One of the use cases of crypto and other blockchain-based forms of money has become especially evident in the war between Russia and Ukraine.
Cryptocurrency activity has been observed to have erupted in both countries, as their citizens run towards crypto to escape the resulting fiat fluctuation.
Increasing sanctions and inflation plague these countries as the war rages on. According to Chainalysis, a blockchain forensics firm, Eastern Europe has managed to keep its role in the global crypto ecosystem.
The physical destruction that comes with war isn't the only thing the citizens of both countries have to deal with.
Over the last few months, the ensuing conflict has escalated, bringing the issue of inflation and scarcity along with it. Naturally, the citizens' interest and involvement in cryptocurrencies spiked in response, as pointed out by Chainalysis.
In an excerpt from the firm's upcoming "2022 Geography Of Cryptocurrency Report", it is noted that both countries are feeling the effects of the war via inflation and scarcity and are turning to cryptocurrencies as a result.
The war between Russia and Ukraine started in February this year. Since then, there has been an observed spike in the monthly number of cryptocurrency transfers.
Ever since July this year, transaction-volume trends have started to diversify. Crypto-related transactions from Russia started to waver in a relatively straight line, obviously restricted from going further upwards by the countless sanctions the European Union imposed on Russia for invading Ukraine.
However, Ukraine faced no such sanctions from the European Union, resulting in a spike as the number of Ukrainian transactions soared from June and is still at an all-time high.
As illustrated by the chart above, the two lines above all the others (orange and purple) represent Ukraine (orange) and Russia (purple).
Following the start of the war (around March), the trade volume of crypto transactions dominated by the Ukrainian hryvnia soared to more than twice its original value. It hit a figure of $307 million.
In contrast, the trade volume of crypto transactions dominated by the Russian ruble rose by 35% and hit a high of $805 million.
To reduce the effects of inflation from the war, the Ukrainian government imposed restrictions on transfers abroad and the purchase of the US dollar or Euro. As a result, the Ukrainians may have used cryptocurrencies to avoid these restrictions.
According to Tatiana Dmytrenko, an official at Ukraine's Ministry of Finance, and member of the World Economic Forum's digital assets taskforce, the trading volume on cryptocurrencies spiked after these restrictions were relaxed in July.
Something similar must have happened with Russia as well.
Indeed, cryptocurrencies do not have enough liquidity to be beneficial when escaping sanctions. However, cryptocurrencies are better than fiat in this regard. The Russian government may employ them to avoid the effects of its banks being cut off from SWIFT (the global payment messaging system).
In all, Eastern Europe remains the fifth largest cryptocurrency market. From July 2021 to July 2022, about $630.9 billion in crypto value was received. According to Chainalysis, despite the war, Eastern Europe's comparative role in the worldwide crypto ecosystem has remained consistent over the past few years compared to other regions that have seen more volatility.