In retrospect, it was only a matter of time before Viktor Fischer had to weigh in on Russia’s war in Ukraine. After all, his venture capital firm Rockaway Blockchain Fund has several cryptocurrency exchanges among its portfolio companies. Regulators around the world have warned that cryptocurrency exchanges could be used by Russian oligarchs to circumvent unprecedented sanctions imposed in retaliation for Vladimir Putin’s war. However, Fischer thinks that fear is unfounded.
“It is very difficult to evade sanctions via bitcoin or blockchain because everything is traceable,” said the managing partner of the Rockaway Blockchain Fund. Verdict. “You can actually trace transactions back to when the person entered or exited the blockchain via KYC [or] LAM. So we know which transactions are illicit.
KYC and AML stand for “know your customer” and “anti-money laundering” respectively. The terms describe the processes that financial services companies like banks, credit card companies, and cryptocurrency exchanges must follow to prevent their services from being used by criminals.
Cryptocurrency exchanges have vocally touted their KYC and AML chops for years. However, a report from the British National Bureau of Economic Research warned that even though individual exchanges have robust processes in place, there is nothing stopping users from transferring cryptocurrencies from a high KYC exchange to a high KYC exchange. low KYC where the money trail can be harder to trace.
Fischer is not concerned, citing a Chainalysis report suggesting that only 0.15% of all cryptocurrency transactions made in 2021 were illicit. “So I don’t really see how this technology could be used to evade sanctions,” he says.
The same report noted that while the overall share of illicit cryptocurrency transactions has plunged over the past two years, the total value hit an all-time high in 2021, with illicit addresses receiving $14 billion over the past two years. year, compared to $7.8 billion. in 2020. Figures like these do little to deter politicians and regulators who have already decided that digital currency is only used by cybercriminals and, possibly, Russian oligarchs.
Rockaway wallet cryptocurrency exchanges have pledged to ban US-sanctioned Russians and allies after the war in Ukraine. This means that they cannot use the exchanges to get money out of Russia. Wallet exchanges include 1inch.Exchange, Vega, and Sushiswap.
Other cryptocurrency exchanges like Binance, Coinbase, Kraken, and Bitstamp have released statements saying they will follow the law to the letter. Most of them, however, did not extend this ban to ordinary Russians. Rockaway’s trades didn’t do that either.
“I don’t think that would be fair,” Fischer says, arguing that ordinary Russians, even those who openly oppose Putin’s war, could be hurt by broad bans.
Given the ruble plunged to record lows of 154 rubles to the dollar on March 7, the Rockaway boss thinks it would be unfair if Russians who were not part of Ukraine’s war machine weren’t not “the ability to store the value of the money they had because maybe they weren’t involved in the conflict. They might be against it. And personally, I don’t think just by the nationality of someone, we should basically kick them out.
The same line has basically been touted by other cryptocurrency exchanges. They even made the case despite the withdrawal of major payment providers like Visa and Mastercard from Russia. Their Russian businesses accounted for just 4% of their total net income, while Russians held over $200 billion in cryptocurrencies, or about 12% of total global holdings. Russia is, in other words, a huge cryptocurrency market.
It is also worth mentioning that although Visa and Mastercard dominate the market in Russia, their share of the payments industry has declined due to the growing adoption of the central bank’s own Mir program, as highlighted by research by GlobalData. .
Ukraine and cryptocurrencies
Cryptocurrencies became even more controversial after Russia invaded Ukraine, and that’s saying a lot. The technology dreamed up by mysterious bitcoin founder Satoshi Nakamoto in 2007 has been in the headlines for most of the past two decades. During the pandemic, soaring valuations have even encouraged some blockchain evangelists to suggest that the digital dosh is on par with other safe-haven assets like gold, which some people invest in during times of crisis.
In 2020, the blockchain industry raised $121.02 billion across 922 transactions, according to data from GlobalData. In 2021, the $81.652 billion raised 1,354 deals.
However, when Russian tanks rolled into Ukraine in the early hours of February 24, it was only a matter of time before distributed ledger money slipped back into the talks. Along with the potential for oligarchs using technology to circumvent sanctions, the debate has also centered on whether bitcoin can still be considered a safe-haven asset. The consensus seems to be that it can’t, given that it has yet to recover from its massive meltdown earlier this year. As a result, some analysts have warned that a cryptocurrency winter could be on the cards.
The Rockaway boss still thinks cryptocurrencies may have a role to play in the Ukraine conflict. He cites as an example the millions of dollars in cryptocurrencies that have been donated to help Ukraine and refugees.
“The main thing for us is that cryptocurrencies currently help more Ukraine than [they help sanctioned people in] Russia to evade sanctions,” Fischer said.
Rockaway Helps Refugees Fleeing Ukraine
Russia’s war against Ukraine is not isolated to any one nation. Ever since Putin’s army attacked the neighboring country a month ago, people around the world have been forced to choose sides. The result was a worldwide outpouring of support for President Volodymyr Zelensky and his compatriots.
Tech companies have shown their support by providing internet access with low-orbit satellites, raising funds with NFTs, helping Ukraine fight cyberattacks, and pulling their services from Russia, cutting off the regime from Kremlin of the world economy. Fischer noticed this support first hand.
“We are practically part of it on a daily basis in the Czech Republic because there are a lot of Ukrainians here,” he says.
Ukrainians are the largest foreign community in the Czech Republic. At the end of 2021, there were nearly 197,000 Ukrainians legally residing in the country, according to the Interior Ministry.
“Everything accelerated after the 1990s, when communism fell,” says Fischer. “These are often employees of the technology industry or logic centers.”
Since the war broke out, more than 100,000 refugees have crossed the border into the Czech Republic, and more people are making the journey every day.
“Most of them pass through Slovakia and go to Prague because they have their families here,” says Fischer.
At the moment, none of the employees of the Rockaway Blockchain Fund are from Ukraine, but the community around the venture capital firm has helped refugees enter the Czech Republic.
“What we have [is] a WhatsApp group with [almost] all the tech guys, [such as] investors here in Prague, and it’s called TechFugees,” says Fischer. “And whenever there is a family [of for example] a local person who works here and [then] they are looking for an apartment. Whoever has a vacant apartment responds very quickly. Yes [no one has one] so we will watch [to find] a hotel room for them. But that’s on everyone’s mind right now, unfortunately.
“We almost died”
Today, Rockaway Blockchain Fund debates the ins and outs of supporting Ukraine while preventing Kremlin gremlins from avoiding sanctions. However, two years ago, Fischer and his team doubted the investment firm would ever find itself in a position like this. “We almost died,” says Fischer.
The people behind Rockaway Blockchain Fund have been investing their own money in blockchain projects since 2018. They were among the first investors in the Solana blockchain platform. In 2019, they decided to create an official fund and raise $40 million. “In February 2020, we sent a request to our investors,” Fischer recalls.
Unfortunately for the team, the Covid-19 crisis was imminent, causing a lot of uncertainty in the market. Investors, therefore, have been hesitant to invest in anything. When the fund made its first close in June 2020, it had raised just $6.5 million.
“We charge a 2% management fee. So 2% of $6.5 million. It’s less than $200,000. We wouldn’t be able to afford the six-person team with that,” says Fischer.
Despite the discouraging results, the team continued to fundraise. “Everything changed for us in March 2021 when bitcoin hit $65,000, and then basically our phones just kept ringing,” he says.
The Rockaway Blockchain Fund had raised $123 million in total as of June 2021. Today, it has 20 funds in its portfolio and has made 30 direct investments.
If you and your business would like to help the people of Ukraine during these difficult times, you can find information on how to do so here.
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