Cryptocurrency is playing a significant role in the Russia-Ukraine conflict, which has helped to facilitate the flow of needed funds to Ukrainian citizens and soldiers.
The Ukrainian government and non-governmental organizations (NGOs) supporting the military effort have raised $59.2 million in crypto donations, even as digital coin exchanges face pressure to curtail transactions from non-sanctioned Russians.
Those funds are dwarfed by the billions Ukraine is receiving from NATO allies, but the outpouring of crowdsourced crypto donations have been a boon to the country, according to Alex Bornyakov, Deputy Minister of Ukraine’s Ministry of Digital Transformation.
“In times like these, response time is crucial. Crypto is playing a role to give us flexibility to respond really quickly to deliver the army’s required supplies,” Bornyakov told Yahoo Finance Live in an interview.
As Russian bombs strafed major cities, Bornyakov was forced to evacuate Kyiv on February 24.
Two days later, Bornyakov’s boss, Ukrainian vice prime minister, Mykhalio Federov, posted Bitcoin (BTC-USD) and Ethereum (ETH-USD) wallet addresses over Twitter, requesting crowdsourced crypto donations.
According to data tracked by the blockchain analytics firm, Elliptic, the majority of donations to Ukraine have been paid in Ether and Bitcoin, but donors have also sent the PolkaDot cryptocurrency (DOT-USD) as well as stablecoins like Tether (USDT-USD) and even a Crypto Punk NFT.
Cryptocurrencies have offered faster transaction times, though not all suppliers still accept it as payment, according to Bornyakov. Currently, the government converts the donated crypto assets into dollars or euros through the Ukrainian exchange, Kuna, which also custodies the funds.
Last week the Ukrainian government teased “airdropping” rewards to crypto donors, potentially in the form of non-fungible tokens (NFTs), which caused government donations to surge.
Originally, “an initiative to create awareness” crypto investors quickly sent smaller amounts in anticipation of rewards. Yet the government decided to push back the reward offer amid mounting cyber security concerns stemming from the invasion.
“Maybe it’s going to be airdropped at some point but right now, Russia is very active in their military actions so we need to focus on defending our country rather than going further with the airdrop,” Bornyakov explained.
As the Ukrainian government has embraced cryptocurrency during its hour of need, some US policymakers — such as Senator Elizabeth Warren — have also raised concerns that digital tokens could help Russian entities evade sanctions.
Though fully compliant Western sanctions, the world’s top cryptocurrency exchanges have resisted calls for a blanket denial of service to all Russian customers, even as major technology and financial companies have severed ties with Russia altogether.
“Some ordinary Russians are using crypto as a lifeline now that their currency has collapsed. Many of them likely oppose what their country is doing, and a ban would hurt them, too,” wrote Coinbase Global’s CEO Brian Armstrong on Twitter just before midnight last Thursday.
“If the US government decides to impose a ban, we will of course follow those laws,” Armstrong added.
However, several analysts as well as Todd Conklin, a counselor to the deputy secretary at the US Treasury have suggested crypto can’t be used to fully circumvent the sting of sanctions, given practical limitations.
“You can’t flip a switch over night and run a G20 economy on cryptocurrency,” Conklin said in a recent webinar with the blockchain analytics firm, TRM Labs.
Bornyakov remains vehemently against the idea that any funding channels should be left open to Russia. He blasted it as a form of “blood money,” which Kremlin can use to fund the invasion.
Large centralized cryptocurrency exchanges with US customers are required by regulators to have sanctions compliance controls in place. Those firms use blockchain analysis software that monitors the origination of funds sent to them, as do federal agencies.
Outside of the US raising sanctions, the most probably near-term scenario to play out is that certain high-risk exchanges without compliance will be sanctioned by the Treasury Department in the near future, according to Ari Redbord, head of legal and government affairs with TRM Labs.
TRM recently identified 340 crypto businesses with strong Russian connections that it considers high risk such as lesser known over-the-counter trading desks.
“It’s really hard to move large amounts of illicit cryptocurrency, so it would likely be smaller amounts on the margins. To me, those are the places that sanctioned entities will more than likely be looking for off and on ramps for crypto,” said Redbord, a former advisor to the US Treasury Department.
David Hollerith covers cryptocurrency for Yahoo Finance. follow him @dshollers.
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