It was a hasty plan on the second day of the invasion. Ukraine’s digital transformation minister, Mykhailo Fedorov, turned to his deputy and instructed him to set up official government wallets that could accept payments in cryptocurrency.

When queues formed at ATMs and supermarkets in Kiev, Alex Bornyakov knew he had to act quickly.

“Our banks were limited, there were restrictions on our use of fiat currencies, and we ran out of stock quickly,” he said. “Even if you manage to pay in fiat, it takes a few days for a transfer to reach the recipient. In the crypto world, it takes minutes.”

Ukraine had already started embracing crypto before its war with Russia. The country was ranked fourth last year for cryptocurrency adoption among its citizens in a global index by Chainalysis, the crypto research group.

But the conflict has acted as a catalyst for the government’s ambitions to build an innovative, blockchain-friendly economy, led by a young team of techno-natives in the government: Fedorov is 31, Bornyakov, 40, and President Volodymyr Zelensky, 44.

Customers queue to use an ATM outside a bank in Lviv, Ukraine Ukraine ranked fourth for cryptocurrency adoption in a global index last year © Kobi Wolf/Bloomberg

The government has raised more than $100 million in cryptocurrency donations since the start of the war. While this is small compared to the billions in aid from Western governments and the IMF, Bornyakov said crypto had become an essential tool of war, allowing flexibility and speed.

“It is a great achievement by the government that we have young leaders, we are more enthusiastic and willing to accept changes,” Bornyakov said, an attitude he believes has played an important role in implementing this crypto policy.

The country’s pro-crypto push continued this week, with the government setting up legal structures to boost the industry.

Crypto exchanges are now allowed to operate in the country, consumers have protection against fraud, and the National Bank of Ukraine and the National Securities and Stock Market Commission have been appointed as regulators. The National Bank may eventually launch its own digital currency, according to those behind the new legislation.

The Ukrainian government has already spent half of its crypto fundraiser on thousands of body armor, food rations, helmets and medical supplies — and has deliberately chosen to spend the money on non-lethal equipment so as not to deter future donors .

Some of the money has also been spent on what Bornyakov calls a “digital diplomacy war”, trying to reach Russians on the ground who “live in a bubble fueled with propaganda” through media campaigns on social networks.

Meanwhile, the government also moved quickly to negotiate new agreements with military suppliers to accept payments in cryptocurrencies for the first time.

Michael Chobanian, founder of cryptocurrency exchange Kuna and president of the Blockchain Association of Ukraine, has partnered with the government to scale up his crypto efforts alongside exchange FTX and Ukrainian strike platform Everstake.

“We are the country’s parallel banking system,” Chobanian said. “We don’t care who supports us right now – hackers, crypto criminals – as long as they send us money,” he added.

As the war dragged on, the government refined its approach. This week, it launched an official Aid for Ukraine website, which accepts donations in nine cryptocurrencies, including bitcoin, ether, tether, solana and dogecoin. Previously, it just advertised its official crypto wallet addresses on Twitter.

But an influx of cryptocurrency scams claiming to be raising money for Ukraine has also populated social media and messaging platforms like Telegram.

“Since the invasion, we’ve seen a rise in Ukraine-themed accounts,” said Brittany Allen, trust and security architect at fraud prevention firm Sift. Telegram did not respond to a request for comment.

Lisa Cameron, a UK MP and chair of the UK parliamentary group on crypto and digital assets, said the war had shown “how crypto can be a force for good at this terrible moment in history”.

“But there are still real concerns about how unregulated the industry is and how Russians could use it to evade sanctions,” she added.

Global crypto exchanges, including Binance and FTX, have been criticized for refusing to completely shut down Russian users. The companies argue that a blanket ban would be unfairly targeted at ordinary citizens and have pledged to vigorously enforce the sanctions.

There have also been some missteps along the way as the Ukrainian government is working out the best ways to use digital assets in such an unusual situation.

Earlier this month, the government announced it would thank those who donated to its crypto wallets with an “airdrop”: when NFTs or other tokens are awarded to investors in a project, often to encourage more signups. Hours later, however, Fedorov canceled these plans “after careful consideration” — a sign of how hectic digital strategy can be.

On social media, the crypto community joked that this was “the best carpet ever”, a term used to describe when someone cancels a hyped NFT project after investors sign up, pull the carpet out from under them and walk away with the money.

The Ukrainian government’s next step will be to become the first developed country to issue its own collection of NFTs – collectible tokens that are fixed on the blockchain and thus cannot be replicated.

It plans to launch a series of NFTs under the working title Meta History: Museum of War. The collection will contain a token from each day of the conflict, with artwork corresponding to a news story.

Bornyakov said the tokens would provide an immutable record on the blockchain to document and reflect on the conflict, while raising funds to support the country’s struggle.

“This is the first time the power of crypto has been harnessed in this way,” said Everstake founder Sergey Vasylchuk, who has fled his home and headquarters in Kiev. “Mass adoption is now inevitable.”


This post How Ukraine Embraced Cryptocurrencies in Response to War was original published at “https://www.ft.com/content/f3778d00-4c9b-40bb-b91c-84b60dd09698”

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