The Role of Cryptocurrency in the Russian-Ukrainian War

Just one week after Russia invaded Ukraine, people and organizations have donated $54 million in cryptocurrency to support Ukraine’s army and non-profit groups.

Ukrainian lawmakers have posted on official government Twitter accounts, urging the crypto community to send Bitcoin, Ethereum and Tether donations.

However, after the value of the ruble plummeted as Western sanctions came into full swing against the Russian economy, some have raised concerns about Russia using cryptocurrencies to bypass the effects of Western sanctions, effectively creating a workaround.

Donations to Ukraine through cryptocurrencies

Ukrainians are no foreigners when it comes to blockchain technology. A chainalysis report shows that the country ranks fourth worldwide in cryptocurrency adoption, and in a nearly unanimous vote, the Ukrainian Parliament legalized laws around the adoption of cryptocurrency in September last year.

With the suspension of e-money issuance to electronic wallets (commonly held in digital accounts such as Venmo or Paypal), cash withdrawals being limited to UAH 100,000 per day as ATMs across the country run out of money and the ban of foreign currency issuance from local bank accounts, many Ukrainians have turned to their crypto assets as a means for survival.

The international crypto community has also responded in support of Ukraine, including the likes of Vitalik Buterin, a Russian-born Canadian programmer and the co-creator of Ethereum, and Stani Kulechov, founder of Aave, a decentralized finance protocol.

Illia Polosukhin, the co-founder of NEAR protocol, a decentralized application platform that focuses on developer and user-friendliness, shared this document with a reporter from The Verge that includes ways to donate. A handful of activists have also created a fund and Nik Kalyani, the co-founder of Decentology (previously TryCrypto), compiled a long list of individual Ukrainian artists for whom individuals can show their support.

In response to the donations, the Ukrainian government officially announced an airdrop, in which donors will receive free crypto tokens, this was later canceled and a series of NFTs to support the Ukrainian Armed Forces will be launched instead.

Why some crypto exchanges refuse to freeze all Russian addresses

Mykhailo Fedorov, Ukraine’s Vice Prime Minister, asked cryptocurrency exchanges to freeze assets owned by all Russian addresses. Echoing this sentiment, the White House has also asked crypto exchanges to remove access to crypto assets of any sanctioned entities or individuals, according to Bloomberg.

These requests were met with resistance from a handful of major exchanges including Coinbase, Binance and Kraken, which believe that doing so would hurt innocent Russian investors and go against the fundamental ethos of cryptocurrency.

“Crypto is meant to provide greater financial freedom for people across the globe. To unilaterally decide to ban people’s access to their crypto would fly in the face of the reason why crypto exists,” a Binance spokesperson told CNBC.

Despite this, there has been one notable exception. Ukrainian-born startup DMarket has cut all business with Russia and Belarus. Although the company will lose 30% of its user base as a result, Vlad Panchenko, the CEO and founder of the company told Axios that he refuses to do business with countries that are “killing my friends on the street.”

At a macro level, Axios reported that cryptocurrency markets are not large enough to absorb the consequences of the Western sanctions, and it is very likely that if the U.S. government ultimately chooses to tighten its sanctions on Russia, the cryptocurrency exchanges will comply.