Six weeks after Russia invaded Ukraine, the world’s first war of the crypto age is shaping up as a test for digital currencies as a force for both good and bad: arming Ukrainian volunteer fighters and feeding desperate civilians; and perhaps offering Russians a way to violate Western sanctions and raise revenue.
There is now a battle of words over which side is prevailing.
“Crypto is saving lives, literally saving lives,” Michael Chobanian, president of Ukraine’s Blockchain Association and founder of the Kuna crypto exchange in the capital Kyiv, tells Fortune, speaking from an undisclosed location, for fear of being targeted by Russia.
Crypto for military gear
His crypto fund for Ukraine’s military campaign, launched two days after the war began on Feb. 24, has so far raised $75.7 million, mostly in small donations from across the world. “We use that crypto fund to buy helmets, bulletproof vests, boots, scopes with rifles,” Chobanian says. The fund also transferred crypto—within minutes—to storeowners in the besieged city of Mariupol, paying them to give their dwindling food stocks to trapped locals. “We managed to feed a couple of thousand people just with crypto donations,” he says.
That is just one side, however.
Busting sanctions
On the other, Western officials believe Russians are siphoning fortunes into crypto, bypassing banks and diluting sanctions against President Vladimir Putin.
Months before the war, a U.S. Treasury report warned that cryptocurrencies could “harm the efficacy of our sanctions,” in several countries. The blockchain analytics company Elliptic believes Russia could use crypto assets to “circumvent sanctions through state-sponsored cybercrime, concealment of wealth, and even crypto mining.”
That is already happening, according to European Central Bank President Christine Lagarde, who said last month, “crypto assets are certainly being used as we speak as a way of circumventing the sanctions.”
‘Completely false’
That claim is strongly denied by Changpeng Zhao, founder and CEO of Binance, the world’s biggest crypto-exchange platform, who is featured on Fortune’s current magazine cover.
“The biggest misconception is that crypto exchanges, or at least Binance, is not implementing sanctions rules,” Zhao, known by his initials, C.Z., said recently in a long interview with Fortune. “That is completely false,” he tells us. “We implement sanctions exactly the same way banks do.”
Zhao says Binance—which did about $34.1 trillion in trading last year—has blocked several suspicious clients from signing on to the platform, using know-your-customer technology.
As of late March, Binance had searched about 6,000 accounts—among its 100 million users—and frozen just 150 of them. “A PEP [politically exposed person] cannot onboard with us in the first place,” Zhao says. “We never had those guys on our platform.”
Ruble loophole
But Chobanian says the Russian sanctions have a major loophole on Binance: Among the 82 fiat currencies on the platform, it allows users to trade their Russian rubles for Bitcoin within seconds. The rate of ruble trading on Binance rose sharply during the first two weeks of the war, according to data on the company’s website. Even before the war, Ukraine and Russia had the world’s biggest percentages of crypto users.
Chobanian believes the soaring rates of ruble transactions during the war suggests Russians could be evading sanctions.
“If you want to avoid sanctions, you can deposit rubles and withdraw dollars in different places in the world,” he says. “You just need an account on Binance.” Binance, he says, “should block rubles.”
Zhao rejects that idea outright. In under five years, he built Binance from zero to an estimated $300 million market cap, on the strategy of easy accessibility, no matter where users are.
‘Laughably simple’
“Why don’t we sanction all Russian users ourselves?” Zhao says. “We don’t have the authority to do that.” Besides, he tells Fortune, blocking all Russian accounts would punish many innocent people.
Indeed, among the thousands of Russian tech workers who have left their country since Feb. 24, many have used cryptocurrency as their only means to relocate, since their credit cards have been frozen under sanctions.
In Russia, many convert their savings into crypto assets, and once they leave Russia, turn them into hard cash in a regular foreign bank, no questions asked. The process is “laughably simple,” a Russian software developer who relocated to Tbilisi, Georgia, told Fortune.
As crypto's role in Ukraine sparks a war of words, Binance says it abides by Russian sanctions
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