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To investors,
Russia’s invasion of Ukraine has led to a flurry of financial sanctions from the United States and their allies over the last week. These actions include cutting Russian banks off from SWIFT, seizing the assets of various Russian oligarchs, outlawing US citizens and companies from transacting with Russia’s central bank, and much more.
Sanctions are levied during times of conflict to apply pressure to the leadership of our adversaries, but they accomplish this goal by actually cutting the average citizen off from the global financial system. Nearly 150 million Russian citizens have watched their savings evaporate as the ruble is in a free fall, their stocks are inaccessible since the stock market was shut down due to high volatility, and they can not withdraw or spend majority of their money due to sanctions and self-imposed limits by the banks.
It should go without saying, but there is an incredible amount of inhumanity that goes into the decision to cut off the average citizen from the global financial system. What was their crime? Being born in the wrong city? This is obviously a complex issue and there is a strong argument for why sanctions are being pursued, but it is essential that we remember that financial censorship hurts the individuals who have no say, and usually no desire, to engage in this violent conflict.
So why am I writing about this?
There was an interesting development in the last 48 hours that highlights one of the key differences between the legacy financial system and the new, digital financial system. Vice Prime Minister of Ukraine, Mykhailo Fedorov, asked major crypto exchanges on Sunday to block all Russian users from using their platforms, regardless of whether they were accused of participating in any crimes or not. This request was followed up on Monday with a similar request from the White House’s National Security Council and the Treasury Department to major crypto exchanges.
As of this writing, all major crypto exchanges have stated that they will not cut off the average Russian citizen from using their products to buy, sell, or store bitcoin and various other cryptocurrencies. The largest crypto exchange in the world, Binance, stated that they are “not going to unilaterally freeze millions of innocent users’ accounts.” The company spokesperson explained to CNBC that “Crypto is meant to provide greater financial freedom for people across the globe. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists.”
Kraken CEO Jesse Powell publicly stated that his platform “cannot freeze the accounts of our Russian clients without a legal requirement to do so.” He continued with this explanation:
“Our mission at [Kraken] is to bridge individual humans out of the legacy financial system and bring them into the world of crypto, where arbitrary lines on maps no longer matter, where they don’t have to worry about being caught in broad, indiscriminate wealth confiscation. Our mission is better served by focusing on individual needs above those of any government or political faction…Besides, if we were going to voluntarily freeze financial accounts of residents of countries unjustly attacking and provoking violence around the world, Step 1 would be to freeze all U.S. accounts. As a practical matter, that’s not really a viable business option for us.”
This situation continues to evolve, but as of right now it is quite telling that the crypto companies are refusing to shut off access to the digital financial system at the same time that the legacy financial system is kicking innocent citizens out. There is a belief in the legacy world that financial freedom should only be afforded to those that act a certain way, subscribe to a certain worldview, and support those that monopolize the system.
It is clear that the true test of free speech is to defend the speech of those you disagree with. In that vein, the true test of financial freedom is to defend the right to transact for the citizens that live in a country you disagree with. In some way, the countries that are levying sanctions right now are destroying the lives of almost 150 million innocent people, which is equivalent to just under 50% of the US population.
There are reasons why these countries are doing this, but we wouldn’t wage violent war on innocent civilians so why are we okay with waging economic war on them? The idea of waging economic war against innocent civilians has been normalized over the last two decades, but that doesn’t make it right. Regardless of how unpopular an opinion it is, we must continue to have the courage to call out the intentional inflection of pain on those Russian citizens who are also against the invasion of Ukraine.
Ultimately, we are watching the divergence of two financial systems. The legacy infrastructure is built and run by a group of financial firms who are susceptible to the whims of their governments. The new infrastructure is built on open-source software that is run by no single individual or organization. The decentralized nature leads to a different outcome in these situations.
The bitcoin and crypto industry has long promoted the idea of financial freedom and inclusion. For example, Bitcoin is now the only global payment system that won’t discriminate against anyone, regardless of their race, nationality, religion, politics, or actions. We are seeing these theories get put to the test in real-time over the last week or so. So far, so good.
We must continue to focus on our principles, resist the urge to pursue the easy path, and remind ourselves that hundreds of millions of people around the world are relying on this new digital infrastructure to have any semblance of a normal life. Hope each of you has a great day. Talk to you tomorrow.
-Pomp
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