SOLEDAR, UKRAINE – FEBRUARY 27: Soldiers in the Ukrainian army (Photo by Scott Peterson/Getty Images)
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Crypto was supposed to be Ukraine’s launching pad into the future. Instead, he proves to be a necessary lifeline in a country ravaged by war. Since the Russian invasion on February 24, Ukraine has raised more than $56 million in donations spread across assets such as bitcoin, ether, polkadot, solana, dogecoin, tether and others. The funds went to help aid organizations distributing aid in the country to purchase essential supplies for the soldiers, such as food, uniforms and body armor.
They are also being used to aid the growing ranks of Ukrainian cyberwarriors who have reportedly tampered with Russian government websites, provided intelligence and disabled military systems.
However, this was never the plan.
Deputy Minister for Digital Transformation of Ukraine Oleksandr Bornyakov says that digital assets and blockchain technology are designed to help revive the Ukrainian economy and transfer all government processes online. He notes that the mission of the ministry, created two years ago, is to “transfer 100% of public services online and build a digital state to make all public services transparent, easy to use and convenient for Ukrainian citizens.”
Blockchain initiatives, such as the creation of a central bank digital currency, the e-hryvnia, began when a year and a half ago, the Minister of Digital Transformation and his team helped create a law to legalize digital assets in the country and turn Ukraine into one of the most crypto-friendly countries in the world. Bornyakov says that the electronic hryvnia was to be introduced towards the end of 2022, together with the central bank, the National Bank of Ukraine.
However, all these plans collapsed with the Russian invasion.
Instead, the Ukrainian government has been looking for ways to use its knowledge of cryptography and digital assets to support the war effort. Bornyakov says that after a couple of days of hostilities, they decided to collect donations in cryptocurrency. “It was the second or third day that we decided we needed money to get into [to the country] because there was a problem with bank liquidity.”
Bornyakov also says he received a call from his boss, Digital Transformation Minister Mikhail Fedorov, who mentioned that they needed to help the cash-strapped army and asked if they could provide people with the opportunity to donate crypto assets. “We decided to go and create wallets and build this infrastructure to receive money and send money. [crypto] different suppliers so that we can buy everything we need for the army.”
However, everything was not so simple. With ongoing concerns about crypto theft, with $14 billion worth of crypto stolen by scammers last year, the government needed to make sure its funds remained safe, according to analytics firm Chainalysis. He also wanted to be able to convert assets into fiat currency. They turned to the country’s largest stock exchange Kuna. “There are a lot of complexities when it comes to security, because if you don’t secure your infrastructure, someone can hack you and steal all your cryptocurrency… but it’s not only a matter of security, it’s also the ability to convert assets into various types of fiat currencies. .
The government of Ukraine collects donations in cryptocurrency
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The campaign was a wild success. Crypto analytics firm Elliptic noted that as of March 2, the addresses of bitcoin, ethereum, tron, polkadot, dogecoin, and solana listed in government tweets had received more than 96,000 cryptocurrency donations totaling $46.7 million that were transferred directly to the government. If NGOs are added, more than $54 million has been donated to the country.
Since the beginning of the conflict, Ukraine has received $56.8 million in cryptocurrency donations
Elliptical
However, while cryptocurrency donations can speed up fundraising, the industry’s attention has also revealed some critical friction points and ethical hurdles hampering the field.
To gain momentum, for example, Fedorov announced via Twitter on Wednesday that the government was going to conduct a token giveaway, known as an “airdrop” in crypto jargon, to all crypto benefactors who donated within a certain period of time. . While this seemed like a smart idea at first glance, the government may not have expected such a program to also expose fraudsters and profiteers. For example, a token called Peaceful World was created that tried to be a government impostor, and there was a spike in meager donations that were clearly only meant to get donors ready to give away.
Cryptocurrency donations surged on March 2 to qualify for airdrop
Dune Analytics
The scheduled giveaway was canceled less than 24 hours after the announcement.
Bornyakov suggests that the government did not foresee the complexity of the airdrop and certainly did not want people to make money from what would otherwise be a noble cause. “At the moment we did not have the technical capacity to do so. But then we also realized that it was a way for people to profit by donating to a country that is suffering, which is wrong.”
Instead, the government has announced plans to sell the NFC as a way to help the army, but Bornyakov says those sales are likely to be used after the war as part of a museum or as a way to preserve the memory and history of the conflict, rather than anything else. designed to help the soldiers now.
Perhaps a bigger issue is how Ukraine is trying to capitalize on crypto while at the same time isolating Russia from the industry. Fears are growing among governments and regulators in the Western Hemisphere that Russians will also turn to crypto to circumvent sanctions that have cut off its economy from the rest of the financial world.
On February 27, Fedorov made an open appeal to the leaders of the world’s largest exchanges, such as Coinbase, Kraken, Binance and others, to immediately stop servicing all Russian clients and traders, and not just those on the sanctions lists. Many traditional companies such as Apple and Samsung have stopped selling goods and services in the country, while others such as PayPal have stopped accepting new customers, and fintech companies such as Wise and Remitly are halting transfers to and from Russia. Russia.
Mikhail Fedorov asks exchanges to block all Russian users
However, the heads of these exchanges have largely dismissed these requests, stating that it was in some way unethical, disproportionate and contrary to the principles of cryptocurrency, aimed at the entire population. The majority said they would comply if required by law. Jesse Powell, CEO of US company Kraken, was the first to publicly respond.
Kraken CEO Rejects Ukrainian Government Requests to Block All Russian Users
When asked about the ethics and fairness of such a request, Bornyakov says that it is important for ordinary Russians to feel the semblance of the pain and suffering that Ukraine is experiencing. “The more we make them [Russian citizens] feel the same as us, it will make them change their mind and stop supporting him [President Vladimir Putin] about his terrible decision to invade Ukraine… We must show every Russian citizen that you can’t just start working and be safe in your own country.”
In the midst of this roller coaster, donations continued to flow into the country, albeit at a much slower rate than before the airdrop was cancelled. Cryptocurrency prices have also stalled. Bitcoin and Ethereum hit a two-week high amid the hype, but have each fallen nearly 10% since then.
Bitcoin and Ethereum Fall From Recent Highs After Airdrop Canceled
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