How Crypto Became Part of the War – The Journal.

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Michael Chobanian: Hello, Wall Street Journal New York. This is Michael Chobanian.

Kate Linebaugh: Michael is the founder of the largest cryptocurrency exchange in Ukraine.

Michael Chobanian: I’ll be sounding a bit tired, stupid, and slow. Sorry for that, only sleeping for a couple of hours a day. Yeah, that’s the reality I have to live in.

Kate Linebaugh: Michael’s exchange is called Kuna Exchange, and it’s helping the Ukrainian government raise donations from around the world to help the war effort. Those donations are cryptocurrencies.

Michael Chobanian: We launched the fund for the government. The backbone of the fund is run on the Kuna Exchange, which is owned by me. The Ministry of Digital Transformation approached me and asked me to set up the fund for the government, so that’s what we did.

Kate Linebaugh: Michael sent this audio message last week to our colleague, Paul Vigna. Paul covers all things crypto and has been watching what role crypto is playing in the conflict. He went to Kuna Exchange’s website and saw the request for donations, along with this message.

Paul Vigna: Let’s stop the war, let there be peace. In crypto we trust, for Ukraine we pray.

Kate Linebaugh: Using crypto to help pay for supplies during a war is something Paul hasn’t seen before.

Paul Vigna: The most surprising thing was probably to see an actual nation state government, in this case, Ukraine, appeal for donations via cryptocurrencies. Within a couple of days, I think they had $30 million.

Kate Linebaugh: Welcome to The Journal, our show about money, business and power. I’m Kate Linebaugh. It’s Thursday, March 10. Coming up on the show, how Ukrainians and Russians are turning to crypto in a time of war.
After Russian invaded, Ukrainian leaders stepped up their urgent requests for financial help, and they were willing to be creative, which was evident two days after the invasion on Twitter.

Paul Vigna: They literally just put out a tweet from their verified account and they said, “We’re raising money. We need money, we’re raising money. Here’s a Bitcoin address and Ethereum address. Please send us money.”

Kate Linebaugh: They eventually added other cryptocurrencies, like Dogecoin, Tether, Solana, and Tron.

Paul Vigna: They just kept adding cryptocurrencies. I think they might be up to two dozen, maybe even more now. They just kept opening up wallets for different cryptocurrencies saying, “We’ll accept anything.”

Kate Linebaugh: And the crypto community responded. One person who took notice was Gavin Wood, the English creator of two cryptocurrencies, Ethereum and the lesser known currency, Polkadot.

Paul Vigna: And he went on Twitter and he said, “Look, if you guys set up a Polkadot address, I’ll send you $5 million.” They saw that, and Michael said, “Give me a little while,” and couple hours later, he set up a Polkadot address and Gavin sent the donation.

Kate Linebaugh: Ukraine then tweeted back to Wood, thanking him personally and saying that the people of Ukraine are “forever grateful”.
Paul says that crypto, unlike conventional currencies, has advantages for a government that’s in the middle of a war.

Paul Vigna: Even if I dashed off a check today and mailed it, by the time that check got to somebody, was opened, deposited, it would probably be a week or so. With crypto, the money, it’s there, it’s there and it is available for them to use immediately. The way crypto transfers work, once the transaction is confirmed the money is in your wallet. It’s a very fast, live way for them to raise money from anybody with an account anywhere in the world.

Kate Linebaugh: Ukraine already has the infrastructure in place to process crypto transactions. One research firm last year ranked Ukraine fourth of all the countries in the world in adopting crypto.

Paul Vigna: Ukraine on its own is not a huge market for cryptocurrencies, but Ukraine is a very enthusiastic market for cryptocurrencies. The government has been very pro-digital technology. This has been almost like a plank of the government. They have a Ministry of Digital Transformation. They really want to modernize their economy and they want to do it digitally. Digital technology is big in Ukraine, crypto is big in Ukraine, and this is the world that Michael Chobanian in was living in.

Kate Linebaugh: Michael set up his exchange in 2016, and now it’s at the center of Ukraine’s crypto world. Here he is again.

Michael Chobanian: Because we’re an exchange, we know exactly how to convert crypto into fiat, fiat into crypto, crypto into crypto, and so on, send it to the anti-bank accounts in the world, or in some cases, we are actually buying stuff for crypto, a lot of companies-

Kate Linebaugh: A month before the invasion there’d be tension on the border, so Michael decided to relocate Kuna’s operations.

Michael Chobanian: I evacuated pretty much everyone apart from the few people. We’re evacuated to different countries in the world, so we are quite spread out. The IT infrastructure is outside of Ukraine, we’ve done that at least a month ago, so there is no risk of sites going down if the internet goes down in Ukraine.

Kate Linebaugh: Michael evacuated to Western Ukraine, but the servers in hardware needed to run Kuna were moved out of the country. When the war started, Kuna’s business was ready to help the government fundraise crypto for its war effort.
How is Ukraine using this crypto in its war effort?

Paul Vigna: Medical supplies, military supplies. We don’t know exactly what kind of military supplies, but they’re using it for civilian relief. They are buying everything they can. In some cases, they are buying from international suppliers, and in some cases it’s people, it’s companies in the Ukraine that they’re buying from as well.

Kate Linebaugh: To be clear, Ukraine’s fundraising efforts go well beyond crypto. It raised billions of dollars from governments around the world and $270 million in war bonds. But as of yesterday, it raised about $63 million in crypto, according to one analysis. While crypto has some advantages, it also isn’t completely predictable.

