Both Ukraine and Russia have tapped into cryptocurrency markets to raise money for their military efforts.
According to a report published Friday by blockchain research firm Chainalysis, pro-Russian groups have raised $2.2 million primarily in Bitcoin and Ethereum to help finance the war.
Cryptocurrency is an attractive medium of exchange for Russia, which has seen the value of ruble sink in the wake of sanctions and severed access to international payments systems. Digital currencies are also less regulated, and allow people to anonymously transfer money quickly from anywhere in the world.
According to Chainalysis, the funds were sent to 54 pro-Russian groups that primarily used the donations to finance pro-Russian propaganda websites and purchase military equipment, including drones, weapons, bulletproof vests and communication devices.
This equipment was allegedly delivered to Russian troops located in Ukraine’s Donbas region, where active fighting is taking place.
3/ How are the funds being spent?#Crypto donations sent to these orgs have reportedly been used to both finance pro-Russian propaganda sites and purchase military equipment like drones, weapons, bulletproof vests, communication devices & various other supplies. pic.twitter.com/mQiJZd9ctD
— Chainalysis (@chainalysis) July 29, 2022
The amount of cryptocurrency donations collected by pro-Russian organizations pales in comparison to the amount donated to Ukraine. Since the start of the war, Ukraine’s largest charities, including Aid for Ukraine, Come Back Alive and Unchain Fund, have received over $135 million in cryptocurrency donations and spent most of them on military equipment and humanitarian aid.
Those groups have spent more than $14 million on drones, more than $5 million on military clothing and armor vests, about $4 million on an anti-war media campaign and $1 million to buy lethal weapons.
Although the amount of digital currency donations collected by pro-Russia groups is much smaller, those funds could still make “a significant contribution” to its troops’ effectiveness, according to Chainalysis.
Researchers from the firm also identified a number of sanctioned individuals who promoted cryptocurrency donations in Russia. Cryptocurrency has been used by a number of organizations and regimes, including North Korea, to evade sanctions.
Russian-national Alexander Zhuchkovsky, for instance, promoted cryptocurrency donations on social media to finance the Russian ultranationalist organization Russian Imperial Movement, which has been designated as a terrorist group by the U.S. Another group that promoted crypto donations, Rusich, has been associated with the Wagner Group, a Russian private military company, also sanctioned by the U.S.
One of Russia’s cryptocurrency fundraising campaigns, Project Terricon, received roughly 11% of its funds from mixing services that allow users to hide their activity on the Ethereum blockchain. Project Terricon sent nearly 30% of its funds to Bitzlato – a Moscow-based exchange that has facilitated approximately $1 billion worth of cryptocurrency money laundering since 2019, according to Chainalysis.
While cryptocurrency donations allow countries to raise money quickly, they also have problems. Cryptocurrencies are rapidly losing value as the price of Bitcoin, the world’s most popular virtual currency, continues to fall. The price of Bitcoin has nearly been cut in half over the last year.
Fraud is also an issue. Researchers from TRM Labs identified dozens of cryptocurrency scams claiming to provide aid to Ukraine.
Russia may also have similar problems with its cryptocurrency donations, where cryptocurrency-related crime is widespread, according to Chainalysis. The country is home to many services — including Hydra and Suex — that have been involved in money laundering activity, Chainalysis said.
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