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Much has already been said about the role crypto donations played in Russia's full-scale invasion of Ukraine two years ago. However, the question was rarely raised that crypto would not be further used as a means of payment for critical humanitarian aid during wars, when quick responses are needed to save more lives. The accumulated millions had to be left untouched until someone figured out how to convert the huge sums into fiat currency and transfer them to bank accounts for further use. We could have moved faster if cryptocurrency payments were widely accepted.
Increase in donations via cryptocurrencies
On February 26, 2022, Minister of Digital Transformation Mykhailo Fedorov tweeted the address of a cryptocurrency wallet, with Ukraine officially accepting donations in Ethereum (ETH), Bitcoin (BTC), and Tether (USDT). said.
In the first few days after this crowdfunding appeal, the Ukrainian government raised more than $13 million. According to the Crystal Blockchain report published in July 2023, in two years Ukraine has collected more than $225 million in cryptocurrencies from supporters around the world. Cryptocurrency has proven to be a quick and cheap way to transfer funds from one country to another. According to Crystal's report, more than half of the donations are received in ETH, followed by USDT, BTC, and BUSD.
Cryptocurrency donations in Ukraine | Source: Crystal
NFT donations have also skyrocketed over the past two years. According to Elliptic, $200,000 worth of CryptoPunk NFTs were donated to the Ukrainian government's ETH account. NFT donations were also made on other blockchains such as Polygon, Solana, Cardano, and FTM. Meanwhile, the Ukrainian flag was auctioned by UkraineDAO for $6.5 million ETH, making it one of the most expensive non-fungible tokens ever sold.
Ukraine Flag NFT from UkraineDAO | Source: Oval
Although the cryptocurrency portion is relatively small compared to the billions in donations in fiat currency, we have probably witnessed the most significant spike in cryptocurrency donations in history. Cryptocurrencies are ideal for international fundraising thanks to their decentralized nature and resistance to censorship.
Virtual currencies were raised but not used as a means of payment. why?
During the first days of the war, I contacted the Ministry of Digital Transformation of Ukraine and made an urgent request to convert the donations collected into euros in virtual currency to facilitate the purchase of humanitarian supplies. Working with CoinsPaid, we were able to do it quickly, but the fact that we needed to do it at a time when the adoption of cryptocurrency payments was increasing in the first place was a little confusing. In times of turmoil, when rapid response is paramount, why should we still rely on traditional financial instruments and add another layer to the process of purchasing critical supplies?
Good luck finding someone to convert your cryptocurrency, but donations in digital currency aren't just collected by governments. Many small foundations and volunteers collecting financial support for individual brigades also accepted cryptocurrencies, which needed to be converted to fiat currency for future purchases. The situation worsened in March 2023, when Binance, Whitebait, Exmo, and Kuna announced that they would temporarily suspend bank card operations in the Ukrainian hryvnia. The issue arose after the National Bank of Ukraine imposed restrictions on P2P and A2C operations of financial companies that allow deposits and withdrawals to virtual currency exchanges. As a result, Ukrainian cryptocurrency users, including small funds and individual volunteers, were deprived of the opportunity to operate digital currencies.
The difficulties with non-cash hryvnia transactions were linked to Ukrainian authorities' attempts to combat tax evasion and money laundering on gaming platforms. Withdrawals to bank accounts are still not available in Ukraine, but crypto exchanges are working to resolve the issue. At some point, withdrawals to Visa/Mastercard appeared again on EXMO, but the withdrawal fees accounted for 7%. Given that crypto donations to Ukraine are still increasing, the question of more convenient use of the raised funds remains open in Ukraine and abroad.
The introduction of cryptocurrency payments requires a clear regulatory framework
Adopting cryptocurrency payments in times of war would eliminate third-party intermediaries and ensure faster circulation of cryptocurrencies and purchases of critical supplies. But without a clear regulatory framework, we can't even get close to that. The use of digital currencies as a means of payment for goods and services is officially prohibited in Ukraine. This completely halts the development of the crypto payment industry and imposes severe restrictions on the further use of crypto donations.
Despite the government's attempts to formulate regulations in the first month of the war, the draft law of Ukraine dated March 17, 2022 “On Virtual Assets” was considered by parliament for a long time and was later officially approved in 2023. was rejected. In view of the upcoming MiCA regulation and Ukraine's status as an EU membership candidate, there was a second attempt to create a regulatory framework for the Ukrainian cryptocurrency market that would address the issue of taxation in the first place.
The government is currently more focused on requiring crypto users to pay taxes than making crypto donations work. Obviously, one of the most promising and necessary effects of cryptocurrencies in times of war is still blocked due to the lack of clear regulations in Ukraine. In the EU, where the cryptocurrency payments industry is rapidly evolving, there is still a need to close the gap between the cryptocurrency industry and traditional finance. The MiCA Regulation will help address this issue by restoring industry confidence and ensuring maximum protection and smoother service provision for merchants across the EU.
A final word
Cryptocurrency donations have played a vital role in the Ukraine war, but imposed restrictions and a lack of clear regulations have made using cryptocurrencies as a means of payment nearly impossible. Proceeding with the purchase always requires additional steps that are extremely time-consuming given the circumstances. But at this stage, from the first days of the war, we will be able to respond more quickly.
Additionally, we provide sufficient transparency so that backers can track whether their funds are truly being used as intended. Both timeliness and transparency are essential to continue funding in cryptocurrencies and avoid the paradox of digital assets accumulating in wallet addresses and not being used quickly and efficiently.
