Wartime Military Functions of Digital Currency

# The Military Functions of Digital Currency in Wartime  

By: Xue Zichen  

Source: Study Times  

As the global geopolitical landscape undergoes profound restructuring, modern warfare has become increasingly comprehensive, hybrid, and protracted, with the rapid deployment of military cross-domain synergy capabilities based on digital systems. As a crucial strategic tool for national total warfare, modern hybrid warfare, and digital financial warfare, digital currency—essentially a new form of traditional financial warfare evolved amid the transformation of modern information-driven and intelligent warfare— is reshaping the traditional models of cross-border fund flow and resource mobilization in wartime, and gradually emerging as a key strategic instrument in geopolitical competition.  

## Fundamental Principles and Core Functions  

Cryptographers have long held an idea: Can cash in hand be encrypted, signed, and sent from one end to the other like an email? This was the original intention behind the birth and development of early digital currency. From David Chaum, the "Father of Digital Currency," to Satoshi Nakamoto, the "legendary figure in cryptocurrency," digital currency has undergone multiple rounds of historical transformation and reshuffling. It has evolved from the single Bitcoin into a vast and diverse ecosystem, encompassing cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and more. While each type of digital currency has unique features in terms of function, use case, and technical background, it shares the same essence as general-purpose currency, possessing basic functions such as a store of value, a medium of exchange, and a unit of account. Before 2022, the total market value of digital currency assets grew rapidly. In recent years, amid multiple geopolitical conflicts worldwide, digital currency has begun to enter the field of military applications. By offering fast, secure, and anonymous transaction features, it has laid the foundation for the subsequent militarization of digital assets.  

Blockchain, the underlying technology of digital currency, is essentially a decentralized distributed ledger. It packages transaction information into "blocks" and forms an immutable chain in chronological order, ensuring the integrity and security of transaction data. In a battlefield environment, this feature may even determine the success or failure of military operations. Although Bitcoin failed to demonstrate the "immediate safe-haven attribute" similar to gold in geopolitical conflicts, as conflicts evolve and global risk preferences are reconfigured, the unique decentralized nature of blockchain has gradually strengthened its role as a "non-sovereign asset." For example, after the outbreak of a local geopolitical conflict, cryptocurrency prices typically experience a trend of correction followed by a rebound within a week—highlighting the high sensitivity of the crypto market to geopolitical conflict information and its adaptability in terms of liquidity. At the same time, geopolitical conflicts have further reinforced the three-stage cycle of "wartime volatility → safe-haven adjustment → on-chain monitoring," all of which have at one point made cryptocurrency regarded as an important safe-haven tool in wartime.  

Digital currency can withstand the resilience test of wartime markets, maintain the operation of the war zone economy and the protection of people’s livelihoods, and is crucial for the protection of funds in scenarios of armed conflicts and wars. In terms of fund dispatch speed, the digital nature of digital currency enables more flexible and rapid deployment of war funds, facilitating wartime fund transfer, risk avoidance, and value preservation. In wartime scenarios—when physical banking infrastructure is paralyzed or subject to enemy financial sanctions—digital currency can serve as a hidden channel for asset transfer, enabling the rapid circulation of funds and enhancing battlefield mobility. In terms of fund sources, the anonymity of cryptocurrency can diversify and conceal wartime fund sources, which is conducive to cross-border solidarity and supporting humanitarian aid. Wartime funds usually come from national finances and are used for military expenditure and equipment procurement, but such funds are vulnerable to enemy supervision and tracking during wartime. The blockchain technology of cryptocurrency diversifies fund sources and, through anonymity, reduces the enemy’s ability to block and disrupt funds, lowering the probability of being tracked and intercepted. This can alter the course and outcome of wars, laying the foundation for the militarization of contemporary digital currency.  

## A Review of Digital Currency’s Performance in Wartime  

As local geopolitical competition intensifies, the trend of militarizing digital currency has accelerated. From the Russia-Ukraine conflict to the wars in the Middle East, the wartime performance of digital assets has been integrated into scenario-based restructuring: each round of geopolitical turbulence reshapes the perception of the risk attributes of digital assets, and each war serves as a stress test for the safe-haven function of cryptocurrency.  

