What role do cryptocurrencies play in the war in Ukraine?

In Ukraine, cryptocurrencies play a role never seen before, allowing the government to raise millions of dollars to fund its response to the Russian invasion.

Why has Ukraine opted for cryptocurrencies and how is this going to change a still very young sector?

- How many cryptocurrencies have they collected? -

From the first hours of the conflict, the Ukrainian government opened cryptocurrency addresses and wallets that allowed it to directly receive these decentralized currencies.

Anyone in possession of cryptocurrencies could send them to these addresses. Since then, funds have not stopped arriving in bitcoin, ethereum or also tether, a stable currency linked to the value of the dollar.

So far more than $100 million has been raised by the government or by the “Crypto Fund for Ukraine”, created by the sector's leading Ukrainian platform, Kuna, and later merged with the government portfolio.

“We still collect cryptocurrencies and spend it on buying rations” for soldiers, “bulletproof vests or helmets,” Michael Chobanian explains to AFP.

At 37 years old, the creator and owner of the Kuna platform is now exclusively engaged in raising cryptocurrency funds for the government.

- What are the advantages of crypto donations? -

The funds raised in cryptocurrencies are minimal compared to the billions in aid unlocked by the United States, the European Union or large international organizations, but they allow the involvement of individuals.

The US oenegé “The giving block”, which raises cryptocurrencies worldwide for Ukraine, estimates that it is “an option that younger donors are increasingly using to support multiple causes.”

And in Ukraine, citizens can see in cryptocurrencies a protection against the depreciation of their national currency, the hryvnia.

Although the central bank has managed to stop its collapse so far, the invasion and its consequences may cause it to lose value.

By using dollar-pegged stable cryptos such as the aforementioned tether, also called “stablecoins” (stablecoins), donors prevent their contributions from being exposed to fluctuations in the foreign exchange market.

Another advantage of this type of currency is the speed of the transfer. If a bank transaction between two countries can take 24 hours to be validated, cryptocurrency transfers usually take less than an hour.

- And what are the inconveniences? -

In a sector still under construction, these donations have their negative side.

The Ukrainian minister of the digital industry wanted to reward donors with a symbolic cryptocurrency created for the occasion, but he had to resign.

However, some anonymous people took advantage of it to circulate a false version of this currency in order to raise part of the funds for the war effort.

“There was a lack of communication” within the government, explains Chobanian, who now works closely with the ministry. “It was the first day of the war,” he says.

At the same time, encouraging the use of these digital currencies may ultimately turn against the government if Ukrainians begin to deploy a parallel monetary system.

In addition, according to the Chainalysis cabinet, transactions in Eastern Europe are particularly high to addresses outside the region, “which may indicate illegal outflows of funds” and possible tax fraud, they estimate.

- What consequences can it have? -

Despite the conflict, Chobanian is confident. “When we have won the war, we are going to rebuild Ukraine using 'blockchain' technology,” which is at the core of cryptocurrency exchanges.

It is an ambitious purpose, but with some foundation.

President Volodimir Zelensky on Wednesday legalized cryptocurrencies and gave a legislative framework for platforms and users that, until now, moved in a parallel economy.

And beyond its borders, the conflict “forces governments to develop their understanding of cryptocurrencies and their regulatory framework.”

“We hope this will lead to proportionate and effective regulatory policies,” Caroline Malcolm of Chainalysis tells AFP.

In the United States, President Joe Biden ordered the Treasury Department in early March to study the creation of a “digital dollar” and called on several government agencies to identify and combat the multitude of risks linked to cryptocurrencies.

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