Russia’s economic woes have taken a toll on its residents, as evidenced by the recent increase in poverty, political conflicts and a large number of citizens leaving for other countries. And now, Russia’s latest move to regulate cryptocurrency is having an impact on remittance payments from abroad.
Several crypto-focused and crypto-friendly FinTechs have followed Wise’s lead by limiting remittances to Russia, which is testing the core principle of neutrality that bitcoin introduced to the industry.
As well as FinTechs Wise and Zepz (formerly WorldRemit), two companies with strong ties to crypto payments have cut off citizens of Russia and its allies – TransferGo, a Ripple partner, and Remitly, a Coinbase partner.
There’s certainly a moral component to the decision. Many Russian banks have been cut off from SWIFT because of sanctions.
The February 28 tweet from WorldRemit made that clear, noting that it had ended all money transfers to Armenia, Belarus, Georgia, Kyrgyzstan, Moldova, Russia, and Tajikistan. As a result of the invasion of Ukraine, Russia and Belarus are under strong sanctions, but the rest of the world is supporting Russia or declining to participate in sanctions.
While Wise – formerly TransferWise – has capped transfers to Ukraine at $2,500, the company stated on its blog that the move is a result of operational challenges on the ground. The company waived fees on a $667,000 transfer to Ukraine for a day, saying it was done “to help customers who may have emergency needs.”
Why Bitcoin Makes Sense as a Digital Currency
Bitcoin’s pseudonymous creator, Satoshi Nakamoto, developed bitcoin as a payments technology independent of traditional banking and finance systems as well as independent of the political control over finance fiat currencies provide national governments.
The government’s and politicians’ reaction to Meta’s Libra/Diem stablecoin initiative can be explained in many ways: the social media giant cut off the feet of the political powers by creating an international currency usable by billions of its users.
Top cryptocurrency exchanges including publicly traded Coinbase and Binance, the biggest exchange in the world, have refused to cut off all Russian accounts – as the Ukrainian government publicly requested.
The pseudonymous nature of Bitcoin and other cryptocurrencies makes it very difficult to effectively block sanctioned individuals. While not punishing non-sanctioned Russian citizens probably plays a role in those decisions as well,
Moreover, the crypto industry has been organizing fundraisers and donating to Ukraine in droves, especially since the government has issued an appeal and created wallets for bitcoin, ether, and solana — this was likely the case after the creation of such an account was prompted by a $5.8 million donation by the organization’s founder.
Ukraine has been selling NFTs and has promised donors an “airdrop” that rewards early adopters with free tokens as they progress – although it did not specify what cryptocurrency or NFTs would be sent.
Bitcoin, XRP and the Crypto Winter of 2022
Using RippleNet, TransferGo processes near-real-time payments using the XRP cryptocurrency token (also incorrectly referred to as ripple) that was developed by international payments firm Ripple. RippleNet has more than 300 banks worldwide that use the XRP cryptocurrency token (often inaccurately referred to as ripple). The company claims its transactions are finalized in a few seconds to a few minutes, and at a low cost – much faster than SWIFT.
Remitly announced the launch of a pilot program in Mexico only on Feb. 15, so the potential impact of cryptocurrency transactions in Ukraine and Russia is theoretical. With this partnership, Coinbase customers can now send one another crypto using fiat.
However, the firm’s tie-up with a leading crypto exchange reveals a shortcoming with the use of crypto as a payment tool during times of crisis: the utility of cryptocurrency is limited in places where the traditional financial system is disintegrating until it is widely accepted as a payment rail by merchants at the point of sale.
When bitcoins aren’t widely accepted as a peer-to-peer crisis currency, they’re of little use. Particularly if they must go through the traditional finance system – such as a Visa or MasterCard debit card – or the up-and-coming FinTechs that will eventually replace these institutions.
As hyperinflation wreaks havoc in the sanctions-hit and hyperinflation-ridden Venezuela, such signs are growing:Venezuela is now the first country where crypto payments are accepted not only by local merchants but also at mainstream locations as diverse as Pizza Hut franchises and the national airport. Venezuelans turned to Bitcoin in large numbers as early as 2016.
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