The dual edges of cryptocurrency in the Ukraine-Russia war | Opinion

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Cryptocurrencies are a topic of much debate regarding their benefits and drawbacks. Some believe they can revolutionize the financial system and prevent regular financial crises caused by certain players with centralized control. Others argue that they are primarily used for money laundering due to their inability to trace and ability to be easily misused for illegal activities.

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Crypto is a highly polarizing topic, with supporters and opponents on either side of the argument. However, like a coin, cryptocurrencies have two faces, which can be used for good or bad.

The debate surrounding the use of cryptocurrency for money laundering is highly controversial, especially when it also applies to fiat currencies despite strict KYC and AML regulations. Meanwhile, the positive uses of crypto far outweigh the fears of skeptics.

A prime example is its use for donations during the war in Ukraine. The amount of cryptocurrency received for humanitarian aid and Ukrainian army support was significantly higher than that used for illegal purposes, such as funding hacker groups or supporting mercenary organizations.

Donations

Immediately after the beginning of the Russian invasion on February 24, 2022, Ukraine started to use all possible means to raise funds for its defense and humanitarian aid. Cryptocurrency donations were no exception.

As of July 2023, crypto donations made to Ukraine have reached $225 million, according to Crystal Blockchain analytics. Among the organizations that raised the most significant amounts were the Aid For Ukraine (over $60 million), Come Back Alive (over $28 million), and Serhiy Prytula Charity Foundation (over $3.2 million).

Notably, Aid For Ukraine is a crypto fund actively promoted by the government authority, the Ministry of Digital Transformation of Ukraine. The initiative was organized by two companies with Ukrainian roots: Everstake, one of the most trusted validators globally, and Kuna crypto exchange.

It marks a significant milestone when a crypto initiative was supported by the state. It sets a positive example for other countries on how cryptocurrencies can be leveraged for the greater good.

Ukraine DAO and the largest donation from NFT sale

Another notable example was the sale of the Ukrainian flag as an NFT for 2,258 ETH (around $6.75 million) in an auction organized by the decentralized autonomous organization, Ukraine DAO.

🇺🇦 2250 ETH / $6.75M USD CONTRIBUTED TO THE UKRAINIAN FLAG NFT 🇺🇦

Thank you to all who supported our project 🙏

Next steps: POAP for all those who donated to partybid, work with Come Back Alive on safely transferring funds

You may still donate ETH directly to ukrainedao.eth pic.twitter.com/GsQBLzHIVK

— Ukraine DAO (🇺🇦, 🇺🇦) (@Ukraine_DAO) March 2, 2022

For those unfamiliar with this organizational structure, DAOs are blockchain-native organizations governed by smart contracts, allowing individuals worldwide to organize themselves for a shared objective and contribute to decision-making.

The purpose of a DAO can be diverse, ranging from planting trees in a local community to finding a cure for cancer. In recent years, DAOs have gained popularity primarily due to their decentralized nature, transparency, and collective decision-making. The beauty of this structure is that it does not have centralized control over funds, meaning the community decides how to spend its treasury.

As a result, to support Ukrainians, a community of like-minded people created a Ukraine DAO, which donated over $7 million in crypto during the war, and it keeps attracting attention to the Ukraine-Russia war.

Personal use

The war has also impacted the personal use of cryptocurrencies by Ukrainian citizens. According to United Nations High Commissioner for Refugees statistics, as of February 2024, almost 6.5 million Ukrainians fled the country due to the Russian invasion.

To prevent capital outflows from the country under martial law, the Ukrainian government put restrictions on citizens’ cross-border transactions. As a result, refugees who have left the country have faced difficulties in accessing their bank accounts. For various reasons, many of them were also unable to open bank accounts in their new country. For such individuals, cryptocurrencies have emerged as a viable alternative.

The given examples show how Ukraine has used every possible tool offered by blockchain technology in its defense efforts, including cryptocurrencies, NFTs, DAOs, and contributions from key industry players.

Behind the shine

Despite the significant inflow of donations in the form of cryptocurrencies in Ukraine, Russia has also actively used crypto during the war, but not always in legal ways.

The Elliptic report, prepared in the first year of the invasion, reveals that over 10% of pro-Russian donations were sourced from illicit channels, including sanctioned entities and dark web markets.

Nonetheless, the total amount of donations received by Russian organizations is considerably lower than that of Ukraine. Chainalysis reports that Russian organizations received approximately $5.4 million in 2023. Regrettably, many of these entities involved in cryptocurrency fundraising have publicly supported and praised potential war crimes and crimes against humanity.

Final thoughts

The war seems to have accelerated the adoption of cryptocurrency. Despite the legislative delay, many Ukrainians are already embracing cryptocurrency, eagerly anticipating the establishment of a legal framework.

The unprovoked aggression slowed down Ukraine’s plans to become one of the most attractive destinations for the crypto business. However, the authorities are working to support the industry by establishing a legal framework that is conducive to the industry’s development and growth. It is anticipated that the necessary amendments to the tax law will be finalized in the near future.

Blockchain and cryptocurrency have offered Ukraine significant advantages despite the constant concerns about donations to illegal groups and the use of cryptocurrency for money laundering and ransomware attacks. It has strengthened the nation’s resilience in these challenging times and garnered global support in the face of the Russian invasion.

Alla Melnichenko

Alla Melnichenko is a web3 and virtual assets lawyer based in Dubai. She is among the few legal experts in the MENA region who possess extensive experience in this field. Prior to joining the web3 industry, she had spent over a decade practicing commercial litigation. Currently, she provides support and guidance to a diverse range of industry players to establish appropriate structures for their ventures across multiple jurisdictions. Furthermore, Alla is proud to serve not just as a legal practitioner but also as a contributor to the establishment of virtual asset legislation in several jurisdictions.

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