When Russian forces invaded Ukrainian territory in the final week of February, some were quick to name it "the world’s first crypto war." While we’re not completely sure how it will unfold in the coming days, it's safe to say that cryptocurrency has played a great role in the conflict, helping governments and even ordinary citizens.
Fast-forward to four weeks since the invasion, the war is more intense and the Ukrainian economy is on its knees. The conflict has forced nearly a quarter of Ukrainians away from their homes. And worse, ATMs across the country have run out of cash as the traditional banking system is failing. Luckily, it’s where cryptocurrency and blockchain technology is making a difference.
From helping refugees take their money with them to providing the government with instant funds for humanitarian aid and wartime supplies, crypto is at the forefront in supporting Ukraine in need. Let’s dive deeper into the role of crypto in the Ukrainian economy amid this conflict.
Crypto to the rescue as traditional banking system tumbles
On the 24th of February 2022, Ukraine's central bank suspended foreign exchange cash withdrawals and limited the amount of local currency people could withdraw. It was an unprecedented move taken during an inconceivable time as the country was just under a "full-scale attack" and the economy was taking a free fall within hours. This led to an immeasurable economic impact on ordinary Ukrainians as they are still unable to withdraw their savings sufficiently.
Financial issues are similar for Ukrainians who have fled the war. Accessing cash via banks on the other side of the border isn’t as easy. Moreover, even with refugee-friendly new laws, refugees won’t be able to walk into a bank and open an account in a neighboring country. With crypto, however, things are a bit positive.
The difficulty to pull out a sufficient amount of money is making more people get into cryptocurrency. When Ukrainian banks aren't letting people move out an appreciable amount of money, crypto platforms are making it easier. People who have crypto wallets are using them as bank accounts and transacting with them.
In just a period of four weeks, there’s been a great use of cryptocurrency in Ukraine. Cryptocurrency has been able to support not just people but also the Ukrainian government. The Ukrainian government has already received more than $120 million in crypto donations since the war unfolded. Millions more in crypto are in flowing in to support the Ukrainian people with humanitarian aid.
Ukraine cryptocurrency regulation
Even before the conflict, Ukraine was well known for its positive stance toward cryptocurrency trade. The country’s parliament had already passed a law legalizing and regulating cryptocurrencies in September 2021, months before the Russian invasion. However, with the Russian full-scale assault, the Ukrainian government has refined its approach as crypto has played an important role in the conflict.
Recent Ukrainian law has paved a legal framework for crypto transactions in the country. It allows Ukrainian and foreign cryptocurrency exchanges to "operate legally in Ukraine." Ukrainian Banks can now open accounts for crypto companies. Ukraine's national securities and stock market commission will oversee the cryptocurrency market.
This move hints at the greater role of crypto in the Ukrainian economy in the future, apart from easing present economic worries. People will soon be able to trade more freely, securely, and with less control in a much more efficient way.
Ukraine is one of few countries in the world to have specific cryptocurrency laws. As many countries access how to regulate the crypto industry, the Ukrainian regulation is contrasting with some countries–such as China–that are looking to minimize, and ultimately eliminate, crypto trading and mining.
In a further move to acknowledge the importance of crypto, the Ukrainian government has launched an official website to accept donations in crypto. It currently accepts cryptocurrencies including Bitcoin, Ether, Tether, Solana, and Dogecoin. The government had been only been advertising its official crypto wallet addresses on Twitter previously.
Crypto exchanges in Ukraine
With new government regulations, accessing cryptocurrency in Ukraine right now is more straightforward. Foreign cryptocurrency exchanges can now operate freely in the country. Nevertheless, various crypto exchanges have been operating in Ukraine way before the fresh regulations. Some of the most popular exchanges operating in Ukraine are Kuna, Btcu.biz, and Bitpanda. Kuna is the most popular platform with over 58,000 active users. Leading crypto exchange platforms, such as Binance and Kraken are also actively operating in Ukraine.
