How Ukraine adopted cryptocurrencies in response to war

It was a plan hatched in haste on the second day of the invasion. Ukrainian Digital Transformation Minister Mykhailo Fedorov addressed his deputy and instructed him to create official government wallets that could accept cryptocurrency payments.

When lines began forming at ATMs and supermarkets in Kiev, Alex Bornyakov knew he had to act quickly.

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

Ukraine had already started accepting 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 government: Fedorov is 31, Bornyakov, 40, and President Volodymyr Zelensky, 44.

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

“It is a great achievement of the government that we have young leaders, we are more enthusiastic and ready to accept changes,” Bornyakov said, a stance that he believes has been instrumental in implementing this crypto policy.

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

Crypto exchanges are now allowed to operate in the country, consumers are protected from fraud, and the National Bank of Ukraine and the National Securities and Exchange Commission have been appointed regulators. According to those behind the new legislation, the National Bank could eventually launch its own digital currency.

The Ukrainian government has already spent half of its crypto donations on thousands of bulletproof vests, food rations, helmets and medical supplies – deliberately choosing to spend the funds on non-lethal equipment so as not to scare off future donors.

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

Meanwhile, the government also quickly reached new agreements with military suppliers to accept cryptocurrency payments for the first time.

Michael Chobanian, founder of cryptocurrency exchange Kuna and president of the Blockchain Association of Ukraine, worked with the government to scale its crypto efforts alongside exchange FTX and Ukrainian staking platform Everstake.

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

As the war continues, the government has refined its approach. This week it launched an official Aid for Ukraine website that accepts donations in nine cryptocurrencies, including Bitcoin, Ether, Tether, Solana and Dogecoin. Previously, it only promoted its official crypto wallet addresses on Twitter.

But social media and messaging platforms like Telegram are also populated by an influx of cryptocurrency scams claiming to raise donations for Ukraine.

“We have seen an increase in accounts focused on Ukraine since the invasion,” said Brittany Allen, trust and security architect at fraud prevention company Sift. Telegram did not respond to a request for comment.

Lisa Cameron, a British MP and chair of the UK All-Party Parliamentary Group on Crypto and Digital Assets, said the war showed “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 faced criticism for refusing to completely cut off Russian users. The companies argue that a blanket ban would unfairly target ordinary citizens and have pledged to vigorously enforce sanctions.

There were also a few missteps along the way as the Ukrainian government worked out the best ways to use digital assets in such an unusual situation.

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

On social media, the crypto community joked that this was "the best rug ever," a term used to describe when someone cancels a hyped NFT project after investors have signed up, pulled the rug out from under them and walked away with the money.

The Ukrainian government's next move will see it become the first developed country to issue its own collection of NFTs - collectible tokens that are fixed on the blockchain and therefore cannot be replicated.

It plans to launch a series of NFTs under the working title ofMetahistory: War Museum. The collection will include 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 the conflict while raising money to support the country's fight.

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