Guns, Ammo and Crypto: How A Ukraine Minister May Have Forever Altered Wars

More: An NFT of this work was sold at auction on Coinbase NFT. A percentage of the sale went to oneearth.org.

While the crypto-verse was roiling from the latest market fallout, Mykhailo Fedorov had more pressing concerns. The 31-year-old former head of a marketing agency is the Ukrainian minister of digital transformation, with a mandate to push the nation toward a digital future.

With missiles whizzing in the sky above the Ukrainian capital of Kyiv, power blackouts and internet outages, the work of the Ministry of Digital Transformation has become exponentially harder since Russia invaded Ukraine on Feb. 24.

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Since the fighting began, Fedorov’s accomplishments include rebuilding thousands of mobile communications station destroyed by Russians, getting Starlink satellite terminals directly from Elon Musk (by tweeting at him), bringing PayPal to Ukraine, spearheading the launch of a new venture fund to support local startups and making crypto instrumental in the country’s fight for its future.

This year, Ukraine made history by successfully launching the world’s biggest cryptocurrency fundraiser. Over $178 million in crypto donations has been collected by various Ukrainian funds since the start of Russia’s invasion of Ukraine, according to the analytics firm Crystal Blockchain, which last updated the figure on Sept. 30, 2022.

The Ministry of Digital Transformation, or Mintsyfra, as it’s informally called by Ukrainians (“tsyfra” meaning “digit” in Ukrainian), led this effort. The money was spent on weapons and ammunition for the army, as well as humanitarian aid for civilians, according to the ministry.

Read more: Ukraine Bought Weapons, Drones With Crypto Donations

Texting with the government

Alex Bornyakov, deputy minister of digital transformation of Ukraine, was in his car with his family, driving out of Kyiv on the second day of the war when he got a call from his boss, Fedorov.

Fedorov suggested launching a fundraiser in crypto, in addition to fiat, as the country desperately needed money to deal with the unfolding catastrophe. Navigating his car through the dense traffic as “the entire Ukraine was on the move,” Bornyakov called Michael Chobanyan, founder of Ukraine’s first crypto exchange, Kuna, the deputy minister told CoinDesk.

“Back in those days, we didn’t have any expectations,” Fedorov told CoinDesk in an interview via email. “There was basically no time for thinking about whether it could work or fail. We just did what we could.”

What Fedorov knew back then was the fiat system was not working for Ukraine. On the second day of the war, Ukraine’s central bank introduced harsh limits on foreign currency transfers in and out of Ukraine to stop the run on the national currency.

“As a result, donations from abroad using traditional methods faced problems. So we needed a tool to quickly perform those transactions. And crypto was our first choice for that. Until the main aid arrived, crypto served as a bridge to support the Ukrainian Armed Forces and the people of Ukraine,” Fedorov said.

On that day, as Bornyakov arrived at the undisclosed destination outside of the besieged capital where the ministry relocated, wallets for donations were set up. The next day, the official wallet addresses for donations, managed by Kuna, were posted by the Ukrainian government Twitter account.

That’s how Ukraine became the first nation to open a cryptocurrency fundraiser during a war. During just the first two weeks of invasion, donors sent about $100 million worth of crypto to Ukrainian funds. That figure might look modest compared to hundreds of millions raised in fiat at the same time, but it was an important contribution that allowed Ukraine to buy 213 drones, $5 million worth of various weapons and multiple other supplies for the army, Fedorov disclosed in August.

To purchase these goods, Ukraine needed to exchange the crypto donations into U.S. dollars, but many foreign crypto exchanges were reluctant to deal with anything related to the war, said Sergii Vasylchuk, founder of staking service Everstake. The one exchange that agreed was FTX, at that time one of the largest, and seemingly successful, crypto exchanges.

The FTX shadow

Now, after the spectacular collapse of FTX, the connection with the Ukrainian government has become the basis of a conspiracy theory involving the U.S. Democratic Party and used to sow further political divisions here. It goes something like this: By using FTX as the crypto exchange for its wartime fundraising, Ukraine “invested” in FTX, and the exchange, led then by Democratic Party mega-donor Sam Bankman-Fried, was used by the Democrats to launder money under the guise of U.S. aid to Ukraine. This theory defies logic.

Bornyakov refuted the theory in a November tweet, explaining that Ukraine used FTX for cashing out crypto donations back in March but never “invested” in it. He reiterated that in an interview with CoinDesk.

Read more: Where the Coins Go: Inside Ukraine’s $135M Wartime Fundraise

The FTX link is a liability now, of course. But back in March, it was a lifeline: “I didn’t need to run around and look for places to sell crypto [donations] for fiat. When people asked me, I could simply point at FTX,” Bornyakov said.

When the invasion began, so many people wanted to help and so many local initiatives emerged that some donors got confused and didn’t know where to send their money or whom to trust, Vasylchuk said. So when the ministry started its own fundraising and verified campaigns of some non-governmental funds, it gave donors clarity as well as peace of mind.

“Mintsyfra became this source of truth, which was trusted by everyone,” Vasylchuk said.

Digital state

People Coindesk spoke to say that Fedorov understands the power of blockchain technology pretty well. However, it’s not personally his top interest and priority. Fedorov’s proudest achievement is tangential to crypto: It’s Diia, a smartphone app allowing Ukrainians to obtain digital copies of all their government documents and to request a range of government services electronically, through a single interface.

The ministry, founded in 2019, was Fedorov ‘s brainchild, Bornyakov said. Former digital strategy adviser for president Volodymyr Zelensky’s election campaign, Fedorov wanted to create “a ministry that would work like an IT company,” his deputy recalled.

A former startup founder, Bornyakov did not have a high opinion of civil servants but was pleasantly surprised with the new minister’s open and straightforward style.

“He said: We will have lawyers, we will have all this state machine and it will help you focus on what you’re doing,” Bornyakov said. The youngest minister in Ukraine’s government, Fedorov promised to “liquidate all this bureaucratic bullshit” when he started his career. According to Bornyakov, that worked.

It took Mintsyfra much less time that anyone expected to develop Diia, which now, during wartime, has proven its value, helping refugees have peace of mind about the accessibility of their official documents, Vasylchuk said.

The war accelerated development of additional features and now, Ukrainians can also receive their financial aid from the government through Diia, as well as donate to the army and report on the movements of enemy’s troops and hardware, Fedorov told CoinDesk.

He added that he and his team find crypto “quite exciting” with promising applications for the future of Ukraine.

In tragedy and hardship, there is also opportunity for crypto.