Days after Russia invaded Ukraine, the latter has turned to cryptocurrency donations to support its military. The millions of dollars worth of crypto pouring into Ukraine have solidified the case for crypto assets emerging as a medium for fundraising in areas of war and conflict. While crypto assets may have emerged as a reliable way to make cross-border payments without any intermediaries, such virtual digital assets can also be used to bypass restrictions put on financial institutions via sanctions.
It is for this very reason that there is a grave risk that Russia may rely on crypto to circumvent sanctions. Here is a round-up of how crypto has become another battleground for the two warring countries:
How much has Ukraine raised via crypto donations so far?
Ukraine has raised more than $55 million in cryptocurrency donations since the start of Russia’s invasion, according to a post by Elliptic— a blockchain analytics firm. The official account of the government sent out a plea for donations in currencies such as Bitcoin (31.2 percent), Ethereum (33.7 percent), and Tether (17 percent), during the weekend.
Stand with the people of Ukraine. Now accepting cryptocurrency donations. Bitcoin, Ethereum and USDT.
BTC – 357a3So9CbsNfBBgFYACGvxxS6tMaDoa1P
ETH and USDT (ERC-20) – 0x165CD37b4C644C2921454429E7F9358d18A45e14
— Ukraine / Україна (@Ukraine) February 26, 2022
The addresses listed in the tweet have received $12.1 million, in 15,947 transactions, Elliptic reported. The donations have not been restricted to the government but also an NGO, Come Back Alive, which received a single Bitcoin donation worth $3 million, the report added.
The donations comprise not only cryptocurrencies but also NFTs which are being sent to the government’s Ethereum account, the firm said in its post. Many outside of Ukraine are also creating fundraising campaigns to support the Ukrainian military, it said. It must be noted that a significant portion (14.5 per cent) of crypto donations consist of Polkadot, the analytics firm revealed.
Is Russia resorting to virtual digital assets to bypass sanctions?
The US certainly seems to think that Russia will try to evade sanctions by using cryptocurrencies. The Biden administration has requested crypto exchanges to thwart any attempts by Russian individuals and organisations to avoid sanctions using virtual currencies, Bloomberg reported.
The White House’s National Security Council and the Treasury Department have been leading the effort to reach out to exchanges, the website added. The efforts demonstrate the growing importance of virtual assets and how they can pose a risk to sanctions used by countries to punish errant nations.
I'm asking all major crypto exchanges to block addresses of Russian users.
It's crucial to freeze not only the addresses linked to Russian and Belarusian politicians, but also to sabotage ordinary users.
— Mykhailo Fedorov (@FedorovMykhailo) February 27, 2022
The Treasury Department, on its part, published new regulations banning US persons from providing any support to certain Russian oligarchs and entities from March 1, CoinDesk reported.
“All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in … deceptive or structured transactions or dealings to circumvent any United States sanctions, including through the use of digital currencies or assets or the use of physical assets,” the document said.
Why are people sending millions of dollars in crypto to Ukraine?
Crypto is popular in Ukraine
Ukraine recognised cryptocurrencies in September last year, by passing a law in a vote which was virtually unanimous. The country ranks fourth on Chainalysis’ Global Crypto Adoption Index, after Vietnam, India and Pakistan, and about $8 billion of cryptocurrency passes through the country annually, The Verge reported.
- Ukrainians have few avenues of investments: The news website reported that crypto had become very popular in the last year. It also explained that Ukrainians had very few avenues of investment apart from real estate.
- Lack of trust in banks and local currency: The official currency in Ukraine is the Ukrainian hryvnia. However, Ukraine’s citizenry has little trust in its local currency and banks which has resulted in the US dollar being adopted as an unofficial currency with people stacking physical dollars with them, the report explained .
These may be the reasons why many crypto enthusiasts have sprung into action to support Ukraine, The Verge suggested.
Ukraine suspends electronic money
When Ukraine’s central bank suspended digital cash transfers and limited cash withdrawals following the invasion, crypto — alongside the dollar, gold, and silver — became a viable option for making transactions.
- Bitcoin underscores a stark divide in drastic situations: This divide lies between the interests of individuals and the interest of the collective. Bitcoin offers a way to opt out of a choice being made on behalf of the citizens by the government, as this article from Bitcoin Magazine explains. “It’s a way to make what you economically participate in completely voluntary. It might sound cold, or callous, but it’s the reality,” the author pointed out.
- Tether soars in value: The widespread use of dollar in Ukraine must be why Tether, a stablecoin pegged to the US dollar, touched $1.10 briefly in the last few days. The only other instrument whose price has soared is gold in the aftermath of the conflict. It may be an indication that crypto might slowly become an alternative for people to preserve their wealth in conflict areas.
