Experts doubt that bitcoin can be relied on at this point in time during a crisis. More so, because it is still under development and has not reached the “gold standard” required to become reliable.

The ongoing war between Russia and Ukraine has put bitcoin and crypto in general in the spotlight as a means of transaction during a crisis. Crypto has also made headlines for aiding transactions amid sanctions and the falling fiat currency price in Russia and for helping Ukrainians receive AIDS.

While bitcoin appears to have gained a new use case as a “war currency” for donations, transactions, etc., there are at least two major questions that cast doubt on its usefulness during a war-like crisis:

Can you rely on bitcoin as a store of value for use during a crisis? Can Bitcoin Survive Economic Sanctions and Bans?

Bitcoin has not yet become a means of transaction. It cannot be used to buy other goods everywhere. Even as a store of value, its reliability is uncertain due to volatility and is being tested amid the ongoing geopolitical crisis, experts say.

According to Rohas Nagpal, Chief Blockchain Architect at the HyFi Blockchain, crypto can be useful for receiving and exchanging money into local currencies, but there can be a problem if it is used as a store of value.

“If you rely on crypto as a medium of exchange, then the current low rates don’t matter because anyone who receives crypto would immediately convert it into the local currency. However, if you use it as a store of value, then there is a problem,” Nagpal told FE Online.

Experts doubt that bitcoin can be relied on at this point in time during a crisis. More so, because it is still under development and has not reached the “gold standard” required to become reliable.

“I doubt bitcoin is a safe haven from an extremely risky environment. In that sense, bitcoin is not gold. Well, you can use bitcoin for economic transactions in a way gold was never designed for because it’s a physical thing, but it’s not that easy to do. Bitcoin has not reached critical mass to be considered a viable currency to use for payments,” crypto and tokenomics expert Eloisa Marchesoni told FE Online.

She went on to say that bitcoin can capitalize on demand as a currency or store of value in countries hit by war and sanctions, as it can bypass government controls. It may not be the technology you want to buy a loaf of bread with, but if you need some quick cash and want to know that they are really yours, then it’s a technology that plays a useful role.

Not the best hedging option?

“While crypto is the best option for the Russian government to evade sanctions and for the Ukrainian government to receive aid, it is not the best option for everyone else, compared to luxury goods and gold, given the price instability of crypto and the fact that Although futuristic technologies are quite attractive, these virtual assets cannot prove their value as easily and clearly as a physical asset,” Eloisa said.

Stablecoins can be more reliable than other cryptos during a crisis, according to Sharat Chandra, VP, Research and Strategy at EarthID, a self-sovereign Identity Management Platform,

“In today’s uncertain times, when the fiat monetary system is under strain, crypto has widely emerged as an alternative channel to make payments, receive aid and fund humanitarian efforts that bypass existing financial rails. Despite showing signs of maturity, cryptos are not devoid of volatility. Stablecoins, because they are pegged to fiat currency, are more stable than the rest of the digital assets used to settle payments and facilitate transfers. Stablecoins should fuel further growth of the DeFi ecosystem in the coming days,” Chandra told FE Online.

Not immune to sanctions

Wars are generally accompanied by economic sanctions. As in the present case, the US and its allies in Europe have imposed several economic sanctions against Russia. The impact of the sanctions was seen in crypto markets where prices initially rose as demand increased.

Even if crypto is being marketed as decentralized assets, which no authority can have complete control over, experts say the real test of this claim is happening now.

“Economic sanctions are like a litmus test for cryptocurrencies. They should be decentralized and now is the time to prove that. Their level of decentralization also allows them to survive economic sanctions,” said Nagpal.

Crypto cannot withstand sanctions as the gateways have to follow the laws of the country. To become truly censorship-proof would require neutral protocols, which is not the case now.

“Crypto entities that provide on-ramp/off-ramp services and exchanges act as gateways to the crypto and Web3.0 ecosystem. These entities must follow the laws of the land and they cannot be immune from economic sanctions imposed by sovereign nations. To stay true to the core philosophy of decentralization and censorship resistance, crypto needs neutral protocols,” Chandra said.

Crypto, Not Really Decentralized?

Chandra went on to say that the geopolitical upheaval in the European region has destroyed the myth of decentralization.

“Nations have taken sides and ideological divisions are leading to economic sanctions that deprive millions of people of access to financial services. This could be an inflection point for the rise of decentralized finance, where gatekeepers of the traditional world cannot dictate terms to truly decentralized online communities willing to engage with people of their choice,” Chandra said.

There have been reports of the blocking and deletion of accounts based in countries sanctioned by the US by Metamask and OpenSea, further raising questions about the “truly decentralized” claim being made in favor of crypto. Experts say that while account deletion and blocking may be isolated incidents, crypto investors should take note of the decentralized nature of such apps.

“Account deletion and blocking should be viewed as isolated incidents that have no impact on the larger crypto ecosystem. The crypto revolution is driven by the people and a particular country that bans crypto is completely irrelevant to the industry. While this event was accidental, it demonstrates a centralization element of these apps that a true crypto investor should take note of,” said BuyUcoin CEO Shivam Thakral.

“The concept of decentralization largely revolves around eliminating the power to control or monitor the decisions of a centralized entity. By imposing restrictions on some regions, it is moving towards a centralized ecosystem instead of a decentralized ecosystem,” said Vikram Mahar, Crypto and Blockchain expert.

(Crypto tokens are unregulated assets in India. Investing in them can lead to losses. Please consult your financial advisor before investing in crypto or any other virtual digital asset.)

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