How the Russian Invasion Drastically Changed Ukraine’s Blockchain Strategy to Focus on War

How the Russian Invasion Drastically Changed Ukraine's Blockchain Strategy to Focus on War

The crypto was meant to be Ukraine’s launch pad into the future. Instead, he proves to be a much-needed lifeline in a war-torn country. Since Russia’s invasion on Feb. 24, Ukraine has raised over $56 million in donations spread across assets including bitcoin, ether, polkadot, solana, dogecoin, tether and more again. These funds were used to help humanitarian agencies distribute aid in the country, to procure necessary supplies for soldiers, such as food, uniforms and bulletproof vests.

They are also used to aid the growing ranks of Ukrainian cyber-warriors, who have allegedly defaced Russian government websites, provided intelligence and destroyed military systems.

However, that was never the plan.

Ukrainian Deputy Minister of Digital Transformation Alexander Bornyakov said that digital assets and blockchain technology are meant to help revitalize Ukraine’s economy and bring all government processes online. He notes that the mission of the ministry, founded two years ago, is “to move 100% of government services online and build a digital state to make all government services transparent, easy to use and convenient for Ukrainian citizens.” .

Blockchain initiatives such as the creation of a central bank digital currency, e-hryvnia, began when the Minister of Digital Transformation and his team helped create a law a year and a half ago to legalize digital assets in the country and making Ukraine one of the most crypto-friendly countries in the world. Bornyakov says the e-hryvnia was to be introduced towards the end of 2022 in conjunction with the central bank, the National Bank of Ukraine.

However, all of these plans fell through with the Russian invasion.

Instead, the Ukrainian government looked for ways to use its knowledge of crypto and digital assets to support the war effort. Bornyakov says that a few days after the hostilities, they decided to solicit crypto donations. “It’s the second or third day that we decided we needed the money to get in. [to the country] because there was a bank liquidity problem.

Bornyakov also says he got a call from his boss, Digital Transformation Minister Mykhail Fedorov, who mentioned they needed to help the cash-strapped military and asked if they could provide a way for people to donate crypto assets. “We decided to go and create wallets and build this infrastructure to get money and send money [crypto] to different suppliers, so that we can buy everything the army needs.

However, it was not that simple. With concerns about crypto theft lingering, according to crypto analytics firm Chainalysis $14 billion worth of crypto was stolen by scammers last year, the government needed to make sure its funds would stay safe. He also wanted the ability to convert assets into fiat currency. They turned to the country’s largest exchange, Kuna. “There’s a lot of complexity in security because if you don’t protect your infrastructure, someone can hack into you and steal all your crypto…but it’s not just about security, it’s also the ability to convert assets into different types of fiat currencies.

The campaign was a resounding success. Crypto analytics firm Elliptic noted that as of March 2, the bitcoin, ethereum, tron, polkadot, dogecoin, and solana addresses listed in government tweets had received more than 96,000 cryptocurrency donations, from a total value of $46.7 million going directly to government. Adding NGOs, more than $54 million has been given to the country.

However, while crypto donations can be a fundraising accelerator, the spotlight on the industry has also revealed critical friction points and ethical hurdles plaguing this space.

For example, in order to build on this momentum, Fedorov announced via Twitter on Wednesday that the government was going to hold a token giveaway, known as an “airdrop” in crypto parlance, to all crypto benefactors who donated in a certain period of time. . Although at first glance it seemed like a reasonable idea, perhaps the government did not expect that such a program would also bring up fraudsters and profiteers looking to profit from it. For example, there was a token created called Peaceful World that tried to be a government impersonator and there was a dramatic increase in tiny donations that were clearly intended to qualify donors for airdropping.

The planned giveaway was canceled less than 24 hours after it was announced.

Bornyakov suggests that the government did not anticipate the complexity of conducting the airdrop, and certainly did not want people to make money from what would otherwise be a worthy cause. “We didn’t have the technical capabilities right now to do that. But then we also realized that it was a way for people to profit by donating to a country that is suffering, which is not fair.

Instead, the government has announced its intention to sell NFTs as a way to help the military, but Bornyakov says these sales will more likely be used after the war as part of a museum or as a means of preserve the memory and the history of the conflict rather than something. designed to help soldiers now.

Perhaps the biggest issue is how Ukraine is trying to benefit from crypto while isolating Russia from the industry at the same time. Governments and regulators in the Western Hemisphere are increasingly concerned that the Russians are also turning to crypto to circumvent the sanctions that have cut off its economy from the rest of the financial world.

On February 27, Fedorov issued an open call to the heads of the world’s major exchanges such as Coinbase, Kraken, Binance and others to immediately stop serving all Russian customers and traders, not just those on the lists. of penalties. Many traditional companies such as Apple and Samsung have stopped selling goods and services in the country, while others like PayPal have stopped accepting new customers, and fintechs such as Wise and Remitly are halting transfers to and from Russia.

However, those responsible for these exchanges have largely dismissed these claims, saying that it is in some ways unethical, disproportionate, and unethical for crypto to target entire populations. Most said they would comply if they were legally required to do so. Jesse Powell, CEO of US-based Kraken, was the first to respond publicly.

Asked about the ethics and fairness of such a request, Bornyakov says it’s important that ordinary Russians feel some semblance of the pain and suffering experienced in Ukraine. “The more we make them [Russian citizens] feel what we feel, it’ll make them change their minds and stop supporting it [President Vladimir Putin] on his terrible decision to invade Ukraine… We have to show every Russian citizen that you cannot just start working and be safe in your country.

Amid the rollercoaster ride, donations continued to pour into the country, albeit at a much slower pace than before the airdrop was called off. Crypto prices have also stagnated. Both bitcoin and ether hit two-week highs amid the hype, but each has fallen nearly 10% since then.