Role of Cryptocurrency’s in the Russia-Ukraine War

 

Finance usually plays a major role in wars, but the Russo-Ukraine War is the first major conflict in which cryptocurrencies have played a major role. Since Russian forces invaded Ukraine on February 24, the United States and its allies have imposed an unprecedented series of sanctions on Russia. These efforts have raised questions, including in Congress, about whether cryptocurrencies could be used by Russian actors to circumvent sanctions. Broadly speaking, the Russia-Ukraine crisis comes at a time when policymakers are trying to decide how to regulate digital assets. This month, President Biden signed an executive order calling for an exhaustive government strategy on digital assets, including reducing national security risks and illicit finance.

As noted by Investors Observer: "The Russian invasion only exacerbated the problem, with many citizens fearing that the money stored in savings accounts would be lost forever. Banks were at risk of being destroyed as well as in Ukrainian society." With corruption rampant, it is not surprising that aid initiatives in the early months of the war attracted crypto as a medium of exchange".

So far more than $100 million has been raised by the government or by the "Crypto Fund for Ukraine", created by the sector's leading Ukrainian platform, Kuna, and later merged with the government portfolio.

"We still collect cryptocurrency and spend it on buying rations for soldiers", "bulletproof vests or helmets," Michael Chobanian tells AFP.

At 37 years old, the creator and owner of the Kuna platform is now exclusively raising crypto funds for the government.

Netherlands-based blockchain investigative tool Crystal Blockchain announced that as of May 12, 2022, Ukraine had taken in over $125 million in crypto donations.

 

Benefits of crypto donation?

Funds raised in cryptocurrencies are minimal compared to the billions in aid unlocked by the United States, the European Union or large international organizations, but they allow the participation of individuals.

US Onege “The Giving Block”, which raises cryptocurrency around the world for Ukraine, estimates that it is “an option that young donors are increasingly using to support a range of causes.”

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

Although the central bank has so far managed to contain its collapse, the attack and its consequences could reduce its value.

By using dollar-denominated stable crypto, such as the aforementioned Tether, also known as "stablecoins", donors prevent their contributions from being exposed to volatility in the forex market.

Another advantage of this type of currency is the speed of transfer. If a bank transaction between two countries can take up to 24 hours to be validated, a cryptocurrency transfer usually takes less than an hour.

 

What are the inconveniences?

In an area still under construction, these donations have their downside.

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

However, some unknown people took advantage of this to circulate a false version of this currency to raise part of the money for the war effort.

"There was a lack of communication" within the government, explains Chobanian, which now works closely with the ministry. "It was the first day of the war," he says.

At the same time, encouraging the use of these digital currencies could ultimately turn against the government if Ukrainians start implementing a parallel monetary system.

Furthermore, according to the Chainalysis cabinet, transactions in Eastern Europe are particularly high for addresses outside the region, "which could indicate illegal outflow of funds" and potential tax fraud, they estimate.

 

Could it have consequences?

Despite the struggle, Chobanian remains confident. “When we have won the war, we are going to rebuild Ukraine using blockchain technology,” which is at the core of cryptocurrency exchanges.

It is an ambitious objective, but with some foundation.

President Volodymyr Zelensky on Wednesday legalized cryptocurrencies and gave a legislative framework for platforms and users that have so far moved to a parallel economy.

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

"We hope this will lead to proportionate and effective regulatory policies," Chainalysis's Carolyn Malcolm told AFP.

In the United States, President Joe Biden in early March ordered the Treasury Department to study the creation of the "digital dollar" and called on a number of government agencies to identify and combat the risks associated with cryptocurrencies.