Financial aid in the 21st century
Cryptocurrency donations helping support Ukraine
NEW YORK — Ukraine, which has waged a staunch defense against Russian invasion, says it has pioneered a new source of financial support: People around the world who have donated millions of dollars directly to its war effort via cryptocurrencies such as bitcoin.
Since Feb. 26, when Ukrainian officials began tweeting calls for cryptocurrency donations, the Ukrainian government says it has taken in more than $72 million of its $200 million goal as of Monday.
“Today, crypto is playing a significant role in Ukraine’s defense,” Alex Bornyakov, the country’s deputy minister for digital transformation, wrote on the nation’s donation website.
Ukraine has spent at least $34 million of the funds, converting about 80% to traditional currencies and using the remainder with merchants that already accept cryptocurrencies, Bornyakov said in response to emailed questions.
The funds raised in cryptocurrency are a just small part of the overall donations that Ukraine has received. After raising as much as $12 million on March 2, cryptocurrency donations have tapered off although boosters say the unexpected initial surge may inspire other efforts to solicit cryptocurrencies for humanitarian or defensive purposes. Officials have said that the speed with which they can use cryptocurrency donations has made them useful.
The downside of that ease of transfer, of course, is that cryptocurrencies continue to be a magnet for scams and
are the currency of choice for criminal networks. On March 22, European Central Bank head Christine Lagarde warned that crypto assets “are being used as a way to try to circumvent the sanctions” against Russia, but didn’t provide details beyond noting that global transfers of rubles into cryptocurrency are rising sharply in volume.
Michael Chobanian, the founder of a Ukrainian cryptocurrency exchange, is one of several people helping the Ukrainian government manage the donations through an informal agreement, Bornyakov confirmed.
“We are buying so much stuff that is saving lives every single day and also are stopping the aggression, so it’s a beginning of the new world,” Chobanian said in a voice message sent via the app
Telegram.
Chobanian said he was not receiving payment for his work but acknowledged that some of the funds are being converted through his cryptocurrency exchange Kuna.
“It’s certainly a first,” said Bennett Tomlin, who investigates cryptocurrency scams and hosts the podcast Crypto Critic’s Corner. “We’ve never seen a sovereign nation fund their defense efforts in crypto before. It does prove out a lot of the crypto argument.”
That argument is that cryptocurrencies allow for the unfettered sending and receiving of value across borders via networks that can’t easily be censored or shut down because there is no single entity in charge. Proponents also argue that cryptocurrency doesn’t require users to trust financial
institutions because the system is managed by code that anyone can inspect and transactions are written indelibly into distributed public digital ledgers known as blockchains.
The publicity around Ukraine’s call for donations also attracted scammers who tried to capitalize on the good will of donors. Hilary Allen, a professor at American University’s law school who has written a book about the risks cryptocurrencies pose to financial systems, said anyone who donates should carefully look at all the actors involved. “Who is receiving the crypto? Who will be converting the crypto? You need to be thinking about them the same way you’d be thinking about any other charity or nonprofit you are donating to because they are
intermediaries in just the same way,” Allen said.
Many of the donations to Ukraine’s accounts are verifiable on public tools that track cryptocurrency transactions — as are the transfers that are made out of the accounts Ukraine controls.
Tuan Phan, a cybersecurity professional who specializes in blockchain forensics, examined the flow of money to and from some of Ukraine’s accounts in part because he wanted to make a donation himself. Born in Vietnam, he said he was 8 years old when North Vietnamese Communist forces took Saigon in 1975.
“I’m old enough to remember what happened, so I’m very empathetic to the Ukrainians,” Phan said. “I wanted to make sure the address where I’m sending my donation is landing in the right places.”
Another challenge presented by accepting cryptocurrency donations is the potential for people to send tainted assets obtained through crime or scams, Ukrainian cryptocurrency attorney Artem Afian said.
Even if some of the funds donated were gained through illicit activity, he said, “I think comparing the risks and benefits for Ukraine now — Ukraine is using every penny, every chance to support people, to support the army, so this is not a time when Ukraine can choose a lot.”
In total, cryptocurrency donations so far equal around 1% of Ukraine’s annual pre-war defense budget, according to a Congressional Research Service report updated in January.