They may be dwarfed by the sums of international aid war-torn Ukraine is receiving, but surging cryptocurrency donations are playing a critical role in helping the country withstand the Russian invasion, highlighting the importance of borderless digital coins in emergency situations.
Since the conflict broke out, Ukraine has raised tens of millions of dollars’ worth of crypto donations which have been used to support civilians affected by the war and provide vital non-lethal supplies to the Ukrainian armed forces.
While bilateral and multilateral assistance for Ukraine will likely run into billions of dollars, the country’s so far resilient banking system is under pressure. The flow of financial aid may be vulnerable to bureaucratic delays and disruptive Russian cyberattacks. Rapid and secure crypto donations, however, allow the authorities to respond quickly to humanitarian and military needs.
Crypto use in Ukraine was high long before the war, with many turning to digital coins in response to the country’s turbulent monetary history, which has witnessed large devaluations since independence from the Soviet Union in the early 90s. Ukraine has the fourth-highest crypto adoption rate in the world, emerging as a significant decentralised finance hub.
The country’s virtual asset infrastructure and talent pool have come into their own during the war, with crypto entrepreneurs launching donation campaigns, the most impressive being the Crypto Fund for Ukraine, accounting for more than half of all donations. Other notable fundraising initiatives include a so-called decentralised autonomous organisation, UkraineDAO, co-founded by a member of the Russian activist punk band Pussy Riot.
In the wake of these private ventures, the government established a crypto donations website Aid for Ukraine in collaboration with several partners, including crypto exchange FTX – apparently setting digital coin precedent. FTX converts tokens received into fiat currency for the National Bank of Ukraine, the first time, says the website, that a crypto exchange has linked up with a public financial entity to provide a conduit for cryptocurrency. More recently, the government has begun auctioning off a collection of non-fungible tokens (NFTs) featuring digital images of the war to further boost the aid effort.
Since the start of the Russian invasion, Ukraine has received more than 100 million dollars’ worth of digital coin donations, used to both support humanitarian relief, including civilian evacuations, critical medical assistance and food, and supply the army with vital provisions, such as rations, night-vision glasses and bulletproof vests. Some of the funds have also been employed in what Ukrainian officials call a ‘digital diplomacy war’ to counter Russian propaganda.
The effectiveness of the virtual asset donations appears to have prompted the authorities to address the legal limbo in which the crypto sector has been operating. Until recently, digital coins were neither lawful nor forbidden due to a lack of legislation defining them and their usage, according to Euronews. But new legislation has legalised the activities of foreign and Ukrainian crypto exchanges in the country and created a regulatory framework for a virtual asset market.
The move to legitimise the sector should spur donations. It will also help ordinary Ukrainians relying on crypto remittances or looking to purchase them in the face of financial restrictions imposed following the Russian invasion. The government has so far suspended e-money transactions and the foreign exchange market. Cash withdrawals have also been limited. Indeed, early in the conflict reports of an increase in demand for dollar-pegged stablecoin Tether suggested that some, nervous about the banking system, may have sought to secure savings by converting them into cryptocurrency.
While the Ukraine conflict has demonstrated the utility of virtual assets in times of crisis and emergency, some observers have cautioned that their volatility means they could rapidly depreciate in value just when they’re needed. In fact, at the start of war crypto markets plunged, though since then leading coins have rallied. Others worry they may offer those responsible for Ukrainian suffering a means of countering sanctions. For the moment, there seems little evidence of this. There has been a recent spike in crypto transactions in Russia, but it looks to have been driven by ordinary Russians wanting to preserve their savings as the economy nosedives.
The Ukraine war has highlighted the benefit and some of the potential pitfalls of cryptocurrency use in international emergencies. So far, at least, the former appears to have substantially outweighed the latter, offering Kyiv an opportunity to respond quickly to evolving needs. Governments and aid organisations should see the donations campaign as proof of cryptocurrency utility during crises. Among the big donors, the global NGO Save the Children is already persuaded, encouraging digital coin contributions to its Ukraine campaign. No doubt others will follow its example.