Crypto Curious: How crypto is making a difference in the Ukraine conflict
There are many reasons why crypto is the future, and global crowdfunding is one of them. Within 36 hours of the start of the conflict, Ukraine’s government shared their digital wallet addresses on Twitter and crypto transfers flowed in. In one week, Ukraine was able to raise $53.7 million, which was immediately spent on vital supplies like bulletproof vests, night vision goggles, food, and medicine. Since then, the total amount of tracked crypto donations for Ukraine aid has surpassed $133 million, most of which was small-value amounts.
The total donated in crypto pales in comparison to the overall humanitarian aid promised by other countries, but the key benefit in the early days of the conflict was speed. It takes only minutes for a crypto transaction to go through the network, whereas even in an ideal situation cross-border payments can take 3-5+ business days. Ukraine’s government was also able to act quickly by transferring the donated crypto to local store owners and distributing food to thousands of people experiencing shortages in the city of Mariupol.
Outside of crypto, blockchain-based innovations, like Non-Fungible Tokens (NFTs) that are commonly seen as digital artwork, are also a source to raise funds. Ukraine launched what they are calling museum NFTs to preserve key moments in the conflict and are launching a partnership with NFT marketplace OpenSea to sell donated NFTs and NFT collections. A crypto collective called UkraineDAO auctioned off an NFT of the Ukrainian flag that sold for $6.75 million. Crypto.com, a crypto exchange, released an NFT collection to raise funds and ran a TV ad about their matching donation up to $1 million. Ukraine’s government is also making moves towards becoming a cashless society by digitizing their local currency.
Alex Bornyakov, Ukraine’s Deputy Minister of Digital Transformation, explained that much of this work was possible because of the foundation of forward-thinking policies that were already in place or in development prior to the start of the conflict. Ukraine was ranked 4th for crypto adoption last year, according to the data firm, Chainalysis.
Crypto is providing a lifeline for Ukrainians
When the conflict first started, the National Bank of Ukraine understandably limited cash withdrawals to prevent a run on the banks. Regardless, carrying cash would have been hazardous and certainly not ideal for the 4.6 million refugees who have fled Ukraine, many of whom are separated from family members who stayed behind.
Some of these refugees who were unable to access their bank accounts have been able to use crypto in lieu of their local currency, either by escaping with a hardware wallet containing their digital assets or by receiving crypto sent to them once they were settled. One brand making an impact is Binance, a large cryptocurrency exchange, who is working with Ukraine’s government to launch a charity crypto card to provide funds to Ukrainian refugees.
Crypto is not an ideal tool to avoid sanctions
Once economic sanctions were announced, including the removal of Russia from transacting via the Swift payments network, there was rising concern over how crypto might be used to evade sanctions. However, transactions on the blockchain, the underlying technology that powers cryptocurrencies, are on a public ledger. This means that it’s possible to track every transaction on a given crypto network, such as Bitcoin and Ethereum. Because of this, and with the cooperation of crypto exchanges like Coinbase that act as on-ramps between crypto and fiat currencies, crypto is not currently being used by the Russian government or Russian oligarchs to avoid sanctions in any meaningful way.
Part of why crypto has not been used as a replacement system, and is unlikely to be in the future, has to do with the size of a large nation state’s budget. Last year, Russia was the sixth largest economy in the world and, after the conflict in Ukraine began, about $300 billion of their foreign currency reserves were frozen. If you consider as a relative comparison the outsized share that would take in a $770 billion Bitcoin market capitalization, it would be obvious if Russia was trying to use the network.
Crypto also has a liquidity stopgap. The way that crypto markets work is based on the idea of supply and demand – if Russians want to buy crypto denominated in rubles, they need a seller who’s also interested in transacting in that way. The reality is that most of the trading volume for BTC/ETH is in USD, creating a natural limitation on how much crypto could even be accrued. Even if Russia was able to amass a substantial amount of crypto, the issue then becomes who would actually accept that as payment, as sanctions by Western countries make up a substantial portion of their trade.
National Security Council’s director of cybersecurity Carole House says the scale that Russia would need to circumvent all financial sanctions “would almost certainly render cryptocurrency as an ineffective primary tool for the state.”
What we think
The situation in Ukraine has shown the ways that crypto and NFTs can be used for charitable and philanthropic purposes, especially tapping into a large pool of small donors worldwide. For those who have donated, the benefits of blockchain technology is that they know exactly where the money is going, fees are lower and less complex, and money can be transferred without the usual delays. Those who are on the receiving end are able to access the funds almost immediately and without worrying about an intermediary cutting them off from their money. The traditional financial system is not always the most efficient way to distribute aid, and the decentralized system of crypto provides an alternate option in a time of need.
The conflict in Ukraine has showcased the new ways that crypto is being used by governments, individuals and families, refugees, concerned citizens, and crypto-native brands, rallying all these different groups around one cause. As Bornyakov states, crypto is helping Ukraine’s government to “save as many lives as we can.”