Cryptocurrencies have played an unprecedented role in the war in Ukraine, helping the government raise millions of dollars to fund the fight against the Russian invasion.
Why has Ukraine turned to cryptocurrencies, and how is the emerging crypto industry changing its reputation and influencing the clouds of war?
How much crypto was collected?
At the beginning of the conflict, Ukrainian officials published the addresses of two cryptocurrency wallets on their Twitter account, providing donors with a direct and clear address to send donations.
The wallets raised more than $10.2m (€9.2m) just four days after the invasion began.
Since then, more than $100 million worth of cryptocurrencies have been raised, with the Crypto Fund for Ukraine, run by Mikhail Chobanyan, founder of the Ukrainian crypto exchange Kuna, accounting for 60 percent of all donations.
“We are still collecting cryptocurrency. They are spent on aid such as daily rations, body armor and helmets,” the 37-year-old Ukrainian told AFP.
Initially, two funds were created, one for humanitarian purposes and the other to support the Ukrainian military.
However, after the escalation of violence across Ukraine, the funds were pooled and fully focused on supporting the military, Chobanyan said.
He said the majority of cryptocurrency donations came in the form of bitcoin, ethereum and the Tether stablecoin, a coin pegged one-to-one to the dollar.
What are the benefits of donating in cryptocurrencies?
Aid packages sent to Ukraine in fiat money from the US and the European Union far outnumber donations in crypto, but the latter allow individuals to participate.
The Giving Block, an American charity, told AFP that crypto donations could attract “young donors” who are looking to support a variety of causes.
Another reason why cryptocurrency donations are of value to Ukraine is that they are less influenced by geopolitical or macroeconomic factors. Chobanyan points to the depreciation of the Ukrainian hryvnia as a result of inflation.
An additional advantage of donations in cryptocurrencies is the speed of transfers. It can take up to 24 hours to verify bank transfers between two countries. However, cryptocurrency transfers usually take less time.
What are the disadvantages?
Despite the cryptocurrency’s success in aiding the Ukrainian military effort, it hasn’t always been smooth sailing.
In the early days of the conflict, the Deputy Minister for Digital Transformation wanted to issue Ukraine’s own cryptocurrency as a symbolic gesture in favor of Kyiv, but the project was ultimately cancelled.
To make matters worse, people took advantage of the opportunity to mint and sell counterfeit versions of the planned government cryptocurrency.
“There was a lack of communication within the government,” said Chobanyan, who now works closely with the ministry.
“It was the first day of the war,” he recalls.
Moreover, cryptocurrencies have become a major part of Ukraine’s shadow economy – they are used as a medium of exchange for online crime, tax evasion and capital flight.
According to analytics firm Chainalysis, transactions from Eastern Europe to other regions are particularly high, and the company suggests that “capital flight could explain” some of the crypto’s movements in the area.
What are the consequences?
Despite the risks associated with cryptocurrency, Chobanyan is confident that it will become a major part of the Ukrainian economy.
“When we win the war, we will restore Ukraine with the help of blockchain technology. Cryptocurrency has helped all of us,” he said.
While Chobanian’s aspirations may be very ambitious, they are based on real events.
On Wednesday, President Volodymyr Zelensky passed a law that will provide a legal framework for the operation of cryptocurrency platforms and users within the country.
Caroline Malcolm, head of international public policy and research at Chainalysis, told AFP that the conflict in Ukraine “forces governments to develop their understanding of cryptocurrencies and their regulation.”
She believes such discussions could be beneficial for the crypto industry, leading to “proportionate and effective regulatory policies.”
Last week, U.S. President Joe Biden signed an executive order providing further clarifications and guidance on cryptocurrency regulation, signaling Washington’s willingness to tackle an ever-growing and new asset class.