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Ukraine, which has staunchly defended itself against Russian invasion, says it has created a new source of financial support: people around the world who have donated millions of dollars to their war effort directly via cryptocurrencies like bitcoin.
Since Feb. 26, when Ukrainian officials began tweeting calls for cryptocurrency donations, the Ukrainian government says it has raised nearly $67 million of its $200 million goal by Saturday. “Today, crypto plays a significant role in Ukraine’s defense,” Alex Bornyakov, the country’s deputy minister for digital transformation, wrote on the country’s donation website.
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Ukraine has spent about $34 million of the funds received up to last week, converting about 80% into traditional currencies and using the rest at merchants already accepting cryptocurrencies, Bornyakov said in response to emailed questions.
FILE – Members of Congress give Ukrainian President Volodymyr Zelensky a standing ovation before he addresses Congress in a virtual address at the Congressional Auditorium of the US Capitol Visitors Center in Washington (Sarahbeth Maney/The New York Times ((Sarahbeth Maney/The New York Times via AP, Pool, File) / AP Newsroom)
The funds raised in cryptocurrency are only a small part of the total donations received by Ukraine. After raising as much as $12 million on March 2, cryptocurrency donations have dwindled, although boosters say the unexpected initial surge could inspire other efforts to solicit cryptocurrencies for humanitarian or defensive purposes. Officials have said the speed with which they can use cryptocurrency donations has made them useful.
Of course, the downside to this easy transfer is that cryptocurrencies continue to be a magnet for fraud and the currency of choice for criminal networks. On Tuesday, the head of the European Central Bank, Christine Lagarde, warned that crypto assets are being “used as a means to circumvent sanctions against Russia,” but gave no details other than the volume of global remittances from rubles to cryptocurrency strongly increases.
Michael Chobanian, the founder of a Ukrainian cryptocurrency exchange, is one of several people helping the Ukrainian government manage the donations through an informal agreement, Bornyakov confirmed.
“We buy so much stuff every day that saves lives and also stops the aggression so it’s a start of the new world,” Chobanian said in a voice message sent via the Telegram app.
Chobanian said he does not receive payment for his work, but acknowledged some of the funds are converted to kuna through his cryptocurrency exchange.
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“It’s certainly a first,” said Bennett Tomlin, who investigates cryptocurrency fraud and hosts the podcast Crypto Critic’s Corner. “We have never seen a sovereign nation fund its defense efforts in crypto. It proves a lot of the crypto argument.”
Bitcoins can be seen in this figure. REUTERS/Dado Ruvic/Illustration (REUTERS/Dado Ruvic/Illustration / Reuters Photos)
This argument is that cryptocurrencies allow for the unhindered sending and receiving of value across borders over networks that cannot be censored or shut down simply because there is no single entity responsible. Proponents also argue that cryptocurrencies do not require users to trust financial institutions, as the system is managed by code visible to anyone and transactions are indelibly written on distributed public digital books known as blockchains.
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The donations to Ukraine are a kind of stress test for those claims, some of which have fared better than others.
For example, services like cryptocurrency exchanges act in part as gatekeepers, as many of them need to collect identifying information about the people using their services. Two major cryptocurrency exchanges, Binance and CoinBase, took action to limit the use of some of their services in Russia earlier this month, although they have not fully withdrawn.
The publicity surrounding Ukraine’s fundraising appeal also attracted scammers who tried to capitalize on the goodwill of donors. Hilary Allen, a professor at American University Law School who has written a book on the risks that cryptocurrencies pose to financial systems, said that anyone making a donation should carefully consider all stakeholders involved.
“Who will receive the crypto? Who will convert the crypto? You need to think of them the same way you would any other charity or nonprofit that you donate to because they are facilitators in the same way,” Allen said.
Many of the donations to Ukraine’s accounts are verifiable through public tools that track cryptocurrency transactions — as well as the transfers made from accounts that Ukraine controls.
Tuan Phan, a cybersecurity expert specializing in blockchain forensics, investigated the flow of funds to and from some Ukrainian accounts, in part because he wanted to donate himself. Born in Vietnam, he said he was eight years old when North Vietnamese communist forces took Saigon in 1975.
“I’m old enough to remember what happened, so I’m very empathetic to Ukrainians,” Phan said. “I wanted to make sure the address I send my donation to ends up in the right places. There are many scams out there so you need to be extra careful.”
Another challenge in accepting cryptocurrency donations is the potential for people to send tainted assets obtained through crime or fraud, said Ukrainian cryptocurrency attorney Artem Afian.
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Even though some of the donated funds were obtained through illegal activities, he said: “I think now, when I compare the risks and benefits for Ukraine – Ukraine uses every penny, every chance to support people, to support the army , so this is not a time when Ukraine can choose much.”
An illustration of different cryptocurrencies. (Photograph by Chesnot/Getty Images) (Photograph by Chesnot/Getty Images/Getty Images)
Overall, cryptocurrency donations so far are equivalent to about 1% of Ukraine’s annual pre-war defense budget, according to a report by the Congressional Research Service updated in January. The Ukrainian government also receives aid through several other channels, although not all go directly to the government.
Congress has allocated $13.6 billion to Ukraine and President Joe Biden has pledged another $800 million in military aid after Ukrainian President Volodymyr Zelenskyy delivered an address to US lawmakers last week. The United Nations has raised around $618 million out of a $1.1 billion target for Ukraine and has requested another $550 million for refugee assistance. The European Union has pledged EUR 500 million in humanitarian aid, as well as additional funds to support Ukraine’s budget.
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Last week, Zelenskyy signed a legal framework for cryptocurrencies that Bornyakov says resolves a previous gray area within the country’s laws.
Afian, the Ukrainian lawyer who helped draft the law, argued that Ukraine is on the way to becoming more open to cryptocurrencies. Donations to date, he added, could “make it clear to governments that working with crypto can be official, transparent and well-managed.”