Cryptocurrency is playing a crucial role in the Russia-Ukraine conflict. It helps to facilitate the flow of needed funds to Ukrainian citizens and soldiers
The Ukrainian government and non-governmental organizations (NGOs) supporting the military effort have raised $59.2 million in cryptocurrency donations, even as digital coin exchanges face pressure to curtail transactions from non-sanctioned Russians.
These funds are dwarfed by the billions Ukraine is receiving from NATO allies. According to Alex Bornyakov, Deputy Minister of Ukraine's Ministry of Digital Transformation, the flow of cryptocurrency donations has been a boon for the country.
On February 24, Bornyakov was forced to evacuate Kyiv as Russian bombs strafed two Ukrainian military units near the cities of Brovary and Vasylkiv.
Two days later, Borkyakov's boss, Ukraine's Vice Prime Minister of Ukraine Mykhailo Fedorov posted Bitcoin (BTC-USD) and Ethereum (ETH-USD) wallet addresses over Twitter, requesting crowdsourced cryptocurrency donations.
According to data tracked by the blockchain analytics firm Elliptic, the majority of donations to Ukraine have been paid in Ether and Bitcoin. However, donors have also sent the PolkaDot cryptocurrency (DOT-USD) as well as stablecoins like Tether (USDT-USD) and even Crypto Punk NFT.
According to Bornyakov, cryptocurrencies have offered faster transaction times, though not all suppliers still accept it as payment. Currently, the government converts the donated crypto assets into dollars or euros through the Ukrainian exchange Kuna, which also custodies the funds.
As the Ukrainian government has embraced cryptocurrency during its hour of need, some US policymakers, such as Senator Elizabeth Warren, have expressed concern that digital tokens could help Russian entities evade sanctions.
Despite full compliance with Western sanctions, the world's top cryptocurrency exchanges have resisted calls for a blanket denial to all Russian customers, even as major technology and financial companies have completely severed ties with Russia.
However, some analysts suggest that cryptocurrency cannot be used to fully circumvent the sting of sanctions, given practical limitations.
Bornyakov remains vehemently against the idea that any funding channels should be left open to Russia. He thought that it would be a form of "blood money".
Large centralized cryptocurrency exchanges with US customers are required by regulators to have sanctions compliance controls in place. These firms use blockchain analysis software that monitors the origin of funds sent to them, as do federal agencies.
According to head of legal and government affairs with TRM Labs Ari Redbord, outside of the US raising sanctions, the most likely scenario is that certain high-risk exchanges without compliance will be sanctioned by the Treasury Department in the near future.
TRM recently identified 340 crypto businesses with strong Russian connections that it considers high-risk.