The Russia-Ukraine conflict is testing the values of cryptocurrency companies

Author: Kyle, Hive Tech

Cryptographic assets have played an important role in the Russia-Ukraine conflict. Recently, Ukraine opened donation channels for cryptocurrencies such as BTC and ETH, raising over $37 million in crypto assets so far. On the other hand, countries like Ukraine are calling on exchanges and other crypto businesses to take sides, urging them to freeze the accounts of Russian users to prevent Russia from using crypto assets to evade sanctions.

Ukrainian Deputy Prime Minister and Minister of Digital Transformation Mykhailo Fedorov recently emphasized on social media that not only should addresses related to Russian and Belarusian politicians be frozen, but also the addresses of ordinary users.

Following this, the local Ukrainian game NFT trading platform DMarket announced the freezing of accounts belonging to Russian and Belarusian users, meaning that the assets of these account holders cannot be withdrawn. After this decision was announced, DMarket became embroiled in controversy, with many even labeling it as "theft," accusing it of violating the spirit of decentralization and harming innocent users.

Exchanges like Coinbase and Binance have taken a relatively neutral stance. Binance stated that it has no plans to unilaterally ban Russian users but will take necessary measures to act against sanctioned individuals. Coinbase and Kraken also expressed similar positions.

Amid the Russia-Ukraine conflict, as crypto assets are playing a role, crypto businesses that claim to advocate for "decentralization" are facing a test of their values.

DMarket Freezes Russian User Accounts, Sparking Controversy

As a new global asset, cryptographic assets are being drawn into the vortex of the Russia-Ukraine conflict. With countries like the United States and France announcing sanctions against Russia, crypto businesses that have traditionally championed decentralization are facing the dilemma of choosing sides.

On February 27, Ukrainian Deputy Prime Minister and Minister of Digital Transformation Mykhailo Fedorov called on social media for crypto exchanges to freeze all Russian user accounts to help Ukraine protect itself from invasion. He emphasized that not only should addresses related to Russian and Belarusian politicians be frozen, but also the addresses of ordinary users.

A few days earlier, Fedorov had announced that Ukraine was accepting donations in crypto assets and published donation addresses for BTC, ETH, and TRC20 format USDT. This Ukrainian government official believes that crypto assets play an important role in this war.

After Fedorov's call, the first to respond was a game NFT trading market called DMarket. The platform announced that, as a startup born in Ukraine, it decided to cut all ties with Russia and Belarus. From that day forward, it prohibited Russian and Belarusian users from registering on the platform; froze the accounts of users from these regions who had previously registered; all assets and skins would remain in the users' accounts, but access to their use is currently restricted; and the platform would no longer support the Russian ruble.

To emphasize its stance, DMarket also posted a slogan on its homepage stating, "Stand with Ukraine, say no to Russian aggression," along with the blockchain address for receiving donations from Ukraine.

DMarket shows support for Ukraine on its official website

DMarket's actions quickly caught Fedorov's attention. He praised DMarket's approach on Twitter, stating that the funds from the frozen accounts could be donated to the war, saying, "That's great."

DMarket's decision and Fedorov's remarks sparked significant controversy. In the comments section on Twitter, some users rebuked Fedorov, saying, "This is disgusting; it's money stolen from innocent users, unrelated to the war, and goes against the overall concept of crypto and Web3." Another user criticized DMarket, stating, "I don't think you understand crypto assets. Are you proud of being centralized? Stealing money from innocent people is simply wrong."

DMarket's unilateral freezing of assets belonging to Russian and Belarusian users also led many observers to question the decentralized nature of the crypto space, with some stating, "The slogan of decentralization becomes laughable in the face of war." In reality, while DMarket claims to use blockchain technology as a game item trading platform, it does not operate like OpenSea, where all NFTs are held by users. DMarket has a centralized identity verification system, and users must register and log in to purchase in-game items and NFTs like those from "Counter-Strike," with items stored in their accounts.

From this perspective, DMarket is not a truly decentralized application. Following this incident, DMarket faced criticism from many in the crypto community, but some argued that as a Ukrainian startup, its decision to resist Russian users is understandable.

Exchanges like Binance Refuse to Freeze Ordinary User Accounts

Amid the Russia-Ukraine conflict, different countries hold varying positions, which also influence the decisions of crypto businesses.

On February 24, U.S. President Biden announced that the U.S. and its allies would impose sanctions on five major Russian banks and several Russian oligarchs, seeking various ways to financially deter the Russian government. Subsequently, the European Commission stated that it planned to remove the sanctioned banks from the SWIFT cross-border payment network.

As crypto assets began to play a role in the Russia-Ukraine conflict, the initiators of the sanctions also began to escalate their actions.

On March 1, the U.S. Department of the Treasury released new regulations prohibiting Americans from providing any support to Russian oligarchs and entities, including trading using digital currencies or assets. Additionally, the U.S. Treasury required major crypto exchanges like Binance, FTX, and Coinbase to block sanctioned individuals and addresses.

After Fedorov's call for crypto exchanges to freeze Russian user accounts, the Ukrainian Ministry of Digital Transformation also sent formal letters to eight trading platforms, including Coinbase, Binance, Huobi, KuCoin, Bybit, Gate.io, Whitebit, and the Ukrainian exchange Kuna, requesting them to stop providing services to Russian users due to "concerns that crypto assets could be used to evade sanctions."

A representative from the Ukrainian Ministry of Digital Transformation told the media that these letters requested exchanges to stop supporting the Russian ruble, ruble spot trading pairs, and fiat gateways, including Russian payment systems. The ministry also requested exchanges to ban all Russian customers.

The aforementioned crypto exchanges are not decentralized applications built on blockchain; as centralized entities, they can indeed freeze accounts without user consent, making their decisions a point of significant attention.

Subsequently, crypto exchange Binance stated that it has no plans to unilaterally ban Russian users from its platform. "However, we are taking necessary measures to ensure that we act against those who are sanctioned while minimizing the impact on innocent users. If the international community further expands these sanctions, we will actively implement them."

Kraken's CEO Jesse Powell also publicly stated that the exchange cannot freeze Russian customers' accounts without legal requirements.

Coinbase, in a statement, said it would not impose any blanket ban on transactions involving Russian addresses but would restrict accounts that may involve sanctioned individuals or entities. Coinbase stated that its mission is to increase economic freedom, and a unilateral blanket ban would harm ordinary Russian citizens.

The statements from these exchanges are generally similar, indicating that they will take action against specific sanctioned users but will not ban ordinary Russian users to avoid harming the innocent. Notably, Binance has stated that it is making donations through its internal charity system to help with the humanitarian crisis in Ukraine.

Compared to DMarket's comprehensive ban on Russian and Belarusian users, the current decisions of exchanges like Binance and Coinbase are more accepted by the public. Some in the crypto space believe that the purpose of the crypto economy is decentralization and openness, not privilege and autocracy, and that even in the current special circumstances, crypto entities should adhere to this principle as much as possible, stating, "All crypto businesses have a responsibility to defend people's economic freedom, rather than becoming a weapon to pressure innocent civilians."