How is Ukraine using crypto to fund the war?

war zones are difficult places to get money into and out of. On February 24th, the day Russia began its “special military operation”, Ukraine’s president, Volodymyr Zelensky, declared martial law. The central bank suspended most currency trading and froze the official exchange rate for the hryvnia. It also banned digital money transfers. Ukrainians scrambled to withdraw cash, and the value of the hryvnia plummeted on informal exchanges. Wire transfers slowed, taking days to reach the country. Wise, a cross-border payments company, lowered its cap for transfers into Ukraine from $14,000 to as low as $200 (though it has since lifted it again). But as the need for fast funds grew Ukraine has looked to crypto assets to help its war effort. How is it doing this, and what can cryptocurrency offer that fiat currency cannot?

Two days after the invasion began, the Ukrainian government posted addresses to its bitcoin, ethereum and tether wallets on social media. The Ministry of Digital Transformation of Ukraine now accepts donations in 14 cryptocurrencies. “Crypto really helped during the first few days because we were able to cover some immediate needs,” says Alex Bornyakov, one of Ukraine’s deputy ministers for digital transformation. The government has raised the equivalent of $100m so far. Non-government organisations are raising funds too. Come Back Alive, a Ukrainian NGO that since 2014 has collected money for military equipment and training, relies on crypto after it was kicked off Patreon, a fund-raising platform that accepts donations in fiat currency but does not allow them to be spent on military apparatus. UkraineDAO, a crypto collective, auctioned a non-fungible token (NFT) of a Ukrainian flag for $6.5m-worth of Ethereum. It is the tenth most expensive NFT ever sold according to Elliptic, an analytics firm. The proceeds will be spent on humanitarian aid.

Donations solicited in crypto pale next to those raised in fiat currencies. Governments and institutions such as the IMF have between them given billions of dollars in aid to Ukraine. America alone approved $13.6bn in emergency funding in March. But crypto donations have some advantages. Transfers are instant, individuals can donate easily and cryptocurrencies are, in theory, free from control by governments or businesses. By the beginning of March, Ukraine’s government had already spent over half of the crypto it had raised on military equipment including medicine, ballistic plates for bulletproof vests, walkie-talkies, lunches for soldiers, thermal imagers and helmets. Around a fifth of the funds raised has been spent in crypto directly.

It helps that Ukraine was already crypto-friendly. In 2021 the country ranked fourth in the world for crypto adoption, according to an index created by Chainalysis, a data firm. Since war broke out, the Ukrainian government has sought to improve its crypto infrastructure. On March 16th Mr Zelensky signed a number of new crypto regulations into law. Banks are now permitted to open accounts for crypto companies and there are new protections against fraud, such as requiring exchanges to register with the government. Regulators will also get new powers of oversight.

The growing use of crypto for cross-border transfers does bring risks, however. American and European lawmakers worry about Russians using such currencies to dodge sanctions (though crypto is not all that useful for moving money in the shadows) and about fraud. UkraineDAO and the Ukrainian government’s website for crypto donations provide ways to verify their legitimacy. But this hasn’t stopped nefarious actors. Scammers issuing a fake token called Peaceful World posed as Ukrainian officials and misled donors who thought that they would be supporting the war effort. Wiring money via crypto also incurs high transaction fees. Intermediaries, such as exchanges, can be prone to cyber attacks. And finding suppliers who will accept crypto is tricky, not least because the values of many cryptocurrencies are volatile, making them less useful for payments and transactions.

Ukraine’s government sees value in crypto donations. And, having already built up parts of its digital infrastructure, is in an unusually good position to receive them. Crypto may only be a small portion of funds, but Ukraine appreciates all the help it can get. ■

Read more of our recent coverage of the Ukraine crisis.