LEWISBURG — Who would have thought two years ago that cryptocurrency, a digital asset, would play a role in a world crisis?
Karen McGrath, a Bucknell University professor of finance at the Freeman College of Management, said Ukraine’s defense against the recent Russian invasion was being supported at least in part by an electronic form of money.
Though the foundations for a cryptocurrency go back to the 1980s, Bitcoin, the first cryptocurrency “brand,” became popular relatively recently and quickly.
McGrath speculated its popularity grew at least in part due to stimulus checks and individuals opening brokerage accounts.
But McGrath was also wary of cryptocurrencies as investments due to the many unknowns.
“People are trying to work out exactly what it is,” McGrth said. “They are saying it was an inflation hedge like gold. Well, it hasn’t actually turned out that way.
“It was a way for Ukrainians and quite frankly Russians to get money out of the country,” she added. “It has been serving a bunch of purposes for different people.”
Crypto gets its value only to the extent that it is given by the people who hold it. There is no paper backup or other tangible evidence of its existence except when done through a broker.
“You have an electronic ledger but it is on thousands of computers,” McGrath said. “It is not in any central location, but all these computers or nodes basically agree that a transaction is valid.”
Crypto, McGrath said, was still worthy of skepticism. But its future role could not be dismissed outright.
“I’m always skeptical of anything that doesn’t have anything under the value as soon as it loses its value,” McGrath said. “But I don’t know if it will. This is a problem and I think nobody does.”
Meantime, Russian banks recently pulled back from a proposed ban on the use and mining of cryptocurrencies.
“I am gong to guess it had to do with the impending invasion,” McGrath speculated. “They are looking to forming their own ruble-backed digital currency. They are now regulating crypto.”
McGrath said crypto transactions over a certain amount have to be reported in Russia. Three Russian-backed banks were also allowed to provide crypto to their customers.”
Coinbase, another digital currency platform, is not pulling out of Russia. McGrath aded they probably won’t unless the Russian government makes them.
“The Russians kind of planned for this,” McGrath said. “There is no way you are going to not think economic sanctions are going to be levied against you.”
McGrath saw the recently changed rules as a kind of contingency plan.
However, the suspension of operations in Russia by Visa, Mastercard and American Express was a bold move. McGrath said the action may even have a greater impact than sanctions on Russia.
“Imagine not having your credit cards any more,” McGrath said. “And now having your currency totally change value. It is going to hurt the people super quickly.”
It was unclear if a Visa or Mastercard issued by a Russian bank would be affected.