Ukraine, which has waged a staunch defense against the Russian invasion, says it has pioneered a new source of financial support: people from around the world who have donated millions of dollars directly to its war effort through cryptocurrencies like bitcoin.
Since February 26, when Ukrainian officials began tweeting calls for cryptocurrency donations, the Ukrainian government says it has received more than $60 million of its $200 million goal as of Wednesday.
"Today, cryptocurrencies are playing an important role in Ukraine's defense, Alex Bornyakov, the country's deputy minister for digital transformation, wrote on the nation's donations website.
Ukraine has spent about $34 million of the funds received as of last week, converting about 80% to traditional currencies and using the rest with merchants that already accept cryptocurrencies, Bornyakov said in response to emailed questions.
The funds raised in cryptocurrency they are only a small part of the total donations that Ukraine has received. After raising up to $12 million on March 2, cryptocurrency donations have dropped, though boosters say the unexpected initial surge may inspire other efforts to solicit cryptocurrency for humanitarian or defensive purposes. Officials have said that the speed with which they can use cryptocurrency donations has made them useful.
The downside to that ease of transfer, of course, is that cryptocurrencies continue to be a magnet for scams and are the currency of choice for criminal networks.
On Tuesday, European Central Bank head Christine Lagarde warned that crypto assets are being used as a way to try to circumvent sanctions against Russia, but provided no details beyond noting that global ruble-to-cryptocurrency transfers are increasing. considerably in volume.
Michael Chobanian, the founder of a Ukrainian cryptocurrency exchange, is one of several people helping the Ukrainian government manage donations through an informal arrangement, Bornyakov confirmed.
We are buying so many things that save lives every day and we are also stopping aggression, so it is the beginning of a new world, Chobanian said in a voice message sent through the Telegram application.
Chobanian said that he was not receiving payment for his work, but acknowledged that some of the funds are being converted through his Kuna cryptocurrency exchange.
It's certainly news, said Bennett Tomlin, who investigates cryptocurrency scams and hosts the Crypto Critic's Corner podcast. Never before have we seen a sovereign nation fund their crypto defense efforts. It proves much of the crypto argument.
That argument is that cryptocurrencies enable the unrestricted sending and receiving of value across borders through networks that cannot be easily censored or shut down because there is no single entity in charge.
Proponents also argue that cryptocurrency does not require users to trust financial institutions because the system is run by code that anyone can inspect and transactions are indelibly written on distributed public digital ledgers known as blockchains.
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 as gatekeepers in part because many must collect identifying information about people who use their services. Two large cryptocurrency exchanges, Binance and CoinBase, took steps 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 call for donations also attracted fraudsters who tried to capitalize on the goodwill of donors. Hilary Allen, an American University law school professor who has written a book on the risks cryptocurrencies pose to financial systems, said that anyone who donates should take a hard look at all the players involved.
Who is receiving the crypto? Who will convert the crypto? You should think of them the same way you would think of any other charity or nonprofit you're donating to because they're intermediaries in the same way, Allen said.
Many of the donations to Ukrainian accounts can be verified on public tools that track cryptocurrency transactions, as well as transfers made from accounts controlled by Ukraine.
Tuan Phan, a cybersecurity professional who specializes in blockchain forensics, examined the flow of money to and from some of the Ukrainian accounts in part because he wanted to make a donation 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 sympathetic to the Ukrainians, Phan said. I wanted to make sure the address I send my donation to is in the correct places. There are a lot of scams going on, so you have to be very careful.
Another challenge that comes with accepting cryptocurrency donations is the possibility of people sending tainted assets obtained through crime or scams, said Ukrainian cryptocurrency lawyer Artem Afian.
Even if some of the donated funds were obtained through illicit activities, he said, I think that comparing the risks and benefits for Ukraine now Ukraine is using every penny, every opportunity to support the people, to support the army, so this It is not a time when Ukraine can choose a lot."
In total, cryptocurrency donations so far amount to about 1% of Ukraine's prewar annual defense budget, according to a Congressional Research Service report updated in January. The Ukrainian government is also receiving aid through many other channels, although not all of them flow directly to the government.
Congress appropriated $13.6 billion for Ukraine and President Joe Biden pledged an additional $800 million in military aid following Ukrainian President Volodymyr Zelenskyy's speech to US lawmakers last week.
The United Nations has raised some $618 million for Ukraine out of a $1.1 billion target, in addition to requesting another $550 million for refugee support. The European Union has pledged โฌ500 million for the humanitarian response, as well as additional funds to support Ukraine's budget.
Last week, Zelenskyy enacted a cryptocurrency regulatory framework that Bornyakov says resolves a previously gray area within the country's laws.
Afian, the Ukrainian lawyer, was involved in drafting the legislation and argued that Ukraine was on its way to becoming more crypto-friendly. The donations so far, he added, can make governments see that working with crypto can be official and transparent and well managed.
(Only the headline and image in this report may have been modified by Business Standard staff; all other content is auto-generated from a syndicated source.)
