How Ukraine embraced cryptocurrencies in response to war
It was a plan hatched in haste on the second day of the invasion. Ukraine’s digital transformation minister Mykhailo Fedorov turned to his deputy, instructing him to set up official government wallets that could accept payments in cryptocurrency.
As queues built up outside cashpoints and supermarkets in Kyiv, Alex Bornyakov knew he had to move fast.
“Our banks were limited, there were restrictions on our use of fiat currencies and we were rapidly running out of supplies,” he said. “Even if you manage to pay in fiat, a wire transfer takes a few days to reach the recipient. In the crypto world, it takes minutes.”
Ukraine had already begun embracing crypto before its war with Russia. The country was ranked fourth for cryptocurrency adoption among its citizens in a global index by Chainalysis, the crypto research group, last year.
But the conflict has acted as a catalyst for the government’s ambitions to build an innovative, blockchain-friendly economy, led by a young team of techno-natives in government: Fedorov is 31, Bornyakov, 40, and President Volodymyr Zelensky, 44.
The government has raised more than $100mn in cryptocurrency donations since the war started. While this is small compared with the billions in aid from western governments and the IMF, Bornyakov said crypto had become an essential tool of war, allowing flexibility and speed.
“It is a great achievement of the government that we have young leaders, we are more enthusiastic and willing to accept changes,” said Bornyakov, an attitude he believes has been instrumental in implementing this crypto policy.
The country’s pro-crypto push continued this week, with the government putting in place legal structures to help boost the industry.
Crypto exchanges are now allowed to operate in the country, consumers have protections against fraud, and the National Bank of Ukraine and the National Securities and Stock Market Commission have been appointed as regulators. The National Bank may eventually launch its own digital currency, according to those behind the new legislation.
The Ukrainian government has already spent half of its crypto fundraising on thousands of bulletproof vests, food rations, helmets and medical supplies — deliberately choosing to spend the funds on non-lethal equipment, so as not to deter future donors.
A portion of the funds has also been spent on what Bornyakov calls a “digital diplomacy war”, trying to reach Russians on the ground who “live in a bubble being fed propaganda” through media campaigns on social networks.
Meanwhile, the government also moved quickly to secure new agreements with military suppliers to accept payment in cryptocurrencies for the first time.
Michael Chobanian, founder of cryptocurrency exchange Kuna and president of the Blockchain Association of Ukraine, worked with the government to scale its crypto effort alongside exchange FTX and Ukrainian staking platform Everstake.
“We are the parallel banking system for the country,” said Chobanian. “We don’t care who is supporting us right now — hackers, crypto criminals — as long as they are sending us money,” he added.
As the war has continued, the government has refined its approach. This week, it launched an official Aid for Ukraine website, which accepts donations in nine cryptocurrencies including bitcoin, ether, tether, solana and dogecoin. Previously, it just advertised its official crypto wallet addresses on Twitter.
But an influx in cryptocurrency scams claiming to be fundraising for Ukraine have also populated social media and messaging platforms such as Telegram.
“We have seen an uptick in accounts themed around Ukraine since the invasion,” said Brittany Allen, trust and safety architect at fraud prevention company Sift. Telegram did not respond to a request for comment.
Lisa Cameron, a British MP and chair of the UK’s all-party parliamentary group on crypto and digital assets, said the war had shown “how crypto can be a force for good at this terrible moment in history”.
“But there are real concerns still in how unregulated the industry is, and how Russians could be using it to evade sanctions,” she added.
Global crypto exchanges, including Binance and FTX, have drawn criticism for refusing to cut off Russian users completely. The companies argue a blanket ban would unfairly target ordinary citizens and have pledged to vigorously enforce sanctions.
There have also been some missteps along the way as the Ukrainian government works out the best ways to use digital assets in such an unusual situation.
Earlier this month, the government announced it would thank those who donated to its crypto wallets with an “airdrop”: when NFTs or other tokens are awarded to investors in a project often to encourage more sign-ups. However, hours later Fedorov cancelled these plans “after careful consideration” — a sign of how frenetic the digital strategy can be.
On social media, the crypto community joked this was “the best rug ever”, a term used to describe when somebody cancels a hyped NFT project after investors sign up, pulling the rug from under them and running away with the money.
The Ukrainian government’s next move will see it become the first developed country to issue its own collection of NFTs — collectable tokens that are fixed on the blockchain and so cannot be replicated.
It plans to launch a series of NFTs under the working title of Meta History: Museum of War. The collection will feature a token from each day of the conflict, with artwork corresponding to a news story.
Bornyakov said the tokens would provide an immutable record on the blockchain to document and reflect on the conflict while raising money to aid the country’s fight.
“This is the first time crypto’s power has been used in this way,” said Sergey Vasylchuk, founder of Everstake who has fled his home and headquarters in Kyiv. “Mass adoption is now inevitable.”