The Russian invasion of Ukraine is proving to be yet another accelerant in the 2020s, alongside the pandemic. The West, unable to participate directly due to mutual assured destruction, has resorted to financial warfare.

As of February 27, 2022, the European nations and the United States have agreed to block most major Russian banks, cutoff Russia from SWIFT and potentially freeze Central Bank of Russia's assets abroad. This is potentially the largest financial attack in history.

But the reason the West can do this is because the world's financial infrastructure was built and is maintained by the West. The participants of global trade trust this system like we trust running water.

The weaponization of the system means that if you piss off enough Western nations, you may be cutoff from it. Thus, for a nation to be truly independent of Western will, it must seek alternatives. The sanctions on Russia bring home this message. India is already trying to setup a rupee based system. China has its SWIFT alternative, as does Russia.

And then, there is crypto. We are already seeing Ukraine publishing their crypto wallets to allow people across the globe to donate to the war efforts. The next years we will likely see smaller states and non-state-actors increase the use of crypto as a hedge on state-based financial systems.

I see two takeaways from these developments.

First, adoption of these alternative systems are likely to increase as a result of the war. As the West uses more its power over the financial system, the weaker its grip over the financial system it becomes. In the limit, where the West no longer has power over global finance, the West may be left with only physical force to shape the international order.

Second, the arguments that crypto can shield you from world geopolitics and that it can be the basis for a libertarian utopia seem to be weaker. As Noah Smith pointed out, crypto can exist only within states that allow it. Sufficiently competent states can always forcefully evict crypto from their land, as China has essentially done. However, crypto does provide an open source, neutral alternative to states that may be too small to setup their own financial systems but large enough to be able to protect their sovereignty via force, the Switzerlands and Israels of the world.

Zuckerberg says that the real world consists of the physical world and the digital world. He is right. And much to the detriment of virtualists, it is impossible to live exclusively in one of those two realms: the digital world will always be subject to the chaos of the physical world just as the physical is increasingly shaped by the digital one.