Paul Vigna: Well, the drawbacks are what have always been the drawbacks. The first one is volatility, and we’ve seen it in both ways actually. Once they started raising money, say that first weekend, I think they got up to 30 million, they got a lot of money. Then crypto rallied, Bitcoin rallied, so the value of what they had raised went up, but then Bitcoin went down, so the value of what they raised went down.

Kate Linebaugh: It’s not just the Ukrainian government. The war has also made average Ukrainians express more interesting in crypto.

Paul Vigna: God forbid, say you wake up and the Russians are shelling your town and you don’t have time to run to the ATM, knowing that you can’t take out a lot of money because there are capital controls and you can only take out a couple hundred dollars equivalent.

Kate Linebaugh: Michael, of Kuna Exchange, thinks access to crypto is more useful than cash in war time.

Michael Chobanian: Cash is absolutely useless. If you want to transfer cash, you have to find the person who is willing to give you cash because you can’t really take that much cash out of the ATMs. If you transfer into cash, it means that you’re taking extra risk. Thus, people-

Paul Vigna: He just said it’s dangerous to carry cash in a war zone. What he was saying basically was that it is much easier to have your money in a digital environment where it’s safer and it’s quicker and it’s more secure than having cash.

Kate Linebaugh: Ukrainians aren’t the only people finding new reasons to turn to crypto in this war, Russians are too. That’s coming up.
The global sanctions on Russia had immediate effect on the country’s currency.

Speaker 4: The ruble falling to its lowest level ever against US dollar.

Speaker 5: The value of the Russian ruble plummeting 30% more today.

Speaker 6: Today, the Russian ruble fell to a record low, is now worth less than a penny.

Kate Linebaugh: With the ruble in free fall, Paul says Russians were turning to crypto to protect their asset.

Paul Vigna: Right before the invasion and throughout the first week or so of the invasion, you saw a big spike in trading volume between Bitcoin and the ruble and between Tether and the ruble.

Kate Linebaugh: And what did that say to you?

Paul Vigna: What that means is that Russians, probably ordinary Russians, but possibly large institutional buyers, but probably ordinary Russians are trying to trade their rubles for cryptocurrencies because they don’t want to hold rubles because the value of the ruble obviously is getting crushed because of the invasion and the sanctions. It’s just a sign that average people in Russia are trying to get their money out of rubles and into anything that they think could be more stable.

Kate Linebaugh: Russia has a moderate crypto market. Unlike Ukraine, the government hasn’t fully embraced the technology, even though many citizens use it.

Paul Vigna: The state of play in Russia is that they’re pretty open to crypto. They have had questions about how to regulate it and whether or not they should really allow it. There are some elements within the government in Russia that have talked about outlawing crypto completely, there are other elements that have talked about allowing it. Because there’s no real consensus, it’s been allowed to grow and exist there and it’s a pretty decent sized market for Russia.

Kate Linebaugh: Can Russia use cryptocurrency to get around these sanctions?

Paul Vigna: The answer is almost certainly no, they can not, just because Russia, as a nation, is way too large, the markets are not that big and they’re not that liquid. Russia is the 10th or 11th largest nation by GDP. The crypto markets are just not that big, they could not handle all the traffic that would come from a nation the size of Russia.

Kate Linebaugh: But is there a sense that, say, oligarchs, wealthy, sanctioned Russian individuals, could use crypto to access their money and get their rubles out of Russia.

Paul Vigna: If you’re say Coinbase or Gemini or Kraken or any of these exchanges that operate in the US and are regulated and adhere to US laws, they’re regulated by US lawmakers, the reality is those sanctions apply to you too. The US government has a sanctions list. I downloaded it, I looked it up, it’s got more than 9,000 names on it. If your name appears on that sanctions list, no US business can have anything to do with you. That includes cryptocurrency exchanges.

Kate Linebaugh: Do the exchanges is require proof of identity to open up accounts?

Paul Vigna: That’s a very good question, Kate, because the answer is, if you are a regulated exchange, the answer is yes. There are things called the know your customer rules, any anti-money laundering rules. If you are a regulated financial business in the United States, you are required to know your customer. You are required to get identification from them. You have to know who they are, where they are and that it’s actually them. This is all done to help thwart money laundering. So yeah, if you’re a Coinbase, you have to know the identity of your customers and your clients. If you’re a Gemini, you have to know the identity of your customers and your clients.

Kate Linebaugh: Paul says that Russian exchanges don’t have to follow the same requirements.

Paul Vigna: There is an entire side of the crypto markets that is not regulated and that is potentially an avenue for anybody who is looking to move money outside of the purview of the US government.

Kate Linebaugh: This week, the US Treasury Department warned cryptocurrency firms to watch out for Russian efforts to evade sanctions.
Was it surprising to you to find out that crypto has a particular use in war?

Paul Vigna: No, not really, to be honest with you, because finance has a use in war. I think really the biggest surprise out of this entire thing for a lot of people, and crypto is only one small part of that, is how important finance is to war. I don’t think that’s a new lesson, but I think we lose sight of that. But I think people have forgotten the fact that financing is very important to a war effort. I think people are also seeing that financial networks are the life blood of an economy. Then the crypto side of that falls into, well, if you’re cut off from the main financial network, is this now an avenue for you to go around and still survive?

Kate Linebaugh: That’s all for today, Thursday, March 10. The Journal is a co-production of Gimlet and The Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts. We’re out every weekday afternoon. Thanks for listening. See you tomorrow.