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By Thalia Beaty<\/p>\n\n\n\n
Ukraine, which has waged a staunch defense against Russian invasion, says it has pioneered a new source of financial support: People around the world who have donated millions of dollars directly to its war effort via cryptocurrencies such as bitcoin.<\/p>\n\n\n\n
Since Feb. 26, when Ukrainian officials began tweeting calls for cryptocurrency donations, the Ukrainian government says it has taken in almost $67 million of its $200 million goal as of Saturday. \u201cToday, crypto is playing a significant role in Ukraine\u2019s defense,\u201d Alex Bornyakov, the country\u2019s deputy minister for digital transformation, wrote on the nation\u2019s donation website.<\/p>\n\n\n\n
Ukraine has spent about $34 million of the funds received as of last week, converting about 80% to traditional currencies and using the remainder with merchants that already accept cryptocurrencies, Bornyakov said in response to emailed questions.<\/p>\n\n\n\n
The funds raised in cryptocurrency are a just small part of the overall donations that Ukraine has received. After raising as much as $12 million on March 2, cryptocurrency donations have tapered off although boosters say the unexpected initial surge may inspire other efforts to solicit cryptocurrencies for humanitarian or defensive purposes. Officials have said that the speed with which they can use cryptocurrency donations has made them useful.<\/p>\n\n\n\n
The downside of that ease of transfer, of course, is that cryptocurrencies continue to be a magnet for scams and are the currency of choice for criminal networks. On Tuesday, European Central Bank head Christine Lagarde warned that crypto assets \u201care being used as a way to try to circumvent the sanctions \u201d against Russia, but didn\u2019t provide details beyond noting that global transfers of rubles into cryptocurrency are rising sharply in volume.<\/p>\n\n\n\n
Michael Chobanian, the founder of a Ukrainian cryptocurrency exchange, is one of several people helping the Ukrainian government manage the donations through an informal agreement, Bornyakov confirmed.<\/p>\n\n\n\n
\u201cWe are buying so much stuff that is saving lives every single day and also are stopping the aggression, so it\u2019s a beginning of the new world,\u201d Chobanian said in a voice message sent via the app Telegram.<\/p>\n\n\n\n
Chobanian said he was not receiving payment for his work but acknowledged that some of the funds are being converted through his cryptocurrency exchange Kuna.<\/p>\n\n\n\n
\u201cIt\u2019s certainly a first,\u201d said Bennett Tomlin, who investigates cryptocurrency scams and hosts the podcast Crypto Critic\u2019s Corner. \u201cWe\u2019ve never seen a sovereign nation fund their defense efforts in crypto before. It does prove out a lot of the crypto argument.\u201d<\/p>\n\n\n\n
That argument is that cryptocurrencies allow for the unfettered sending and receiving of value across borders via networks that can\u2019t easily be censored or shut down because there is no single entity in charge. Proponents also argue that cryptocurrency doesn\u2019t require users to trust financial institutions because the system is managed by code that anyone can inspect and transactions are written indelibly into distributed public digital ledgers known as blockchains.<\/p>\n\n\n\n
The donations to Ukraine are a stress test of sorts for those claims, some of which have fared better than others.<\/p>\n\n\n\n
For example, services like cryptocurrency exchanges do act as gatekeepers in part because many are required to collect identifying information about the people who use their services. Two large cryptocurrency exchanges, Binance and CoinBase, took action to limit use of some of their services in Russia earlier this month, although they have not withdrawn entirely.<\/p>\n\n\n\n
The publicity around Ukraine\u2019s call for donations also attracted scammers who tried to capitalize on the good will of donors. Hilary Allen, a professor at American University\u2019s law school who has written a book about the risks cryptocurrencies pose to financial systems, said anyone who donates should carefully look at all the actors involved.<\/p>\n\n\n\n
\u201cWho is receiving the crypto? Who will be converting the crypto? You need to be thinking about them the same way you\u2019d be thinking about any other charity or nonprofit you are donating to because they are intermediaries in just the same way,\u201d Allen said.<\/p>\n\n\n\n
Many of the donations to Ukraine\u2019s accounts are verifiable on public tools that track cryptocurrency transactions \u2013 as are the transfers that are made out of the accounts Ukraine controls.<\/p>\n\n\n\n
Tuan Phan, a cybersecurity professional who specializes in blockchain forensics, examined the flow of money to and from some of Ukraine\u2019s accounts in part because he wanted to make a donation himself. Born in Vietnam, he said he was eight years old when North Vietnamese Communist forces took Saigon in 1975.<\/p>\n\n\n\n
\u201cI\u2019m old enough to remember what happened, so I\u2019m very empathetic to the Ukrainians,\u201d Phan said. \u201cI wanted to make sure the address where I\u2019m sending my donation is landing in the right places. There are lots of scams going on, so you have to be extra careful.\u201d<\/p>\n\n\n\n
Another challenge presented by accepting cryptocurrency donations is the potential for people to send tainted assets obtained through crime or scams, Ukrainian cryptocurrency attorney Artem Afian said.<\/p>\n\n\n\n
Even if some of the funds donated were gained through illicit activity, he said, \u201cI think comparing the risks and benefits for Ukraine now \u2014 Ukraine is using every penny, every chance to support people, to support the army, so this is not a time when Ukraine can choose a lot.\u201d<\/p>\n\n\n\n
In total, cryptocurrency donations so far equal around 1% of Ukraine\u2019s annual pre-war defense budget, according to a Congressional Research Service report updated in January. Ukraine\u2019s government is also receiving aid through multiple other channels, although not all of those flow directly to the government.<\/p>\n\n\n\n
Congress has allocated $13.6 billion for Ukraine and President Joe Biden pledged an additional $800 million in military aid following Ukrainian President Volodymyr Zelenskyy\u2019s address to U.S. lawmakers last week. The United Nations has raised some $618 million for Ukraine out of a target of $1.1 billion in addition to asking for another $550 million for refugee support. The European Union has pledged 500 million euros toward the humanitarian response as well as additional funds to support Ukraine\u2019s budget.<\/p>\n\n\n\n
Last week, Zelenskyy signed a cryptocurrency regulatory framework into law, which Bornyakov said resolves a previously gray area within the country\u2019s laws.<\/p>\n\n\n\n
Afian, the Ukrainian attorney, was involved with drafting the legislation and argued that Ukraine was on its way to becoming more welcoming to cryptocurrency. The donations so far, he added, can \u201cmake governments see that working with crypto can be official and can be transparent and well run.\u201d<\/p>\n\n\n\n
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