Since the Russian invasion, cryptocurrencies have provided vital support for Ukraine, while helping fund Moscow’s war efforts.
Cryptocurrencies are reeling, suffering from a bursting investment bubble to Sam Bankman-Fried’s criminal fraud. They are blamed for facilitating illicit transactions. There’s even a new film “Bitconnned” that tracks the rise and fall of a company that promised — dubiously, in retrospect — to make crypto assets accessible via a debit card.
Yet crypto continues to play a[RM1] [BE2] role in the Russia-Ukraine war.
After the February 2022 full-scale Russian invasion, Ukraine experienced a run on its banks, a halt in the domestic currency market, and a steep devaluation of the Ukrainian hryvnia. For immediate financial aid, Kyiv turned to digital currencies such as Bitcoin, Ethereum, and Tether, sharing wallet addresses on social media.
It worked. By 2023, Ukraine ranked fifth on Chainalysis’ Global Crypto Adoption Index. The Ukrainian government successfully secured $225 million in cryptocurrencies and $190,000 worth of Ethereum-based non-fungible tokens, both through donations. Some $134 million was earmarked for humanitarian purposes and about $91 million for the military.
Before the war, Russia and Ukraine had significant grassroots adoption of cryptocurrencies. The war hastened adoption. Ukraine legalized crypto accounts in March 2022 one month after the invasion, authorizing accounts for crypto companies and allowing the surge in donations.
Admittedly, cryptocurrency contributions to Ukraine remain modest when compared to traditional financial aid. And crypto can be used for bad as well as good. Russia leverages crypto to fund its war effort. “Russian entities have turned to crypto under the heavy pressure of international sanctions, using it for private militia group fundraising, continued ransomware attacks, and attempted sanctions evasion,” says Andrew Fierman, Head of Sanctions at Chainalysis.
Russian hackers are leveraging crypto. Since its inception in 2021, the pro-Russian cybercriminal group KillNet has raised funds through crypto. Russian hacker groups, like NoName057(16), are offering cryptocurrency rewards for effective cyberattacks. The Novorossia Aid Coordinating Center has successfully raised millions of dollars in cryptocurrency to buy ammunition, armor, and surveillance drones.
Crypto even has been linked to Rusich, a Russian neo-Nazi paramilitary fighting group. The neo-Nazi paramilitary group extorts bereaved families, offering to disclose the location of deceased relatives in exchange for Bitcoin payments.
Even so, experts believe Russia has been unable to use the technology on a large scale to evade Western sanctions. If Moscow attempted to convert large sums of currency into crypto, experts say it would stumble upon liquidity problems.
Ukraine believes they are benefiting more than Russia in leveraging crypto. Blockchain data analytics company Elliptic showed that private crypto fundraising for pro-Ukrainian causes has outpaced Russian equivalents by a rate of 44 to one in the first year of the war.
Whether Kyiv will continue to outrace Moscow in the crypto race remains unclear. As Western aid falters, Elliptic reports that crypto donations to Ukraine are dropping, while Russia’s crypto donations are increasing. Crypto has played an important role in the Russia-Ukraine war. But it represents no magic wand.
David Kirichenko is a freelance journalist covering Eastern Europe. He can be found on X @DVKirichenko.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.