The Impact of Crypto in War
How Ukraine Utilized Crypto to Self Sustain
Introduction
Money is a resource that every nation must acquire to create its military power. The funding for soldiers, weapons and equipment, resources, and information are just a few expenses paid with bartered goods, livestock, rare minerals, art, treasures, gold, or fiat currencies over the last 6000 years.
Growing one’s military power has its expenses, so where does the money come from to pay for it? The term “War Financing,” a branch of defense economics, describes the power to create monetary and fiscal policies to fund a nation during wartime. To pay the cost of military defense, the government of a country will do one or more of the following:
- Taxes: The easiest way to fund war is through taxes. Raising existing or creating new domestic taxes on goods and services, capital, and income brings in more money to finance war expenses.
- External Extraction: Obtaining money through loans from foreign sovereign powers or financial institutions. A precarious form of raising money due to the potential collapse of a nation from war and the chances of being under foreign obligation
- Issuance of Bonds: Government Bonds, aka “War Bonds,” issued by the government to the internal population. One of the most popular forms of war financing.
- Aid from other Countries and Entities: Accepting relief/aid monetary or resource packages from foreign countries, financial institutions, corporations in the public and private sector, or the public.
- Increasing the money supply: Printing money from the central bank and lending it to the government through purchasing bonds.
These policies finance the expense affairs of war. However, with a new age of digital assets in the 21st century, a new type of money has entered the world: cryptocurrencies. How does it impact war finance, and what does it do for the affected populace of war?
The Role of Crypto in the Russia-Ukraine War
War will always come at a cost, and there is never an inexpensive war. On the morning of Feb. 24, 2022, Russia invaded Ukraine and has continued to this day. In response, Ukraine has defended against the push toward its cities and spent billions of dollars during the conflict. However, regarding crypto, what role has it played in funding efforts for Ukraine? Within the first three weeks of the invasion (02/24/2022–03/14/2022), the crypto community has allocated over $100 million in assets as donations to help Ukraine. Kuna, Ukraine’s largest crypto exchange, has worked to expand the number of accepted cryptocurrencies to over 70, which added more flexibility compared to the initial three — Bitcoin, Ethereum, and USDT.
Additionally, Ukraine used social media to gather support and post its public wallet address to receive donations. Many have responded and contributed millions, like Gavin Wood, founder of Ethereum and creator of Polka Dot, who personally donated $5 million in DOT. Sunny Lu, CEO of VeChain, declared his intention to donate $8 million. Justin Sun, the founder of Tron DAO, is stated to donate $1 million and $200,000 in USDT. Vitalik Buterin, creator of Ethereum, acknowledged that he used Tornado Cash to privately donate to the relief effort for Ukrainians after the US declared sanctions on Tornado. Vast waves of developers and founders of various projects responded the same under Ukraine’s Twitter thread.
Ukraine has also received other digital assets like non-fungible tokens (NFTs). In early March, they received a cryptopunk valued at around 16 ETH. They sold for 90 ETH on Jun. 19. Many donated NFT collections to the collection of the Ukrainian government as a means of financing. In addition to raising more money, the Ukrainian government, with other companies, have worked on designing an NFT collection and have created a few, like Avatars for Ukraine, which has raised 12,656 ETH in its first charity auction event to support the defense against the invasion. With millions coming from crypto, swaths of funding has gone toward purchasing non-lethal resources. Alex Bornyakov, deputy minister of Digital Transformation of Ukraine, estimated that $15 million from donations had bought food, bullet-proof vests, night vision goggles, and battlefield medical supplies.
Decentralized Aspect of Crypto in War
In the early stages of the war, President Volodymyr Zelensky declared martial law, and the central bank of Ukraine suspended its fiat currency market, resulting in limited withdrawals of money and prohibiting the exchange of foreign currencies for the general public. With refugees constrained by legal actions declared by the government, the ability to pay for primary resources like food, water, and clothing was challenging. Others lacked monetary funds to escape the borders from nearby combat engagements. Many were left empty-handed in the chaos of evacuations and long lines at ATMs.
With crypto, the impact of martial law is mitigated. In a report by US News, Tony Perkins, founder of Elephant Money, said, “crypto allows people to send funds immediately to friends or family who need help… [and] has been a godsend because of its borderless payment abilities.” Some refugees have carried around a USB containing a private key to execute transactions from outside Ukraine without the chains of government, bank, or legal intervention. With this ability, obtaining funds was more accessible and potentially lifesaving.
The Future of Crypto in War
The Ukraine-Russian War was the first conflict where crypto was implemented to support the impacted population. Funding from crypto does not match the copious amounts from various countries, global agents, the world bank, and the public (around $100 billion). However, communities all over the crypto industry have sent $100 million instantly. Compared to traditional forms of aid that is slowed or restrained by legacy financial systems, crypto is a new promise. With the industry still in its early stages, crypto use cases are flexible regarding finance. The mass crypto adoption within the conflict has shown upside of helping in relief efforts. Others who are also impacted by wars can receive the same benefit that can aid refugees in a time of need. Many conflicts, besides the Russia-Ukraine war, have displaced millions around the globe, and crypto helps those refugees. In times of war, the freedom to use money and transact without intervention is crucial. Will crypto play a more prominent role in the future for other conflicts? Only time will tell. Until then, we can see that it has made a difference for those in Ukraine.
