What role do cryptocurrencies play in the war in Ukraine?

On Ukrainecryptocurrencies play a role never seen before, allowing the government to raise millions of dollars to finance its response to the invasion of Russia.

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

– How many cryptocurrencies have they raised? –

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 cryptocurrency could send it to these addresses. Since then, funds have not stopped arriving in bitcoin, ethereum or even tether, a stable currency linked to the value of the dollar.

More than $100 million has been raised so far by the government or by the “Crypto Fund for Ukraine”, created by the leading Ukrainian platform in the sector, Kuna, and later merged with the government wallet.

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

The 37-year-old creator and owner of the Kuna platform now deals exclusively with raising funds in cryptocurrency for the government.

– What are the advantages of donations in crypto? –

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

The American NGO “The giving block”, which raises cryptocurrencies around the world for Ukraine, estimates that it is “an option that younger donors are increasingly using to support multiple causes”.

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

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

By using dollar-pegged stablecoins such as the aforementioned tether, also called “stablecoins,” donors prevent their contributions from being exposed to currency market fluctuations.

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 shipments usually take less than an hour.

– And what drawbacks? –

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

The Ukrainian minister of the digital industry wanted to reward donors with a token cryptocurrency created for the occasion, but had to give up.

However, some anonymous people took advantage of it to circulate a false version of this currency with the purpose of raising part of the funds destined 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 notes.

At the same time, encouraging the use of these digital currencies may eventually turn against the government if the Ukrainians start rolling out a parallel monetary system.

In addition, according to the Chainalysis cabinet, transactions in Eastern Europe are particularly high towards addresses located 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 will rebuild Ukraine using the ‘blockchain’ technology”, which is at the base of cryptocurrency exchanges.

It is an ambitious purpose, but with a certain foundation.

President Volodimir Zelensky legalized cryptocurrencies on Wednesday and provided a legislative framework for platforms and users who, until now, have operated in a parallel economy.

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

“We hope that this will lead to proportionate and effective regulation policies,” Caroline Malcolm, from Chainalysis, tells AFP.

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