Surviving Crypto When Money Fails

This story is part War in UkraineCNET’s coverage of events there and the wider effects on the world.

Artyom Fedosov was confused when his taxi driver announced that his credit card had been declined. Fortunately, the 27-year-old Ukrainian photographer had a backup card. But when he offered it, that one strangely didn’t work out either. In a last ditch effort, Fedosov went to an ATM to try and withdraw money from his debit account. The machine also rejected it.

“That’s how I found out,” Fedosov told me in a recent interview via Zoom, “I had lost access to my savings.”

This “terrifying” moment happened in late February, days after Russia invaded Ukraine. Fedosov was not in his hometown of kyiv, but rather in Kazakhstan. It was supposed to be a week-long stay at the end of a photographic trip to the Middle East, but the invasion of Russia prevented Fedosov from returning home.

Since his ill-fated taxi ride, Fedosov has been living off cryptocurrency. He found a bitcoin ATM in Kazakhstan, which allowed him to exchange shards of the cryptocurrency for Kazakh tenge. He has since opened a bank account in Kazakhstan, funded exclusively by the sale of cryptocurrency, and moved to Germany. To bolster his funds, Fedosov is also selling photographs as NFTs — people buy them in ether, which he converts to cash — and he expects that will fund a few more months of spending.

Fedosov is one of approximately 5.5 million Ukrainians who own cryptocurrency. Its ability to live off bitcoin and ether is music to the ears of cryptocurrency proponents. They point out that situations like Fedosov’s, when the financial system stutters or fails, are the precise reason bitcoin was created. Use a cryptocurrency wallet – instead of going through one intermediate exchange like Binance – Holders can access their cryptocurrency with nothing more than an internet connection and a 12-word seed phrase.

Millions of Ukrainians and Russians lost full access to their money in the days following the invasion. Hoping to gain access to ATMs, queues of people snaked through city blocks in both countries. Banks quickly imposed restrictions on cash withdrawals. This was particularly acute in eastern Ukraine, where much of the fighting is taking place. The central bank in Donetsk, a region of 2 million people that has declared itself autonomous from Ukraine, has limited citizen withdrawals to just $130 a day. There are anecdotal reports of people in the East being completely unable to withdraw their savings or access their credit.

“It was crazy,” Fedosov said. “In the beginning, the rules changed several times a day.”

Fortunately, the banks’ worst fears have so far not been realized. Most Ukrainians, including those abroad like Fedosov, have regained at least limited access to their funds. However, the situation is still difficult. The central banks of Russia and Ukraine have imposed restrictions on foreign currency withdrawals. The largest commercial bank in Ukraine, PrivatBank, posted a plea on Twitter, asking for armored trucks with which to transport money to ATMs. In the days after the outbreak of war, Russians fearing what the sanctions would do to the ruble chose to invest money in bitcoin. (The ruble has fallen about 30% against the dollar since the invasion.)

“Bitcoin is sort of the perfect war asset, unfortunately,” said Swan Bitcoin analyst Sam Callahan. “You have wealth stored in your head with 12 words, it’s very different even from gold or art, hanging in banks or in vaults. People can cross the border with nothing that can be confiscated, and with 12 words in their head have their wealth.”

Callahan’s statement would be controversial in mainstream financial circles. Critics say cryptocurrencies are too volatile to act as hedges against inflation, let alone the collapse of a monetary system. But after two years of dizzying price movements, it’s a reminder that bitcoin and other cryptocurrencies were designed to be more than speculative assets.

Already, cryptocurrency has played an outsized role in the war. The Ukrainian government succeeded in raising over $60 million for the resistance effort simply by posting its Bitcoin and Ether wallet addresses on Twitter. Millions more were collected for local charities and NGOs. However, not all crypto prospects are positive. Some fear that Russian oligarchs are using cryptocurrency to evade historic sanctions the West has imposed on Russia. Just as global charities are likely to emulate Ukraine’s crypto fundraising, Fedosov fears that repressive regimes in Iran and Syria will follow Russia’s lead if the country can evade Western sanctions using bitcoin and ether.

Callahan says it’s unlikely. The combined market capitalization of bitcoin and ether is around one trillion, too little for a country as large as Russia to significantly circumvent sanctions. Some oligarchs may be able to move funds, though Callahan says it would be difficult to convert large amounts of money from cryptocurrency to fiat without alerting blockchain analytics firms. Still, he admits that bitcoin can be used by those with nefarious intent.

“It’s an open-source network, it’s going to be used by enemies, it’s going to be used by friends,” he said. “It will be used by drug dealers, but it will also be used for charity. A knife can be used by a surgeon, it can also be used by a murderer.”

Fedosov’s story is coincidental. He has about $5,000 in ether, he says, because just three months before the invasion, he decided to convert money into ether in order to start trading NFTs – non-fungible tokens, which are registered on a blockchain. He only has bitcoin because in 2017 Fedosov worked for a Dutch company and said it was easier and faster to get paid his salary in bitcoin. In the years since his job change, the remaining fraction of a bitcoin in his wallet has grown from a few hundred to a few thousand dollars.

At the time, Fedosov thought bitcoin was a new alternative to traditional money. Now he thinks it can be just as reliable – and is grateful he didn’t spend his last bit of bitcoin all those years ago. When asked how he got the crypto to fall back on, he simply replied, “It’s pure luck, actually.”