In the ongoing conflict between Israel and Gaza, cryptocurrencies are once again becoming a source of financing around the war-ravaged regions. After the Palestine-based militant group Hamas targeted Israel with rockets on October 6, hundreds were killed and destroyed. To raise some emergency funding for Israel, a number of crypto companies have created ‘Crypto Aid Israel’, which allows anyone in the world to send money for use there. Because crypto transactions are instant and largely untraceable, their transfers in war-torn regions can have ethical and financial implications, Sathvik Vishwanath, the CEO of Unocoin crypto exchange, told Gadgets 360.
CryptoJungle, 42Studio, MarketAcross, Collider Ventures, Blockchain B7, Efficient Frontier, Ironblocks, the Israel Blockchain Association, Bits of Gold and Cointelegraph reportedly came together earlier this week to form Crypto Aid Israel. So far, the portal has managed to raise over $60,000 (approximately Rs. 50 lakh) through crypto assets.
“Our goal is to raise much-needed funds for displaced civilians whose unbearable situation requires humanitarian assistance,” reads the official page of Crypto Fund Israel.
To date, funding has been allocated to the families of soldiers, first responders, captured nationals, and civilians killed. Part of the proceeds will also be saved to reconstruct the damaged parts of southern Israel.
Speaking to Gadgets 360, Unocoin’s Vishwanath said the ethical implications of relying on cryptocurrency funds in countries with geopolitical problems is a complex and controversial issue.
“Crypto can provide financial services to those excluded from traditional banking systems, promoting financial inclusion and empowering marginalized communities. However, crypto transactions can hamper regulatory oversight and potentially enable illegal activities such as money laundering and tax evasion,” Vishwanath said.
Cases of crypto assets being used to purchase weapons and facilitate other illegal activities were topics of great concern when the war between Russia and Ukraine began in February last year. Several crypto exchanges at the time had to tighten their policies and KYC needs to ensure that Russian nationals and entities sanctioned by the US, Britain, and other countries would not touch crypto assets.
By 2022, Israel itself had identified and confiscated thirty cryptocurrency wallets that allegedly financed the Hamas group. These wallets belonged to an exchange company called al-Mutahadun, based in Gaza city. Benny Gantz, Israel’s Defense Minister, had approved the seizure of these accounts in March 2022.
In addition to these ethical implications, crypto relief funds also come with other baggage, Vishwanath noted.
“Cryptocurrencies are known for their price volatility, making them risky assets to rely on in times of economic crisis. Citizens could lose significant wealth if their favorite assets plummet. The chances of misuse of crypto assets cannot be ruled out either. In an unstable environment, the risk of misuse is greater because the government can use cryptocurrencies for personal gain or to avoid sanctions. Lack of public understanding can also lead to uninformed investments or fraud,” he said.
Essentially, geopolitically troubled countries can consider cryptocurrencies as a complementary financial instrument, but complete dependence on them is risky. Industry experts advise governments to diversify financial strategies and combine traditional finance with crypto assets.