As the Russian invasion of Ukraine enters a second year, there is one clear winner in the crypto-based finance battle so far, and it is not Russia.
Fund flows to pro-Russian wallets on the blockchain — the decentralized ledger for cryptocurrency transactions — totaled just under $5 million last year, compared to over $212 million in pro-Ukrainian accounts, according to new research.
That means pro-Ukrainian accounts, ranging from government officials to humanitarian aid groups, have raised 44 times the amount going to pro-Russian entities, including groups that fundraise for the Russian military and militias.
The report, published by blockchain analytics firm Elliptic, shows that while over a tenth of cryptoassets received by pro-Russian wallets come from illicit activities — like dark web markets or sanctioned exchanges — less than 2 percent of Ukraine’s donations come from illicit ones sources come from.
Cryptocurrency was originally proposed as a way Russia could circumvent some of the sanctions imposed by Western countries. According to compliance firm Castellum.AI, Russia is now the most heavily sanctioned country in the world, with 2,695 sanctions before the invasion and a further 11,458 sanctions against Russia or Russian companies since the invasion through the end of February.
An analyst at Elliptic pointed out that in addition to the 10 percent from illegal sources, another third of pro-Russian crypto donations come from a so-called “crypto mixer” — a service that mixes and makes various streams of potentially identifiable cryptocurrency the origin of the funds much more difficult to trace. (The analyst spoke up news week anonymous given the sensitive nature of the research.)
Other research from data provider Chainalysis shows that cryptocurrency flows to Russia peaked in June after a slow start — consistent with the elliptical analysis. Russia has been more skeptical about adopting crypto but is now catching up to some extent. Crypto still accounts for a very small portion of the amount donated to pro-Russian causes, with the majority of this being sustained primarily through fiat currency donations.
Andrew Fierman, head of sanctions strategy at Chainalysis, said news week that the crypto funds do not flow directly to the Russian state, but are used for effective crowdfunding troop financing. “It’s not going to buy tanks – it’s going to buy things like bulletproof vests and winter gloves for those on the front lines.”
The Elliptic analyst described how a typical Russian Militia Telegram account solicits crypto donations, with a “shopping list” of items like drones, clothing, radar gear, firearms, but also more everyday items like clothes and groceries.
While crypto donations to pro-Russian accounts peaked in mid-2022, Chainalysis figures showed that much of the pro-Ukrainian funding came early in the invasion. “There was a flood of support early on,” Fierman said, with nearly $60 million in cryptocurrency donated in the first few weeks.
That also aligns with Elliptic’s analysis, which found that around $30 million was raised for pro-Ukrainian recipients in just the first four days of the invasion’s inception.
In February 2022, official Ukrainian accounts were up and running very quickly, immediately asking for crypto donations. According to the Elliptic analyst, the initial spike in support was part of a “demonstration that crypto could be a force for good.”
“There was a sense that crypto could be a force for good in the world and more importantly would stay here.”