Soon after Russia invaded Ukraine, crypto donations started to pour in from around the world as people rushed to help the country in its defense against a foreign aggressor. In an attempt to “reward” those who donated, Ukraine on March 2 announced that it was planning a crypto “airdrop,” a term for when entities dole out free crypto tokens to users who take a certain action, like donating money in Ukraine’s case.
But one day later, Mykhailo Fedorov, the vice prime minister of Ukraine and Minister of Digital Transformation of Ukraine, announced in a tweet that the country had scrapped those plans and instead would offer NFTs to those who support the Ukrainian armed forces. “We DO NOT HAVE any plans to issue any fungible tokens,” he made clear.
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The reason was unclear, but numerous people seemed frustrated by the decision, even calling it a “scam” and a “rug,” which is when a crypto startup breaks a promise after people have already invested money. The truth was that Ukrainian officials became concerned about the behavior of users themselves, believing it to be unethical.
Fedorov’s deputy, Alex Bornyakov, told Motherboard in a Zoom interview this week that it soon became clear that “a lot of people” were abusing the possibility of an airdrop by sending minuscule donations “just to benefit” themselves. This is a common tactic among crypto investors, known as airdrop farming.
“People started to want to profit,” said Bornyakov, Ukraine’s deputy minister of digital transformation on IT industry development. “Personally, I don’t think it’s ethical.”
Bornyakov said that “if some enterprise decided to do an airdrop and they aim for profit, that’s OK.” But he didn’t believe it was acceptable to profit off of effort to support a nonprofit cause, especially, he said, like supporting a nation at war. The developments are demonstrative of the complicated nature of crypto donations, which can simultaneously allow money to move around the world faster than ever while also proving ripe for exploitation.
Bornyakov said cryptocurrency had proven to be a quick and effective way to donate to Ukraine’s war effort, especially in the early days of the invasion, when the country’s central bank suspended the currency market and otherwise limited the amount of money that could move in and out of Ukraine. Cryptocurrencies proved a “fast and easy way to get money and send money” at a time when the country needed to move quickly.
“Crypto gave us the ability to respond much more quickly than fiat currencies,” Bornyakov added. “When we started to do things with crypto, other ministers also realized it’s really fast and convenient, and you can do that without bureaucracy.”
By the time he spoke with Motherboard, Bornyakov said that the country had raised $53 million in cryptocurrency. While less than the $300 million in fiat currency raised by the National Bank of Ukraine, the amount still caught Bornyakov by “surprise.”
Some people also donated a number of NFTs, although Bornyakov said, “We haven’t dove into what is happening there and what we’re going to do with that.”
The donations, Bornyakov said, were often going toward non-lethal supplies for the army—like bulletproof vests, helmets, and medical supplies—and media activities meant to show Russians the realities of the war. Roughly 40 percent was being spent directly as crypto currency while the rest was converted to fiat, so it could be sent to companies that do not accept crypto.
Bornyakov’s ministry also recently started to provide people in embattled areas money in a digital form that they can access through their smartphones.
Even before the war, Ukraine had been one of the nations most welcoming of cryptocurrency, ranking fourth among all nations in the blockchain data platform Chainalysis’ global crypto adoption index. In mid-February, mere days before the Russian invasion began, Ukraine passed a law formally regulating the cryptocurrency industry. Inside the ministry, Bornyakov had been in charge of crypto legislation for almost two years, he said.
But Ukraine and cryptocurrency companies abroad have not been in lockstep. Exchanges including Coinbase, Binance, KuCoin, and Kraken all refused Fedorov’s February public request that they freeze all Russian accounts, not just those that were legally required by recently-imposed sanctions. The companies said such an action would hurt peaceful Russian citizens and go against Bitcoin’s “libertarian values,” as Kraken CEO Jesse Powell put it.
Crypto exchanges aren’t resting on their laurels, however. In a blog post this week, Coinbase revealed that it currently blocks 25,000 Russian addresses related to illicit activity. The firm conducts “proactive investigations,” the blog post said, and gave the example of when the exchange blocked 1,200 addresses found to be related to one sanctioned individual in 2020. The firm has not seen an uptick in attempted sanctions evasion since the invasion of Ukraine began, it said.
But Bornyakov said the stakes were too high, and that any money entering the Russian economy right now was “blood money.”
“We think only economic measures reaching out to all Russians can help stop this aggression. This war machine must be disconnected from the money source in order to stop,” Bornyakov added. “All the taxpayers’ money is going to a very corrupt government, with absolutely crazy ideas to invade countries, neighbors, [and] kill civilian peoples.”
“If you share democratic and humanitarian values, supporting Russia goes against them,” he added.
Bornyakov understands that the crypto exchanges are private businesses, free to make their own decisions while abiding by the law. Still, he said, “If they want to do proper business, I think eventually they’re going to end up blocking a lot of Russians.”
During the call, Bornyakov also cryptically suggested additional U.S. help to cut off Russian crypto accounts may be coming soon. “I know the U.S. is taking measures that may not have been announced yet. But I’m sure we’re going to hear about them soon,” Bornyakov said.
It’s unclear what Bornyakov was referring to, but Sen. Elizabeth Warren is reportedly drafting legislation targeting potential sanctions evasion in the crypto markets. At the same time, an unnamed Treasury official told CNBC that the existing measures are effective and cryptocurrency is not a likely vector for sanctions evasion.
“While there are some deficient exchanges that may be willing to offer services to sanctioned persons and entities, they will not be able to support a large economy,” the official said.
