Illustration : Elena Lacey, Getty images
On February 24, Russia launched a full-scale invasion of Ukraine, signifying the largest act of aggression by one state against another in Europe since World War II and the crumbling of the post-Cold War security architecture. This conflict has been accompanied with an increased importance of new technologies, specifically cryptocurrencies, which has led to it being dubbed the world’s first “crypto war.” Both nations are utilizing cryptocurrencies to advance their own positions, with Ukraine using digital assets to fund the military and rebuild destroyed cultural institutions and Russia turning to cryptocurrencies to avoid sanctions.
Cryptocurrencies are both a digital currency and decentralized system of exchange that do not rely on a government or central bank to maintain it. Transactions are documented on a decentralized, public ledger called blockchain. Unlike traditional money, anonymity is a key aspect of cryptocurrencies. People can send and receive funds without sharing any personally identifiable information. Data on participants and their activities are kept hidden using cryptographic techniques, which makes the information only accessible to the intended recipient. Cryptocurrencies are also seen as safe from fraud as all transactions require a two-step digital authentication process. Other differences are that people have constant access to their coins, and there are lower or no transaction fees associated with cryptocurrencies. These factors explain their widespread use in the war between Ukraine and Russia.
Use of Cryptocurrencies in Ukraine
On February 26, two days after the invasion began, the Ukrainian government posted addresses to its bitcoin, ethereum and tether wallets on Twitter and asked for cryptocurrency donations. Upon donations exceeding $50 million, the government stated it will issue non-fungible tokens (NFTs) to fund its military. NFTs are digital assets that represent real-world objects like art, music, and videos, and they can be bought and sold with cryptocurrency. As of March 11, blockchain analysis company Elliptic reported that donations reached nearly $64 million. Support comes from various sources, including a $5.8 million donation from blockchain platform Polkadot founder Gavin Wood and approximately $2 million from sales of NFTs created by WikiLeaks founder Julian Assange and crypto artist Pak. A NFT of the Ukrainian flag also sold for $6.75 million, making it the tenth most expensive NFT ever sold, according to Elliptic.
These cryptocurrency donations are being used to fund and supply the Ukrainian army with military equipment, medical supplies, and technology. While most funds have gone to the government, a smaller amount has also been sent to Come Back Alive, the biggest organization that provides support to the Ukrainian military. It focuses on financing solely defense strategies, such as medical assistance and defense analysis.
To further its cryptocurrency fundraising push, Ukraine launched a NFT museum titled Meta History: Museum of War on March 25 that presents a timeline of the invasion. According to its website, the mission is “to preserve the memory of the real events of that time, to spread truthful information among the digital community in the world and to collect donations for the support of Ukraine.” Each NFT is accompanied with a digital artwork and tweet relating to a specific moment of the war, such as Russian missiles hitting Ivano-Frankivsk International Airport in western Ukraine.
On March 30, the artworks were opened up for sale. With each NFT valued at approximately $500, Bloomberg reported that the museum sold over 1,200 artworks for nearly $6 million within the first day. This money will be dedicated to rebuilding cultural institutions destroyed from the invasion, such as museums and theaters.
Yaroslav DRZK and Alina Kropachova are two Ukrainian artists who created NFT illustrations for the museum. Yaroslav DRZK created the first image of the war timeline, which shows the onset of Russia’s invasion of Ukraine. Besides his contribution to the museum, Yaroslav DRZK has also been very vocal on his social media platforms, such as Instagram and Twitter, and has been motivating people to purchase his illustrations, the proceeds of which will go to support Ukraine. Similarly, Kropachova created a digital image of NATO calling on Russia to stop the war. She has also been utilizing her social media channels and posting artworks depicting Russian aggression to urge people to stand with Ukraine.
Yaroslav DRZK and Kropachova are just two out of the many Ukrainian artists who are using art as a form of activism to garner support for Ukraine and bring about social change. This type of grassroots movement to fund the national army is unprecedented. The Internet has transformed standards and opened doors for people to show their support in various ways.
Use of Cryptocurrencies in Russia
On the other hand, Russia has been turning to cryptocurrencies to evade sanctions. On the day of the invasion, the Biden administration cut off Russia’s two largest banks, Sberbank and VTB Bank, from the U.S. financial system. The U.S. also imposed sanctions on Putin’s daughters as well as his foreign minister’s wife and daughter. CNN reported that the U.S. “sanctioned more than 140 oligarchs and their family members and over 400 Russian government officials” as of April 6.
Consequently, Russian oligarchs and officials are using cryptocurrencies to move their funds around. Elliptic reported that it has identified a cryptocurrency wallet with millions of dollars that may belong to sanctioned Russian officials and oligarchs as well as several hundred thousand crypto addresses connected to Russia-based sanctioned entities. Russia is also considering accepting bitcoin as payment for oil and gas.
In response to Russia utilizing cryptos, Ukraine’s vice prime minister and minister of digital transformation posted on Twitter and called for cryptocurrency exchanges to ban all Russian accounts. However, they refused to do so, arguing that this would work against the crypto community’s goal of building a free and open financial system. A spokesperson for Coinbase, a U.S. company that manages a crypto exchange platform, stated that “Our mission is to increase economic freedom in the world. A unilateral and total ban would punish ordinary Russian citizens who are enduring historic currency destabilization as a result of their government’s aggression against a democratic neighbor.” This decision could have in part also been motivated by the fact that Coinbase takes a fee on every transaction.
Amid this refusal to implement a blanket ban, countries are building pressure on Russia. For instance, U.S. Senator Elizabeth Warren proposed a new bill that would prevent crypto companies from doing business with sanctioned Russian entities. Moreover, on April 8, the European Union targeted cryptocurrency wallets, banks, currencies, and trusts in its sanctions to prevent Russians from moving money abroad.The conflict between Ukraine and Russia demonstrates how cryptocurrencies have become a new tool in warfare. Whether its use will become commonplace in this domain remains unsure, but this marks an unprecedented and unique way for people to contribute to the war effort.