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There are moments that change the world, that create seismic shifts in what feels like an instant. The ongoing cycles of COVID pandemic and the fallout of the Russian war in Ukraine have changed the world. These shifts are felt daily in the world of trade, where we’re seeing new widespread adoption of digital solutions to overcome volatility; shortages and lockdown impacts fueling inflation; currency flux; and of course stress on global supply chains. As a result, both government and private organizations around the world are turning to crypto and enterprise ecosystem solutions, powered by blockchain.
Background: digitization of trade under COVID
The onset of COVID increased the urgency of the digitization of trade, and the war in Ukraine ratcheted it up further still. We have learned that digitization alone is not going to prevent goods from being stuck in customs and on vessels for extended periods of time due to problems in processing paperwork. In many cases over the last years, goods could still not be offloaded because the paperwork workflow in those emerging digitized processes still needed to be reconciled between parties in a “manual” manner. While the paperwork had been digitally scanned, it still had to be “signed and stamped” to pass to the next stage of the workflow.
Trade through public ledgers and smart contracts can lower the costs of transacting by its optimum, as the reconciliation step across the trade ecosystem is automated. This capability and agility is critical now given the war in Ukraine. An International Chambers of Commerce report highlighted that with full digitization, global trade could increase by $9 trillion within 5 years, and that trade would grow by 46%. Such reductions in operational costs could drive positive GDP growth and provide small and medium-sized enterprises (SMEs) access to capital and thereby reduce the $1.5 trillion trade finance gap. This access to funding will be critical as part of the rebuilding work in eastern Europe after the war.
Business outcomes powered by blockchain are not limited to the enterprise. The effect of cryptocurrency acceleration in Russia and Ukraine is notable and reflects the differences between the two countries’ regulatory environments before the invasion.
In Ukraine, whose regulatory environment has sped up acceptance and promotion of digital currency adoption, the government has raised significant funds through NFTs and other cryptocurrency efforts.
In Russia, which lacked this regulatory promotion, there has been limited use of cryptocurrency to transfer funds in or out of the country. In fact, the dependency on the ruble is becoming severe, as international sanctions against Russia now limit the exchange of currencies.
The war shows five wartime advantages for countries that promote cryptocurrency through regulation — advantages that accrue to both a government and its citizens.
Cryptocurrency can improve access to capital during wartime
The war in Ukraine caused a spike in cash withdrawals from banks as Ukrainians prepared for uncertain times. To prevent capital flight, the government of Ukraine recently banned its citizens from buying crypto with local currency.
Meanwhile, as the ruble collapsed, Russian citizens looked to cryptocurrencies as a store of value because they were not correlated, or indeed connected, to the local instability. These citizens can only make limited use of digital currencies for everyday purchases. But this wealth vehicle can provide citizens with a decentralized, censor-resistant safe harbor of their capital. During the conflict, crypto has become an increasingly popular method of transaction, as it is viewed as a secure alternative method to access finances.
Cryptocurrency can ease inflationary pressure
In wartime situations where traditional currencies tend to fluctuate, the use of global cryptocurrencies could reduce volatility in price and currency supply. The Russian invasion of Ukraine has sent markets scrambling for alternative sources of oil, wheat, and sunflower outputs. To combat inflationary pressures, both consumers and SMEs can hedge against devaluing currencies by considering cryptocurrencies as value shelters.
Blockchain improves transparency and makes fundraising more public
Ukraine, now a digital assets and cryptocurrency leader in Eastern Europe (with significant adoption even prior to the invasion), has raised significant funds over recent months by accepting donations through crypto exchanges to help finance its Department of Defense.
The Museum of War NFT helps supporters donate directly to the Ukrainian government without an intermediary organization, increasing donations by ensuring the transactions are public and secure. The data is recorded in a decentralized blockchain network, making the data difficult to tamper with. The system is available to everyone simultaneously, contributing to agility and transaction transparency.
Blockchain can help Ukraine rebuild by improving access to capital
While traditional legacy banking systems require three days to complete a cross-border transaction, blockchain networks allow for transactions to be settled in several minutes. In late March, Ukrainian lawmakers requested that Ukraine be accepted into the European Blockchain Partnership (EBP) to support the reconstruction of Ukraine. Joining the international organization would achieve the goal of streamlining access to cross-border electronic services.
Looking to the future of digital trade
Multinational companies should continue to expand their consideration to connect their ecosystems with the trusted sharing of data across common workflows. For example, powering digital identity, supply chain provenance and digital asset workflows with blockchain will create capabilities to not only capitalize on new market model capabilities, but also to foster the needed agility for uncertain times. What we’re seeing in 2022 is still just the beginning, as evaluation and acceptance grows for cryptocurrency and the blockchain.