How is crypto helping ordinary Ukrainians
In the final week of March 2022, as a result of the government restriction on domestic cash access, the Ukrainian crypto platform Kuna saw the highest amount of transactions since May 2021. People have turned to crypto to battle this economic hardship, and the crypto world, in return, is helping Ukrainians. There have been donations coming in from different forms of crypto. For instance, FTX has donated $25 to each Ukrainian account holder, and Ukrainian groups have received millions of cryptocurrency in donations since the war started.
Ukrainians are using cryptocurrency for almost everything now. They’re trading crypto for necessities, such as food and electricity, and to keep their life in order. Some fleeing Ukrainians who own cryptocurrency expect to exchange them for fiat currency once they reach safety. Others are using cryptocurrency as a means of storing wealth as the economy collapses.
How is Crypto helping the Ukrainian Government
Managing funds fast can be challenging for governments during a wartime economy. As a result of Russian invasion, the Ukrainian government is running out of money and supplies. Though there’s overwhelming support from the international community, providing aid to Ukraine in a matter of minutes wouldn't have been possible if it wasn’t for blockchain technology. Cryptocurrency has not only eased the process of global transaction of money but also made it more secure than ever.
Because it can be transferred seamlessly across the globe, crypto has played a vital role in supporting the Ukrainian government. The officials, well aware of the importance of the swift transaction, posted addresses of two crypto wallets on their Twitter accounts at the outset of the conflict. It gave donors a direct address to send contributions instantly.
The wallets attracted more than $10.2m in four days. According to various reports, more than $120m worth of crypto has been raised for the Ukrainian government since. The fund has been helpful in purchasing daily rations and other essential wartime supplies, such as bulletproof vests and emergency kits. It’s safe to say, Ukraine relies heavily on cryptocurrencies to fund its military to fight against Russia.
How did Ukraine get into a position to utilize crypto when in need?
As straightforward as it sounds, incorporating cryptocurrency right away might not always be easy. There’s a huge technological infrastructure to be accommodated and state regulations to be followed. But crypto has become a blessing for Ukrainians during hard times. Thanks to the government’s crypto-friendly regulations and excellent technology-friendly culture, Ukrainians are benefiting from cryptocurrency when in need.
Before the invasion, Ukraine had a thriving IT industry, and it proudly promoted itself as a tech-friendly country. In fact, Ukraine's tech economy and support of cryptocurrency had been one of the major reasons for foreign investors to invest in the country. Ukraine is also the fourth-highest adopter of cryptocurrency in the world. Significant adoption of cryptocurrency meant people already had a fair amount of assets in crypto.
Challenges of incorporating crypto during unprecedented times
Jumping into crypto immediately isn’t necessarily easy, especially when your country is at war and the economy is crumbling. First, the traditional financial system should be working properly and in favor of crypto transactions if you want to convert your assets into crypto. The recent suspension of the transfer of Ukrainian hryvnia, the national fiat currency, to crypto exchanges by a leading Ukrainian bank is one of the examples of many challenges people face while trying to include cryptocurrency in their daily transactions.
Moreover, cryptocurrency doesn’t work like traditional money, so you need to learn how to use it properly. People may find it hard to understand the basics of crypto in the moment of crisis as there are thousands of cryptocurrencies that work differently. Although being the "fourth-largest global crypto adopter," many Ukrainians are yet to incorporate cryptocurrency into their lives.
The destruction of basic infrastructure is also posing challenges for people against the use of cryptocurrency. You at least need an internet connection and a working device. And there’s another challenge: the availability of crypto. It was reported in February that people were finding it difficult to buy Tether at a regular price. It could well be the case in the coming days as long as the conflict accelerates.
Crypto into the future
The Ukrainian government is planning to launch a series of NFTs with the title Meta History: Museum of War. There will be tokens from each day of the conflict in the collection, with artworks citing a related news story. This might be the first time crypto’s power has been used by a government this way.
The Ukrainian government hints toward the future with "the mass adoption of crypto" as Ukraine’s approach seeks to build a law tailored to the digital asset industry. It’s hard to judge where this conflict will take Ukraine in the future, but it seems like its aim of becoming the crypto capital of the world is not going anywhere.