Bitcoin to the rescue: The role of cryptocurrency in Ukraine
Ukraine has embraced cryptocurrency in order to finance its military campaign against Russia.
Cryptocurrencies have played a pivotal part in Ukraine’s battle, assisting the government in raising millions of money to combat the Russian invasion.
“We are still collecting crypto. It is being spent on aid like daily rations and bullet-proof vests and helmets,” the 37-year-old Ukrainian told AFP.
Since then, more than $100 million in cryptocurrency has been raised, with Michael Chobanian’s “Crypto Fund for Ukraine” accounting for 60% of all donations.
He stated that the majority of cryptocurrency donations came in the form of Bitcoin, Ethereum, and Tether — a stablecoin pegged one-to-one to the dollar.
What are the advantages of crypto donations?
While aid packages delivered to Ukraine in fiat currency by the US and the European Union surpass bitcoin donations, the latter allows individuals to participate.
The Giving Block, a US-based crypto charity, told AFP that bitcoin donations have the potential to attract “younger donors” looking to support a variety of causes.
Additionally, cryptocurrency donations are valuable to Ukraine since they are unaffected by geopolitical or economic concerns. Chobanian cites inflation as a reason for the Ukrainian hryvnia’s fall in value.
An additional benefit of donating in cryptocurrency is the quickness with which the funds are transferred. Validation of bank wires between two countries can take up to 24 hours. Cryptocurrency transactions, on the other hand, often require less time.
What are the disadvantages?
Despite crypto’s success in assisting the Ukrainian military effort, the road has not always been simple.
During the early stages of the conflict, the deputy minister for digital transformation proposed issuing Ukraine’s own cryptocurrency as a symbolic gesture in support of Kyiv’s cause, but the initiative was ultimately shelved.
Individuals took advantage of the opportunity to produce and market counterfeit versions of the intended government-issued cryptocurrency to compound issues.
“There was a communication breakdown” inside the government, Chobanian explained, adding that he now works closely with the ministry.
“It was the war’s first day,” he recalls. Additionally, cryptocurrencies have established a foothold in Ukraine’s shadow economy, where they are used as a means of exchange for cybercrime, tax evasion, and capital flight.
According to data analytics firm Chainalysis, transactions between Eastern Europe and other countries are notably high. The business speculates that “capital flight” may explain some of the region’s crypto activity.
What are the ramifications?
Despite the concerns, Chobanian is sure that cryptocurrency will become a critical component of the Ukrainian economy.
“When we win the battle, we will use blockchain technology to rebuild Ukraine. Crypto aided us all,” he stated.
While Chobanian’s ambitions are lofty, they are grounded in reality. President Volodymyr Zelenskyy signed a bill into law on Wednesday that establishes a legal framework for crypto platforms and users to operate in the country.
Caroline Malcolm, Chainalysis’s head of international public policy and research, told AFP that the Ukraine war “is compelling governments to improve their understanding of cryptocurrencies and their regulation.”
According to her, such dialogues can benefit the cryptocurrency business by resulting in “proportionate and effective regulatory rules.”
Last week, US President Joe Biden issued an executive order requesting additional explanation and direction on crypto regulation, demonstrating Washington’s willingness to deal with an ever-growing and novel asset class.