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How the 'first crypto war' is unfolding in Ukraine - $120 million and counting

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As Ukraine inches toward the fourth week of fighting off Russian forces, Ukrainian officials are continuing to leverage cryptocurrencies to raise funds against Russian President Vladimir Putin’s efforts.

Within the first three days of launching a website, the Ukrainian government raised $56 million out of their $200 million goals, in addition to the $63.8 million officials raised with Come Back Alive, a Ukrainian nongovernmental organization, according to Elliptic, a blockchain analysis firm. 

"This is a turning point," said Tomich Tillemann, the global chief policy officer at former federal prosecutor Katie Haun's new crypto firm. "We are seeing now extraordinary amounts of assistance over what many governments around the world can provide flowing directly to the government of Ukraine." 

While the crowdfunded $120 million in digital assets is only a fraction of the more than $2 billion of military aid the United States has authorized for Ukraine since the conflict began, it's more accessible to the Ukrainian government than federal aid.

The donation of digital assets has allowed Ukraine to bypass usual obstacles governments face when receiving international aid and instead allows instantaneous and traceable transactions that the Ukrainian government can immediately use toward resources for their people, according to Tilleman, who previously served as an adviser to President Joe Biden.  

"I think the ability to rally a worldwide community of donors who can overcome the very real limitations of legacy banking infrastructure to provide real-time assistance to a country in need is also a groundbreaking development," Tilleman added. "I assume that these innovations are here to stay, and they're not going away anytime soon."

Crypto's paid for Ukrainian bulletproof vests, food, and helmets

With the digital assets raised between the beginning of March and the launch of the government's website, Ukraine was able to provide its army with 5,550 bulletproof vests, 410,000 packed lunches, 3,125 thermal imagers and optics, and 500 helmets, according to Alex Bornyakov, the deputy minister of Digital Transformation of Ukraine.

However, the Ukrainian government committed to only using the donated funds toward nonlethal supplies, so military equipment and weaponry were purchased with other finds.  

The aid provided by the U.S. has gone toward a variety of military equipment, including 600 Stinger anti-aircraft systems, 2,600 Javelin anti-armor systems, and nearly 40 million rounds of small arms ammunition, according to the White House.

Ukraine's Ministry of Digital Transformation partnered with FTX, a U.S. cryptocurrency exchange, and Everstake, a Ukrainian blockchain platform, to launch a website to make crypto donations easier. 

“The crypto community does not want to stand aside and watch Ukrainians suffer from the unprovoked aggression by the Russian Federation and the subsequent humanitarian disaster unseen in Europe since the Balkan war,” the website states.

According to the website, FTX will convert the crypto funds into fiat currency – government-issued currency, like euros or dollars – that will be sent to the National Bank of Ukraine. The website also said that this is the first case of a crypto exchange directly working with a public financial entity.

This conflict was coined the “first crypto war” long before the launch of this official crypto donations’ website due to the significant role digital assets have played in supporting the Ukrainian resistance, which could indicate a change in the future of crowdfunding.

Hurdles remain before 'transformation' is complete

Despite the number of crypto assets Ukraine has managed to raise since the beginning of the war, some experts believe many hurdles remain.

“The idea of crowdfunding and getting immense amounts of donations is unrealistic given the bottlenecks that are involved,” David Yermack, a professor of finance and business transformation at New York University, said. “It’s going to be small in terms of the amount of money that can realistically be moved.”  

One main reason for Yermack’s hesitation of using crypto as a primary way to raise funds for a conflict this large is due to the scale of technology.

“Ukraine can’t fund the war through blockchain, donations, or anything like that. The technology is not big enough to enable that,” Yermack said. 

The volatility of cryptocurrencies is another reason for some experts' concern for anyone to depend on them. 

"When you say they have $55 million in Bitcoin, that's based on an exchange rate, but the exchange rate for cryptocurrencies has wildly fluctuated," Herb Lin, a senior research scholar at the Center for International Security and Cooperation at Stanford University, said. "Today they may have $55 billion in Bitcoin, let's say, and tomorrow they may have $75 billion or $25 billion. Who knows?"

While the Ukrainian government claims to have been successful in using the crowdfunded crypto to purchase resources for their forces, the use of cryptocurrencies could be limiting the country's access to weapons or other necessities while fighting this war. 

In terms of buying missiles and other artillery pieces and weapons, Ukraine would need to purchase them from manufacturers, who are unlikely to accept crypto, according to Lin. 

Despite his concern, Lin did note that using cryptocurrencies, like Bitcoin, has its advantages, which include the ability to circumvent bureaucratic paperwork. 

"Bitcoin is a great medium for that because it minimizes red tape," Lin said. "That's one of the major advantages of Bitcoin. It minimizes red tape. And it minimizes the amount of hassle of bureaucracy that you have to go through, and stuff goes through much faster."

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