War In The Time Of Crypto

Image: OpIndia

Once upon a time, two cats found a loaf of bread, and they started fighting over who would eat it. 

A monkey was passing by when it overheard conversations and said, “Let me share the bread among you both.” 

 … And at the end, the monkey ate the whole loaf of bread, leaving the cats stunned.

 Moral of the story: Whenever you fight, someone else wins.

Are you familiar with the story of ‘The two cats and the monkey’? The tale might be an allegory for what’s going down inEastern Europe. The two fighting cats are Russia and Ukraine, and the ultimate winner is the monkey – crypto. In the Russia-Ukraine war, crypto is helping both sides and is ultimately winning. 

Let’s begin with Ukraine, which is receiving global support and has raised $42 million in cryptocurrency donations to fund its war effort. Currently, the government allows people to donate using Bitcoin, Ethereum, Dogecoin, and Polkadot. Not only this but Uniswap, the largest decentralized exchange, has entered the war by allowing investors to fund it on its platform.

However, Ukrainian and Russian citizens are playing the other side of the ball – Bitcoin is currently selling at a premium against the Ukrainian Hryvnia because of the suspension of electronic cash transfers and the prohibition on Ukrainian citizens withdrawing foreign currency. And on the enemy front, Russia has also limited withdrawals to foreign currencies as the Russian Ruble fell to a record low against the dollar earlier this week.

While the country is piling up cryptocurrencies, it doesn’t want crypto exchanges to support the Russian Ruble and has requested major exchanges to stop supporting it. However, the crypto exchanges aren’t in the mood to ban Russian account holders. Binance, the largest crypto exchange, has made it clear it will not ban Russians, citing it as ‘unethical behavior.’

“It’s not our decision to make to freeze user accounts. Facebook hasn’t banned Russian users. Google has not blocked off Russia. The U.S. hasn’t done that,” said CEO Changpeng ‘CZ’ Zhao in an interview with Bloomberg. 

 “Also, on an ethical point of view, many Russians don’t support the war, so we should separate the politicians from the normal people.”

Many analysts believe that after receiving hard sanctions from the world, Russia will once again focus on cryptocurrency – which is unregulated. The country is already working on its digital Ruble and could use it to trade with other countries interested in the business. Iran and North Korea, for example, have both used digital currencies to evade international sanctions somewhat.

It’s strange how crypto is playing a large role in defining the shape of Eastern Europe. Otherwise, no one would have imagined it back in 2009 when Bitcoin was born that it would serve both attacker and victim in a war one day.

If you scroll down the list of cryptocurrencies by market cap, you find tokens like Wrapped Bitcoin and Wrapped Ethereum. These are called wrapped tokens, and they were designed to promote interoperability and exchange with other blockchain networks.

How does it do that? Well, while Bitcoin was designed as an alternative to traditional currencies and as a way of exchanging and storing value, Ethereum is a ledger technology that companies are using to create new programs, including DeFi, smart contracts, and NFTs. Both blockchain networks don’t talk to each other because their language is different. In short, you can’t send Bitcoin to Ethereum – there needs to be a way to send your Bitcoin onto the Ethereum network in a way the network can recognize.

So, instead of selling your Bitcoin, you could “wrap it.” The earliest implementation of wrapped assets was Wrapped Bitcoin ($WBTC), which allows people to send their Bitcoin to a custodial address. The protocol holds your Bitcoin from the Bitcoin blockchain and gives you an equal amount of the Ethereum-denominated Wrapped Bitcoin.  For all intents and purposes, it’s backed by Bitcoin and costs the same.

In the years since the launch of Wrapped Bitcoin and Wrapped Ethereum, interchain bridges have become commonplace – interoperability is now a massive staple of both EVM-compatible chains (which borrow from the tech that forms the basis of Ethereum) and other v3 blockchains such as Solana. And though they are not without their occasional shortcomings, the wrapping of assets – and their movement across chains – has never been so consequential. 

Last year, the Securities and Exchange Commission (SEC) sued trading platform BitConnect for the $2.4 billion Ponzi Scheme. However, the financial watchdog doesn’t know how to serve court papers to Founder and CEO Satish Kumbhani – who reportedly disappeared this week.

Kumbhani is the brainchild of BitConnect – an online trading platform that allowed investors to exchange virtual currencies. However, the illegal part was a high-yield investment program. Kumbhani, an Indian citizen, has been accused of misleading investors about BitConnect’s lending operations, which promised investors large returns on their crypto.

There was just one problem: it wasn’t real. None of it was… and now there is an aggressive stack of charges levied against the Indian citizen: wire fraud, operating an unlicensed money transmitting business, and three counts of conspiracy. Authorities are now conducting a search for the 36-year-old, who has reportedly fled India (and presumably will crop up in some country that does not have an extradition treaty with the United States.)

“Since November, the commission has been consulting with that country’s financial regulatory authorities in an attempt to locate Kumbhani’s address. At present, however, Kumbhani’s location remains unknown,” said SEC attorney Richard Primoff in a filing in federal court in Manhattan. 

The BitConnect story began in 2016 during the craze for initial coin offerings (ICOs) when it was one of the most talked-about topics. By mid-2017, BitConnect had raised billions of dollars from global investors. Using its native token BCC, the project promised investors a lending program using its proprietary “trading bot” and “volatility software” to earn a 10% return.

Crypto investors jumped into it, investing their life savings, but reality soon slapped them in the face. The native token BCC, which peaked at $463.30 in 2017 and reached a market cap of $3.4 billion, eventually collapsed. Even Ethereum founder Vitalik Buterin blasted the cryptocurrency operations.

The firm announced that it was closing its lending operation in January 2018, which caused a panic among investors and the token price crashed to a penny. The firm made a cash-back promise of $363.62 per token, but it never materialized.

Kumbhani kept eluding investigators around the world, but no one knew where he was. Meanwhile, Divyesh Darji, his key aide, is facing a lawsuit in India, and other promoters across Australia and the US have been convicted. 

The BitConnect saga is a tale about a time when cryptocurrency existed without any legal boundaries and education. The US authorities are cracking down on crypto scams now, so such frauds are taking a major hit. Recently, a crypto derivatives exchange, BitMex, was recently fined $20 million after its founders pleaded guilty to skirting anti-laundering laws in the United States. Last month, two entrepreneurs were arrested by the DOJ for allegedly trying to launder more than 25,000 bitcoins taken from the 2016 Bitfinex hack. It will be interesting to see if these investigations lead to investors getting their money back.