On February 24, the day Russia launched its “special military operation,” Ukrainian President Volodymyr Zelensky announced a military mobilization. The central bank suspended currency trading and froze the hryvnia (local currency) exchange rate.
The country also banned digital money transfers. Ukrainians tried to withdraw money while the value of the hryvnia marked a sharp decline. Wise, a cross-border payment company, lowered its limit on transfers to Ukraine from $ 14,000 to $ 200. But as the need for quick funding grew, Ukraine used cryptocurrencies to fund the war.
How is Ukraine managing to finance the war thanks to cryptocurrencies?
Two days after the invasion began, the Ukrainian government posted on social media addresses for the use of cryptos such as bitcoin, ethereum and tether. The Ministry of Digital Transformation of Ukraine now accepts donations in 14 currencies
“Crypto really helped during the first days, as we managed to cover the essential needs,” said Alex Bornyakov, one of Ukraine’s deputy ministers for digital transformation.
The government has so far raised the equivalent of $ 100 million. Non-governmental organizations are also raising funds. Come Back Alive, a Ukrainian NGO since 2014 has raised money for military equipment and training.
UkraineDAO, a crypto collective, auctioned off an unchanged token (NFT) of a Ukrainian flag for $ 6.5 million Ethereum. It is the tenth most expensive NFT ever sold according to Elliptic, an analytical firm. Proceeds will be used for humanitarian aid.
Governments and institutions such as the IMF have provided billions of dollars in aid to Ukraine. America alone approved $ 13.6 billion in emergency funding in March. But cryptocurrency donations have several advantages, as transfers can be made instantly, individuals can donate easily, and cryptocurrencies are not controlled by governments or businesses.
By early March, the Ukrainian government had already spent over half of the cryptocurrencies it had collected on military equipment, medicines, bulletproof vests, thermal images and helmets. In 2021, the country was ranked fourth in the world for the adoption of cryptocurrencies, according to an index created by Chainalysis, reports abcnews.al.
Since the outbreak of the war, the Ukrainian government has sought to improve its crypto infrastructure. On March 16, Zelensky signed a series of new rules regarding cryptocurrencies. Banks will now be able to open accounts for crypto companies and there are laws that protect them against fraud.
However, the growing use of cryptocurrencies for cross-border transfers carries risks. US and European lawmakers are concerned that the Russians are using such currencies to circumvent sanctions.
UkraineDAO and the Ukrainian government website for crypto donations offer ways to verify their legitimacy. But that has not stopped the fraudsters, as mediators may be more prone to cyber attacks.
And finding suppliers who will accept cryptocurrencies is tricky, as the values of many cryptocurrencies are volatile, making them less useful for payments and transactions.
The Ukrainian government knows that cryptocurrency donations have value, especially after the construction of infrastructure. Cryptocurrencies may be only a small part of the funds, but Ukraine certainly can not depend only on cryptocurrencies as it needs the help of other countries as well.
