The war in Ukraine has accelerated the legalisation of cryptocurrency within the country’s financial system. On March 17th the country officially legalised the previously unregulated cryptocurrency market, allowing for crypto exchanges to operate. The sector is proving helpful in funding the country’s defence effort. Ukraine began seeking cryptocurrency donations three days after Russia launched its invasion, which by March 29th had amounted to more than US$100m. Although total crypto donations lag behind those made in hard currency, crypto serves as a valuable and swift tool for donation collection.
Ukraine has been actively embracing crypto for some time. Last year it ranked fourth globally for crypto adoption, according to Chainalysis, a blockchain research company. The war appears to have accelerated this adoption, with the Ukrainian government strengthening the crypto sector by establishing a legal framework for its regulated operation, particularly as a means to receive donations.
Protracted legal introduction
The government’s push to regulate the crypto sector has been particularly convoluted, although mostly because of technical rather than substantive reasons. In early September 2021 the Verkhovna Rada (Supreme Council, or parliament) introduced a bill on “virtual assets”, but the president, Volodymyr Zelenskyi, vetoed it and sent it back for amendment, arguing against the envisaged provision on creating a totally new regulator for the sector.
Amendments were duly made; both the National Bank of Ukraine (the central bank) and the securities commission will now be providing oversight. Parliament adopted the revamped bill on February 17th, and Mr Zelenskyi signed it into law on March 17th.
Apart from appointing the sector’s regulators and legalising crypto trade, the new law allows Ukrainian banks to open accounts for crypto firms and supposedly provides for consumers’ cryptocurrency holdings—the same legal protections as the legal tender, the hryvnya. For all this to happen, however, crypto operators (exchanges and firms, local or foreign) will need to register with the regulators.
Wartime crypto fundraising
Although the law has not yet, for the most part, made a practical bearing, Ukraine has been receiving substantial crypto donations from around the world for its wartime purposes. Some reports have put the total at more than US$100m as at March 29th, of which US$72m represent direct donations to Ukraine’s official wallets. In terms of sources, the bulk of donations have come from individuals rather than organisations.
The government was quick to launch its crypto fundraising campaign, just three days into the conflict. Initially, only the most popular digital tokens, such as bitcoin and tether, were accepted, but soon the receiving capacity was expanded to more than 70 different crypto-assets. To achieve this, the Ministry of Digital Transformation, the main driving force behind the state-side push, partnered with the country’s largest crypto-asset exchange, KUNA.
Not an alternative yet?
For all the success of the crypto fundraising campaign, the collected moneys lag far behind official military aid provided to Ukraine by other countries, which are estimated to total more than US$30bn. From this perspective, crypto is on the whole unlikely to challenge traditional financial flows in fiat, at least for now. Nevertheless, cryptocurrencies emerged as a valuable channel for rapid financing, thereby strengthening Ukraine’s war efforts.
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