Both Ukraine and Russia have tapped into the cryptocurrency markets to raise funds for their military efforts.
According to a report by blockchain research firm Chainalysis released on Friday, pro-Russian groups have raised $2.2 million mostly in Bitcoin and Ethereum to fund the war.
Cryptocurrency is an attractive medium of exchange for Russia, where the value of the ruble has fallen amid sanctions and restricted access to international payment systems. Digital currencies are also less regulated, allowing people to quickly and anonymously transfer money from anywhere in the world.
According to Chainalysis, the funds were sent to 54 pro-Russian groups, which used the donations primarily to fund pro-Russian propaganda websites and to purchase military equipment, including drones, guns, bulletproof vests and communications equipment.
This equipment was allegedly delivered to Russian troops in Ukraine’s Donbass region, where active fighting is taking place.
The amount of cryptocurrency donations raised by pro-Russian organizations pales in comparison to the amount donated to Ukraine. Since the war began, Ukraine’s largest charities, including Aid for Ukraine, Come Back Alive, and Unchain Fund, have received over $135 million in cryptocurrency donations, most of which has been spent on military equipment and humanitarian aid.
These groups have spent more than $14 million on drones, more than $5 million on military clothing and bulletproof vests, about $4 million on an anti-war media campaign, and $1 million on buying lethal weapons.
Although the digital currency donations raised by pro-Russian groups are much smaller, those funds could still make “a significant contribution” to the effectiveness of their troops, according to Chainalysis.
Researchers at the firm also identified a number of sanctioned individuals who solicited cryptocurrency donations in Russia. Cryptocurrency has been used by a number of organizations and regimes, including North Korea, to circumvent sanctions.
Russian national Alexander Zhuchkovsky, for example, promoted cryptocurrency donations on social media to fund the Russian ultra-nationalist organization Russian Imperial Movement, which has been classified as a terrorist group by the US Wagner Group, a Russian private military company also sanctioned by the US
One of the Russian cryptocurrency fundraising campaigns, Project Terricon, received about 11% of its funds from blending services that allow users to hide their activities on the Ethereum blockchain. Project Terricon sent nearly 30% of its funds to Bitzlato — a Moscow-based exchange that has facilitated about $1 billion worth of cryptocurrency laundering since 2019, according to Chainalysis.
While cryptocurrency donations allow countries to raise funds quickly, they also face problems. Cryptocurrencies are depreciating rapidly as the price of Bitcoin, the world’s most popular virtual currency, continues to fall. Bitcoin’s price has almost halved in the last year.
Fraud is also an issue. TRM Labs researchers identified dozens of cryptocurrency scams pretending to provide aid to Ukraine.
Russia could face similar problems with its cryptocurrency donations, where cryptocurrency-related crime is rampant, according to Chainalysis. The country is home to many services — including Hydra and Suex — that have been involved in money laundering activities, Chainalysis said.