like Nayib Bukele in El Salvador, Abiy Ahmed of Ethiopia, and Kassym-Jomart Tokayev of Kazakhstan. Putin’s wingman, Alexander Lukashenko of Belarus has also been calling on his countrymen to mine Bitcoin for economic development and “human rights,” notwithstanding his own full-scale assault against civil liberties. Critics of cryptocurrency face arbitrary arrest in El Salvador while programmable money systems are imposed without debate across Africa.

Ukraine has suffered endemic corruption for some time — and shady characters no doubt want it to stay that way, keeping crypto regulations vague and taxes optional. This is also why Bitcoin miners and cult followers of crypto flock to ex-Soviet borderlands and geopolitical gray zones in general. But it’s locals who are paying for these miners’ profits. In the disputed territories of Transnistria and Abkhazia, on the borders of Moldova and Georgia, respectively, a steady influx of Bitcoin miners has brought energy shortages and, in turn, rolling blackouts. Overloaded electricity lines and power station fires leave some areas without power for days. Bitcoin also plays into existing fossil fuel crises, exacerbating political instability. At least 164 people were killed following protests stirred by the energy crisis in Kazakhstan, where 20 percent of energy produced locally, mainly with coal, is used to mine Bitcoin.

The centralization of Bitcoin mining in Eastern Europe highlights spaces of corruption and poor energy policy. But Hartej Sawhney, founder of Ukrainian crypto firm Zokyo, puts it like this: “I like that it’s corrupt here, we get to play the game that only elites in the US play. I don’t need a lobbyist. [If] I need to pay someone at the border, I can. If I need to pay politicians, I can.”

Jackson Palmer, cocreator of top-ten cryptocurrency Dogecoin, explains things differently:

After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.

David Golumbia, in his book The Politics of Bitcoin, shows us how cryptocurrencies have helped antisemitic conspiracy theories go mainstream.

This is a big deal in Ukraine, where the main beneficiary of recent crypto-giving appeals — the military — has an unfortunate neo-Nazi problem, and where far-right groups have increased their political clout lately. The leader of Ukraine’s far-right political party, Svoboda, claims Ukraine is controlled by a “Muscovite-Jewish mafia,” and one of his MPs called the Holocaust a “bright period” in human history.

Putin cites “de-nazification” as his twisted pretext for invasion — weaponizing claims about unsavory elements in Ukraine’s political system for his own ends. But increased funding to neo-Nazi groups clearly could swell their ranks. In particular, Bitcoin has captured the attention of the Azov battalion, a militia founded by an avowed white supremacist who claimed Ukraine’s national purpose was to rid the country of Jews and other inferior races. Azov is now an official arm of the Ukraine National Guard. US Congress stipulated that aid to Ukraine couldn’t be used “to provide arms, training or other assistance to the Azov Battalion.” Bitcoin fixes this — allowing the group to launch a crypto-based crowdfunding drive.

Evading Sanctions

Despite disingenuous claims from crypto industry insiders that Bitcoin cannot be used to evade the suite of sanctions imposed on Russian elites, evidence shows otherwise. Unlike bank accounts, which always need lots of ID checks to make sure there’s no monkey business, users can create a new unique crypto-wallet address for each payment. Peer-to-peer transactions do not require any intermediaries, and there’s no “know your client” (KYC) or “anti-money-laundering” (AML) checks. Websites offering Bitcoin mixer services charge small fees to wash any dodgy tokens from addresses likely to be tracked by authorities. Privacy-preserving cryptocurrencies, such as Dash, Monero, and Zcash, are designed for secrecy and slipping past sanctions. They allow users to remain completely anonymous without needing a trusted intermediary to facilitate transactions. Even if all those holes were plugged (they can’t be), if you’re on Joe Biden’s naughty list, you could simply pay the Pacific island government of Palau $248 for one of their new NFT passports. Then hey presto, Mr Oligarch: you’re a Palauan.

Crypto exchange Coinbase recently blocked some Russian wallet addresses believed to be linked to illicit activities. Binance, the world’s biggest crypto exchange, has identified and blocked at least one wallet linked to a sanctioned person. To dodge these blockades, some Russians have used crypto to purchase Ukrainian IDs, allowing them to access US exchanges like Coinbase and Kraken. This could be made even easier with the introduction of Ukraine’s new e-ID phone app. Ilya Lichtenstein and Heather Morgan both acquired Ukrainian IDs while attempting to launder $5 billion worth of stolen Bitcoin from the 2016 hack of cryptocurrency exchange Bitfinex.

For crypto holders on either side of the conflict, sanctions and capital-flight controls are a godsend. Where normal payment rails are cut, crypto goes to the moon. The Bitcoin price has jumped significantly in Ukraine and Russia as demand continues to soar. People are willing to pay a premium on crypto to evade sanctions and capital flight controls.

Similarly, in 2010, all traditional payment rails blockaded whistleblower website WikiLeaks from receiving cash transfers. With Bitcoin as its only fundraising option, prices rocketed. In 2020, following requests from payment processors, the adult website PornHub initially refused to delist child-rape videos, revenge pornography, and other nonconsensual footage, including women being asphyxiated in plastic bags. PornHub instead accepted cryptocurrencies for premium subscriptions, significantly raising demand for cryptocurrencies on the exchanges.

Amid fears of moves to bypass the sanctions on Russia, the crypto-savvy jurisdiction of Estonia has called for tighter restrictions on crypto. Japan has also tried to close Bitcoin loopholes. On the week of Russia’s initial invasion, the European Union debated the option of placing a complete ban on many cryptocurrencies on climate-change and money-laundering grounds, and to control spiraling ransomware attacks. A tough stance, perhaps, when Ukraine’s besieged government is begging for financial support online, sharing addresses for Bitcoin and Ethereum wallets on the country’s official Twitter account, as well as on the profile of deputy prime minister Mykhailo Fedorov.

Putin has a black belt in nonlinear warfare. He is no doubt using this whole mess as cover for other insidious plans. His digital isolation is pushing him singing and dancing toward alternative payment rails and decreased reliance on the US-dominated economic system. His recent Instagram ban hints he may be following China’s lead. Like China’s government, his may fast-track a central bank digital currency, which, unlike regular cash, can be coded with conditions to severely limit the financial freedoms of ordinary Russians — a crypto-ruble. With this crypto-surveillance money, Putin allies can track and make sure citizens are buying only the “correct” things.

In times of war, stocks in weapons companies have always been a safe investment. The war in Ukraine shows that Bitcoiners are now laughing, too. Like other disaster capitalists, die-hard crypto proponents will never be incentivized toward peace. As disciples of the Sovereign Individual, crypto bros are turning a humanitarian nightmare into a dream opportunity for themselves — and even protracting the conflict.

As supporters of real political and economic freedoms, we should avoid the lure of crypto. While crypto capitalists make the necessary preparations to shelter themselves and benefit from the bloodshed, we should remember the words of Charles Wright Mills. “The immediate cause of World War III,” he says, “is the preparation for it.”