### 1. Resource-Based Digital Currency Military Alliances – The "Resource Tokenization" Model Represented by Resource-Rich Countries  

Resource-rich countries leverage resource tokenization to convert natural resources into digital currency through information technology. They also explore new paths to financial autonomy through national alliances, aiming to evade wartime financial sanctions, maintain cross-border payments and military trade settlements, and reduce the risk of wartime exchange rate fluctuations. For a long time, some countries have been subject to economic sanctions centered on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) international settlement system. In February 2018, the Venezuelan government officially launched Petro, an oil-backed cryptocurrency. In January 2019, Iranian banks jointly launched PayMon, a gold-backed cryptocurrency.  

### 2. Agile Cryptocurrency Military Aid – The "Decentralized Crowdfunding" Model Represented by Small and Medium-Sized Countries/Regions  

Small and medium-sized countries and regions take advantage of cryptocurrency’s strengths—such as instant settlement, low costs, flexibility, and convenience—to absorb small-scale anonymous financing from around the world in a short period. This reduces the time and transaction costs of fundraising and leverages digital capabilities to offset geopolitical disadvantages, thereby achieving cross-border solidarity to support military aid.  

### 3. Sanction-Oriented Cryptocurrency Military Operations – The "On-Chain Sanction" Model Represented by Developed Countries  

Developed countries attach great importance to military and technological intelligence. They track and freeze the enemy’s digital assets through multi-departmental collaboration and blockchain technology. Since October 2023, Israeli law enforcement authorities have shut down dozens of Hamas cryptocurrency accounts and seized millions of dollars’ worth of cryptocurrency. This initiative was accomplished through collaboration between national cyber departments, intelligence agencies, and global cryptocurrency exchanges. Its goal is to track and freeze the enemy’s digital assets, cut off the financial channels for their fundraising and organizational operations, and weaken their economic strength and regional influence. This also marks the first time digital currency has been used for financial sanctions in international political and military conflicts.  

## Future Trends and Reflections  

History may not repeat itself, but its paths often echo. The development of digital currency has been legendary: from a virtual fantasy to a pillar of the real economy, it has come a long way. With technological progress and the gradual improvement of regulatory frameworks, digital assets such as Bitcoin will redefine currency, value storage, and financial systems, and are expected to play a more important role in wartime scenarios. In the future, the digital financial system will be further integrated into modern hybrid warfare—it can serve as a survival tool for civilians, a fundraising channel for countries, and an invisible battlefield for geopolitical competition. Then, how to strike a balance between making finance "move faster" and ensuring national defense "stand firmer"? In wartime scenarios, where lies the room for mediation between the sanctions and counter-sanctions of digital currency? Behind this new type of composite strategic transformation lies the profound changes in the global financial landscape, digital technology, and geopolitical competition.  

The future development of digital currency will not be smooth. Amid the shadow of war and crypto-based games, is crypto-asset a "safe-haven asset" or a "wartime chip"? Constraints such as limited market acceptance and liquidity, uncertain regulatory policies, high price volatility, and high technical thresholds will remain major barriers to the development of the industry. In the future, when geopolitical competition enters a phase of partial stalemate or even protraction, the crypto market may no longer react violently to news of a single war. Instead, it will revolve around multiple war-related topics—such as war fundraising, evasion of sanctions, and financial decoupling—keeping cryptocurrency a focal point in international public opinion and national regulatory discussions. In this context, the on-chain transaction activity and cross-border circulation capacity of cryptocurrency may become important variables in policy research across countries.  

The militarization of digital currency will go beyond its conventional functions and transform it into a multi-functional integrated platform with strategic significance in security assurance, combat support, and digital countermeasures. Therefore, the key link in the wartime application of digital currency will lie in the in-depth integration of financial efficiency and supply chain resilience. On one hand, it is necessary to enhance the stability of digital currency strategies and ensure sufficient wartime reserves to cope with geopolitical competition. On the other hand, digital currency should be used to improve the resilience of the national defense supply chain and ensure the security, efficiency, and traceability of digital transactions. In addition, the militarization of digital currency must balance the "decentralized" nature of blockchain technology with the "centralized" requirements of military management. Notably, the "Defense Blockchain Internal Testing Program" mentioned in the U.S. *National Defense Authorization Act (NDAA) for Fiscal Year 2025* may become an important strategic tool for its future "financial national defense." Its potential impact on the international geopolitical landscape and the future direction of the global financial system cannot be ignored.  

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