- Nearly a quarter of Ukraine's population has been forced from their homes in the last four weeks.
- Many have turned to cryptocurrency to safeguard their cash, bring their money with them, accept remittances and donations, and to transact with each other for daily necessities.
- A Ukrainian refugee took a USB stick with him across the border containing 40% of his life savings, or about $2,000 in bitcoin.
On the morning that Russia went to war with Ukraine, Fadey woke up at 9am to a deluge of Telegram messages from friends asking him what was happening on the ground in the western city of Lviv. After a quick scan of the news, he realized his country was under siege. He decided to get out.
Fadey is 20 years old and asked to be identified by a pseudonym to protect his privacy, because there is conscription for Ukrainian nationals aged 18 to 60. Escaping duty on the frontline meant having to clear the border before officials had the chance to lock it down. To do that, he needed two things fast: A negative Covid test, and money.
"I couldn't withdraw cash at all, because the queues to ATMs were so long, and I couldn't wait that much time," Fadey told CNBC.
So he turned to bitcoin instead.
Fadey tells CNBC that he made a peer-to-peer (P2P) exchange with a friend, trading $600 worth of his bitcoin savings for złoty, the Polish national currency, which he then used to pay for a bus across the border, a bed in a hostel for him and his girlfriend, and some food.
The speed and ease of that crypto transaction proved instrumental. Within two hours of Fadey's safe passage into Poland, Ukraine closed its borders to all men of fighting age.
Fadey also took a USB stick with him across the border containing 40% of his life savings, or about $2,000 in bitcoin. That thumb drive, combined with a unique passcode, became the key to his financial survival.
"I could just write my seed phrase on a piece of paper and take it with me," explained Fadey.
His experience highlights some of the most important characteristics of bitcoin: It's valid across borders, requires no bank, and is tethered to its owner by a password, making it a lot harder to steal than cash.
Nearly a quarter of Ukraine's population has been forced from their homes in the last four weeks, and the war has strained the country's financial system. As the invasion proceeded, ATMs across the country started to run out of cash, and some people stood in line for hours only to face a $33 limit per transaction. Transferring money out of national bank accounts proved equally fruitless after the central bank suspended electronic cash transfers on the same day that Russia invaded the country.
Add in closed borders, a rapidly depreciating currency, and the looming threat of a Russian takeover supplanting the Ukrainian hryvnia with the ruble, and it was a perfect use case for cryptocurrency.
"In that part of the world, crypto – despite its volatility, despite the sentiments that the West has towards it – they don't ask, 'Why crypto?' They just ask, 'How?'" said Brian Mosoff, CEO of Toronto-based crypto investment platform Ether Capital.
"That's a very powerful thing for a group of people who don't have financial stability, or political stability right now. To be able to hold their net worth in some type of asset or product that essentially can be stored in a password."
Where legacy banking fails
Within hours of Russia's attack on Ukraine, the country's financial system began to show signs of strain.
"The country's economy shut down within a matter of hours," said Alex Gladstein, chief strategy officer for the Human Rights Foundation, which has been supporting activists in Ukraine since 2009.
"Everything gets frozen. All of a sudden, it's a wartime economy. That happened in a matter of days. We're talking 24 to 48 hours," continued Gladstein.
Fadey says he is unable to transfer his fiat-based savings to Poland, but crypto has blunted the impact. After his bitcoin holdings, the balance of his net worth is split between his monero stake, which he keeps on cryptocurrency exchange Binance, and his Ukrainian bank account.
Alex Hammond, a free trade fellow at the Institute of Economic Affairs, tells CNBC it was difficult to pull money out of Ukrainian banks for several weeks preceding the invasion.
"For many weeks prior to the invasion, most of the Ukrainian people I knew were actively trying to move as much money out of their Ukrainian bank accounts as possible, whether that be into UK banks, US banks, or crypto," continued Hammond, who spent several months in Ukraine in the last year and is currently in Poland.
Maria Chaplia, for example, is a Ukrainian national now living in Poland. She originally got into cryptocurrency when her Ukrainian bank wouldn't let her move out an appreciable amount of money, and the fees that PayPal charged were higher than she wanted to pay. "With crypto, it was much easier," she said.
On the other side of the border, trying to access cash via banks yields similar friction.
"How are you going to access your Ukrainian bank account in Poland? Good luck," said Gladstein. Even with the laws passed to protect asylum seekers, Gladstein warns that most Ukrainian refugees won't be able to just walk into the Bank of Poland and open a bank account.
"Not everybody has a crypto wallet, but those who do are treating it like a bank account and transacting with it in these times of need," said Pablo Villalba, from Kimchi Fund, which invests in a mix of cryptocurrencies.
A bitcoin economy
Well before war gave Ukrainians a reason to turn to bitcoin, Ukraine was among the most progressive crypto jurisdictions on the planet. The country ranks fourth globally in terms of digital asset adoption, and earlier this month, it passed a law legalizing cryptocurrencies.
Gladstein tells CNBC that Eastern Europe generally is big on digital assets, and Ukraine, in particular, is a known technology hotspot.
"There were tons of Ukrainian exchanges, companies, even core developers," explained Gladstein. "They all have phones. This is a highly connected, very IT-driven country. Very computer-literate. Very phone-literate, probably more than your average American."
That technical know-how has been especially helpful as Ukrainians turn to their crypto wallets as their sole on-ramp to banking.
In Poland, for example, there are more than 175 bitcoin ATMs, allowing refugees who fled with bitcoin to cash it back out for fiat currency.
Recent advancements in payment technology have also made it easier than ever to transact in cryptocurrency. The Lightning Network is a payments platform built on bitcoin's base layer that enables virtually instantaneous transactions.
Some Ukrainians use it to facilitate peer-to-peer transactions, while others have found that Lightning is a cheap and fast way to receive donations and remittances from anywhere in the world.
The payment process is simple and takes less than 60 seconds. Users can download an app like the Muun wallet, make a four-digit pin, and begin sending and receiving cryptocurrency payments simply by showing an QR code.
"Me sitting in California, I can still send you any amount of money instantly to your phone anytime," said Gladstein. "We don't have to worry about the fact that you're a refugee. It doesn't matter that you don't have a Polish passport or a bank account. None of these things matter."
Constantin Kogan is the co-founder of a blockchain-based gaming ecosystem, and he has team members based in both Ukraine and Russia. Kogan tells CNBC that one of his Ukrainian employees stayed put, but sent his wife and children to the border with a crypto wallet.
This employee wasn't sure where his family was – or which border they had crossed – but he did have a plan for their financial security: make regular deposits into his wife's crypto wallet. He keeps the bulk sum of his net worth (about 60%) in crypto, mostly stablecoins.
Chaplia says that many of her friends in Ukraine are "very, very deep into crypto," but for her, moving some of her cash into bitcoin, ethereum, and tether served like digital gold: A way to store it for safety and forget about it.
"I used to be skeptical of crypto, I have to admit, but because of the war, I had to give it a chance," she said.