An unusual source has developed to funds the combatants on both sides as the conflict between Russia and Ukraine enters its second year with no signs of slowing down. Amid headlines of military offensives and heavy weaponry, frontline soldiers often lack essentials: protective gear, medical supplies, food. Combatants are using bitcoins to crowdfund much-needed supplies in order to close this critical gap.
Chainalysis reports unprecedented cryptocurrency solicitation in the Russia–Ukraine conflict, the largest instance of crypto funding in warfare. Volunteer organizations use social media to solicit cryptocurrency payments for specific projects and fundraise. This strategy makes use of decentralized blockchain technology to enable quick, modest contributions from people all around the world.
This cryptocurrency-powered funding system has several uses. On the Russian side, it gets beyond financial sanctions imposed by the West while maintaining access to established bank networks like the SWIFT cross-border payment system. It speeds up the process of the Ukrainian military receiving financial help from both local and Western sponsors.
Despite the modest cash amounts associated with bitcoin contributions compared to traditional kinds of support, they have a significant influence. Cryptocurrency enables soldiers to acquire life-saving gear, but falls short for major assets like tanks. Andrew Fierman of Chainalysis sees cryptocurrency’s use in conflict as indicative of broader modern warfare trends.
Cryptocurrency’s Role in Conflict Financing: Transparency and Challenges Amidst the Russia-Ukraine Conflict
Monitoring the flow of cryptocurrency donations to combatants through open-source networks like Telegram and VKontakte is being done by Chainalysis and other companies like Elliptic. This openness provides information on the source of funds, how they are used, and how it affects the battlefield. A previously unheard-of level of transparency into the movement of resources is made possible by the capacity to track transactions and link them to social media activities.
1/ This weekend, Wagner Group leader Yevgeniy Prigozhin launched and then ended an armed rebellion in Russia. We previously covered the crypto activity of militia groups associated with Wagner in July 2022. Here’s an update on some of those numbers. https://t.co/PBUTg45Mug
— Chainalysis (@chainalysis) June 26, 2023
The Russia-Ukraine conflict is primarily supported by sales of oil and natural gas, which made up a sizable percentage of Russia’s budget before the invasion of Ukraine. This is true despite the continuous financial support from bitcoin donations. Despite being relatively tiny, Bitcoin donations have given some sanctioned pro-Russian armed organizations $20 million to support their operations in Ukraine.
The use of cryptocurrency for financing the military is not without difficulties, though. Transactions using cryptocurrencies can be tracked and scrutinized, which raises questions for organizations under international sanctions looking to raise money. Recent instances, like Israel seizing USDT linked to Hezbollah, underscore risks in cryptocurrency usage for military financing.
Cryptocurrencies’ transparency and traceability might limit their long-term effectiveness as a fundraising avenue. This is despite the fact that they have been successful in raising immediate awareness and cash for particular needs. Cryptocurrency’s role in modern warfare is intricate, revealing links between geopolitics, technology, and conflict financing.