Ukraine ATMs Bitcoin

Residents of Donetsk panic as they try to withdraw cash from local ATMs. Photo via Новости Донбасса.

The current political and economic environment in Ukraine has led to credit downgrades for local banks, a currency devaluation, capital controls, and ATMs running out of cash. Before this article continues there is one thing that needs to be mentioned: Bitcoin users not affected. While Bitcoin obviously couldn’t help when it comes to preventing the violence currently taking place on the streets of Kiev, it at least helps people who want to protect their wealth in times of political uncertainty. Bitcoin still needs to get through some problems of its own when it comes to stability, but the current events in Ukraine can be used as a case study for why cryptocurrency is so important to the entire world.

A Political Crisis Leads to a Currency Crisis

The hryvnia has already declined more than 10% against the US dollar since November, and Tim Ash from Standard Bank believes this trend could continue over the next few months. He was recently interviewed by Reuters, and he claimed that it could soon take 11 hryvni to equal 1 dollar. In a situation where Ukraine is not able to get more economic assistance from the international community, Ash believes we could see a situation where it takes 15 hryvni to buy 1 dollar. Although this kind of currency crisis currently leads to a thriving black market in dollars and euros, it could be bitcoins that become the more practical safe haven for people in the future.

hryvnia dollar chart bitcoin

The hryvnia has declined against the US dollar. Chart via XE.com.

In a future where bitcoins are a widely-used international currency, citizens of a country experiencing political turmoil would not need to worry about the devaluation of their local currency. People holding hryvni in their Ukrainian bank accounts or in the form of cash under their mattresses have basically been robbed of 10% of their savings since November. If some predictions turn out to be true, they could be losing close to 50% of their savings as a solution for government debt is not found. If bitcoins were able to reach a stable price, the Ukrainian people would not have to watch their savings disappear as a political uprising slowed down economic activity in the surrounding areas.

Bank Downgrades and Empty ATMs Don’t Affect Bitcoin Users

Various banks in Ukraine have been downgraded by Fitch and Moody’s over the past few months, and these downgrades are due to these banks’ exposure to Ukrainian government bonds. Ukraine could be headed towards a bank bailout or bail-in situation, and either “solution” should be viewed as a lose for the Ukrainian people. If the government defaults on its debts, then most bank depositors in Ukraine will need to take a “haircut“.

Residents of Kiev are also emptying stores shelves and ATMs around the city. People don’t want to leave their homes and wish to hold as much cash as possible. It is not yet clear if this is an actual run on the banks or just people who would rather have access to cash rather than cards during these uncertain times.

One of the obvious benefits of Bitcoin is that you don’t need to trust a third party with your money. Cash under the mattress is a classic option when you don’t want to trust banks, but you can’t send cash through the Internet. Holding bitcoins in a brain wallet, paper wallet, or cold storage hardware device is also much more secure than putting a bunch of cash under one’s mattress. There’s no need to empty out a local ATM when you can store all of your bitcoins in your brain. The only issue here is being able to transact in bitcoins in an even worse situation where there is no Internet or electricity. Having said that, there are bigger issues at hand than being able to spend money if there’s no electricity to be found.

You Can’t Place Capital Controls on Bitcoin

As the value of the Ukrainian hryvnia was declining in early February, the Ukrainian Central Bank started to limit the amount of foreign currency that Ukrainians could purchase. The limit is currently set at just under $6,000 per month. This restriction has been able to prevent continued damage to the hryvnia’s value against other currencies, but whether or not it will be able to help over the long term remains an unanswered question. Although the intention of this policy is to prevent the local currency from falling in value, it also limits the options of the Ukrainian people who just want to find a safe haven for their savings.

Bitcoin users are not affected by capital controls, and it doesn’t matter if those economic restrictions are found in Ukraine or Argentina. Capital flight to another country wouldn’t even exist in a Bitcoin economy because bitcoins would be a global currency. There would be no reason to flee the bitcoin because the declining national economy would not have an effect on the price of bitcoins. Having said that, bitcoins can offer a way around capital controls while most of the world is still on a fiat standard. Governments always try to micromanage macro economies, and they usually just make matters worse when they try to limit what people can do with their own money. Whether it’s the United States government paying farmers to destroy crops and livestock during the Great Depression or China devaluing their currency to increase exports to other countries, government involvement in the economy usually has negative side effects for everyone.

Bitcoin Still Needs to Sort Out Its Own Issues

While Bitcoin has the potential to solve a lot of issues involved with the economies of unstable nations, we’re still far away from it being viewed as a “safe haven”. As we’ve seen over the past few months, regulatory uncertainty and goxxings still have a negative impact on price stability. Bitcoin has a lot of growing up to do, but you have to wonder how much stabler the price will be once most nations have stated their regulatory intentions and MtGox is behind us. A currency that swings 10% in either direction on a daily basis would actually be preferable to some current fiat currencies, especially when you throw in the aforementioned abilities to get around economic restrictions and banks. Relatively large swings in price over the short term are sometimes preferable to a 50% decline over a year or two. The success of Bitcoin certainly isn’t set in stone, but it could definitely become a solution to many of the economic ailments facing specific parts of the world today.

