Ukraine wants to fund its post-war future with crypto
Ukraine has benefited from big crypto donations throughout Russia`s invasion. Kyiv now hopes it will help secure the country’s future.
In the first weeks after the outbreak of Russia’s full-scale invasion last February, crypto donations were “critically helpful to Ukraine,” Mykhailo Fedorov, Ukraine’s minister for digital transformation, told reporters at the World Economic Forum in January. Contributions from around the world flowed into Ukraine’s coffers, just at the moment when its future as an independent nation seemed most in doubt. By March 3, 2022, just a week after its citizens awoke to wailing air raid sirens and the tell-tale thump and roar of missile strikes, crypto-asset donations to Ukraine totalled an estimated $54.7m.
What’s more, crypto “turned out to be a very fast and easy-to-use financial tool,” says Alex Bornyakov, Ukraine’s deputy minister for digital transformation. Many of the initial donations made to the war effort were channelled towards bullet-proof vests, helmets, and walkie-talkies for front-line soldiers. Bornyakov admits that even he — a long-time crypto advocate — was surprised by suppliers’ willingness to deal in Bitcoin. Now, Fedorov and Bornyakov are seeking to use crypto to help secure Ukraine’s post-war future. Amid a wider push for digitalisation across its economy, Kyiv will, Fedorov told the WEF, aspire to becoming “the best crypto jurisdiction in the world.”
How much that will aid in rebuilding Ukraine is open to debate. While Bornyakov is optimistic about all things crypto — the sector, he says, “has enormous potential to encourage economic growth and boost employment” — donations have slowed substantially since the opening days of the war. That’s, in large part, thanks to a ‘crypto winter’ that has frozen inflows of venture capital into the sector and triggered a cascade of market failures. Ukraine, therefore, may be left in the curious position of becoming the most crypto-friendly jurisdiction in the world — but without a market to service by the time they win the war.
Behind Ukraine’s crypto ambitions
Andrei Kirilenko, for one, remains optimistic. Kirilenko, who was born in Mariupol and is currently a professor in finance at Cambridge’s Judge Business School, recently headed an executive education programme in partnership with the National Bank of Ukraine that focused on rebuilding Ukraine’s financial sector. During the eight-week programme, Kirilenko taught a section on blockchain and crypto assets, which he thinks should be a major component of Ukraine’s post-war economy.
It’s important to note, explains Kirilenko, that Ukraine wasn’t a wealthy country before Russia’s full-scale invasion: in December 2021, its GDP stood at $200bn, or about $5,000 per capita. “That’s the baseline,” he says. “Private money was not really flowing into the economy. Banks were not increasing credit to private companies in real terms. The economy was not really growing.” Crypto was, therefore, already playing a bigger role in Ukraine than in the rest of Europe, he says, because banks and markets — although stable — “could not necessarily provide the services that were needed”.
Russia’s brutal attacks have only worsened the country’s financial situation, with its GDP falling by more than 30% in 2022 and unemployment rising to about a quarter of the population by the end of the year. An estimated 8 million people — mainly women and children — have fled the country and “nothing economic is happening,” explains Kirilenko, in large swathes of territory due to ongoing occupation or active combat. “No companies are being created, no people are being hired,” says the economist. “The soldiers are being paid but they can’t even spend their money there.”
As such, argues Kirilenko, the Ukrainian economy is effectively on life support. Starting from this low base, crypto won’t be a cure-all, he says. Nevertheless, it should “absolutely play a role in the collective effort” to reconstruct Ukraine’s physical infrastructure and shattered economy, says Kirilenko — especially since the country’s traditional banks and markets might not be up to the task.
That’s not to say that Ukraine’s recovery could be completely financed through crypto. A recent World Bank report estimated that Ukraine will need at least $411bn over the next decade to rebuild, which is more than a third of the value of all existing cryptocurrency, according to CoinMarketCap. Nevertheless, Kirilenko thinks it’s essential for Ukraine to pursue non-traditional finance options. “The banks and markets were not lending to the private sector before the war and were not investing in companies before the war,” he says. “How are they going to do it after the war?”
Image: Technically, “token” is just another word for “cryptocurrency” or “cryptoasset.” But increasingly it has taken on a couple of more specific meanings depending on context. The first is to describe all cryptocurrencies besides Bitcoin and Ethereum (even though they are technically also tokens). The second is to describe certain digital assets that run on top of another cryptocurrencies’ blockchain, as many decentralized finance (or DeFi) tokens do. Tokens have a huge range of potential functions, from helping make decentralized exchanges possible to selling rare items in video games. But they can all be traded or held like any other cryptocurrency. Source: Coinbase.
| Themes |
| • Financing • International • National • Post-disaster reconstruction • Public programs and budgets • Technologies |