- Develops utility for virtual assets: The adoption of crypto, along similar lines as gold, may be used by proponents of crypto to advocate its utility. When Russia invaded Ukraine, the crypto market across the world tanked leading many to believe that Bitcoin may not be on its way to become digital gold as many were predicting earlier. It was mimicking stock markets instead, but the events in the last few days have tipped the scales back in its favour.
Why did Binance refuse to block all Russian users?
Ukraine’s Ministry of Digital Transformation penned letters to eight cryptocurrency exchanges, according to CoinDesk. The letters called for exchanges to refrain from servicing Russian users because of concerns that digital currencies are being used to evade sanctions.
The ministry has reached out to the following exchanges as per CoinDesk:
- Coinbase,
- Binance,
- Huobi,
- KuCoin,
- Bybit,
- Gate.io
- Whitebit,
- Kuna.
The largest crypto exchange in the world, Binance, said that it will be blocking accounts of Russians who have been targeted by sanctions, Reuters reported. It, however, went on to add that it will not freeze the accounts of all Russians who use its platform.
“We are not going to unilaterally freeze millions of innocent users’ accounts. Crypto was meant to provide greater financial freedom for people across the globe,” a Binance representative was quoted as saying.
Russia is a crucial market for Binance, as is demonstrated by the strength (over 113,000 members) of its Russian-language Telegram channel, Reuters explained.
Received breaking news. @dmarket, a platform for trading NFT & In-game Metaverse items, decided to freeze the accounts of users from the Russian Federation and Belarus. Funds from these accounts could be donated to the war effort. Nowadays Robin Hoods. Bravo.
— Mykhailo Fedorov (@FedorovMykhailo) February 27, 2022
Coinbase told CoinDesk that it will not be banning transactions involving Russian addresses, but will block those accounts or transactions that may involve sanctioned individuals or entities.
Kraken CEO Jesse Powell expressed similar sentiments as Binance last night when explaining why his exchange wouldn’t be freezing the accounts of its Russian clientele unless legally required to do so.
FTX is locked in consultation with US and Bahamas officials on the proper course of action, Bloomberg said in its report.
Where else has crypto been deployed to aid relief operations?
Since traditional routes of donations are susceptible to sanctions which can dry up funding at critical junctures, crypto has emerged as a form of alternative donation to provide humanitarian assistance in the last few years. Here are some recent examples:
India: The COVID-Crypto Relief Fund was announced in April 2021 during the second wave of the COVID-19 pandemic in India. It was founded by Sandeep Nailwal who runs Polygon— an Ethereum-scaling solution. Vitalik Buterin donated nearly $1 billion to the fund. It also raised nearly $6 million in 10 cryptocurrencies from several people. The details of the fund are public.
Afghanistan: In light of economic sanctions on the Taliban government, many Afghans turned to crypto to make emergency payments. Moreover, several NGOs and humanitarian organisations, affected by banks’ failure and hawala networks, used cryptocurrency as an alternative to supply aid.
Tonga: The island nation invited donations in Bitcoin after it experienced the shockwave of a massive volcanic eruption of the Hunga Tonga-Hunga-Ha’apai volcano. A wallet address was set up for people to donate Bitcoin for Tonga’s relief funds. Nearly $40,000 had been collected in donations by the wallet.
What are the ways in which crypto is being mobilised to aid Ukraine?
Vitalik Buterin, Ethereum’s co-founder, tweeted that he was upset by President Putin’s decision to invade the country and called it a “crime against Ukrainian and Russian people”.
Очень расстроен решением Путина отказаться от возможности мирного решения спора с Украиной и вместо этого начать войну. Это преступление против украинского и русского народа.
Хочу желать всем безопасности, хотя знаю, что не какой безопасности не будет.
Слава Украине.
— vitalik.eth (@VitalikButerin) February 24, 2022
He shared an announcement from Unchain.fund, which will direct its donations towards humanitarian relief. Moreover, Yev Muchnik, a Ukrainian-born lawyer in the US, is collaborating on Ukraine United DAO with developers from PieFi to provide internet connectivity with the help of peer-to-peer mesh networks.
UkraineDAO was formed by the Russian feminist protest punk rock and performance art group Pussy Riot to raise funds to support the Ukrainian miliary. RELI3F, is “a humanitarian aid initiative founded by NFT/web3 artists collaborating to support the people of Ukraine.”
Here are one of the documents shared by The Verge on how people, who are looking to support Ukraine, can donate crypto.
This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.
Updated March 7, 2022: The post was updated to reflect the actual size of crypto donations received by Ukraine.
Also Read:
- HNIs shifting crypto assets abroad amidst regulatory uncertainty, but is this legal?
- Russia proposes blanket ban on all activities related to crypto assets including mining
- Nations need synchronised action to tackle crypto challenge: PM Modi at WEF’s Davos Conference
- IMF calls for level-playing field in global regulatory framework for crypto assets
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