3 Responses

  1. bcecil

    If you don’t really know what a bitcoin is…or need to explain it to someone, who won’t hate you afterward.
    Think of it this way…
    Internet Email replaced the post office
    Internet Google replaced Libraries
    Bitcoin is the first “Internet unit/asset of trust exchange” for ANYTHING we want to trade/buy from each other, or assign value to, and it is owned by all of mankind equally.

    What many people really don’t get yet is Bitcoin/Litecoin are the worlds first, very liquid, average persons, commodity/asset of exchange and, complete trust system, that doesn’t need any governments or banks to exist and it’s impact on the lives of the average person will be way bigger then the internet.

    Here is how you permanently stop all political/government/big bank control with bitcoin/litecoin.. we can also free all of the worlds debt slaves = 99% of population!

    New universal and local exchanges must marry BTC/LTC ( which is really a form of an asset not a currency or money ) with gold/silver/commodities It will lead to a grand new world reserve liquid trading commodity vehicle (not currency ) … and eliminate ALL potential regulation problems with bitcoin/Litecoin being equated to one, or any fiat government currency, taking the power completly away from all of the despots and psychopaths who control all things financial for their own gain.

    One day (hopefully soon) , when a hard working person in Somalia ( or name impoverished country here ) receives the same pay as as anyone else in the world, doing the exact same job he/she is doing and then can take what he/she made and buy some rice at the same price ( all shipping handling for entire world is priced in ) with that same universal currency/asset he/she earned there will be no more poverty anywhere.

    This will also give bitcoins/Litecoins value and gold/silver/commodities liquidity and bypass all fiat currencies in the world taking away power from the top 85 families on the planet that have the same assets as the bottom 3.5 billion people. ( and 10′s of thousands of others ripping people off everywhere)

    This also solves the problem of not much liquidity for the easy transfer and payment using actual pieces of gold/ silver / commodities over the internet ….. now their value is transferable to btc/ltc, which is easily exchanged anywhere for everything starting with the most important thing wages for employment.

    The way to move the whole thing forward is a worldwide UMX exchange and hundreds of local smaller ones, (2 companies are even developing cheap satellite coms for bitcoin servers ) for gold and silver weights and commodities , not US dollars, CDN dollars, or any other dollars, to be exchanged/traded for btc/ltc.

    You can use small shops everywhere, in small communities, in every country in the world, like a current cash shop, pawn broker, grocer or gold/jewelry dealer that fronts all of the small trading for everyone. So you give them some gold or silver commodities etc and they give you btc/ltc or you give them btc/ltc and they give you gold silver commodities based on current gold/btc exchange rates on the UMX..

    All 3 things cant be touched by megalomaniacs and are outside of “world money regulation/phantom creation” BTC and even LTC is the same as precious metals in many ways, it has a finite amount available over time, cannot be “printed” into oblivion, must be mined and is a store of wealth and no one individual or group owns the system, it belongs to everyone.
    The numbers make sense..if you look at fractional bitcoin system the numbers more then make sense… each btc can be broken down to units that equal .00000001 so There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible units in the total maximum bitcoin design. The value of “1 BTC” represents 100,000,000 of these. There is only around an actual 1 trillion in printed usd $ around and currently 60+ trillion in total US debt http://www.usdebtclock.org/ (not including unfunded liabilities ) So there is, or will be by the year 2140 (end of bitcoin mining), 2000 times more exchangeable bitcoin units then us$ in the world and then there are no more BTC.
    Mbtc (1/1000 of a BTC has already shown up on hundreds of sites, including redit where people are tipping others for good ideas, music etc. via phones or comps…

    As more gold mined down the road it will just change the exchange value slightly ..but,unlike “make believe” money, (only .52% of the Bank of Canada’s money is real, 1.75%in at the Fed and the average is .75% in all the central European banks ) …..both gold/silver and bitcoins/silver/commodities have physical limits on total in existence and are very real.

    It will lead to all the regular people all over the world getting paid at the same world rate for their labor and buying food etc at also the same world rate, and not an artificial slave rate, dictated by some country leader who is skimming off the top.

  2. Josh

    Bitcoin does need to get through it’s own gauntlet to prove to the world that it can withstand hardship. This is what it is going through right now. Great point about the electricity. This is why we need to tap into wireless transfer of electrical power that is globally distributed. This would ensure that everyone would have access at all times. Of course, the source would be the sun, and the distribution would be by satellites.

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Avatar of Kyle Torpey

Kyle is a freelance Bitcoin writer and the Marketing Director for Bitcloud. His work has been featured on Business Insider, VICE Motherboard, Let's Talk Bitcoin, and RT's Keiser Report . You can follow him on Twitter (@kyletorpey) or send him an email.