Civilians continue to flee Irpen due to prolonged Russian attacks on Irpen, Ukraine, on March 7, 2022.

Wolfgang Schwan | Anadolu Agency Getty Images

In the morning, when Russia went to war with Ukraine, Fadey woke up at 9 am from a whole telegram of messages from friends about what was happening on the ground in the western city of Lviv. After a quick look at the news, he realized that his country was under siege. He decided to get out.

Fadey is 20 years old, and he asked to be identified under a pseudonym to protect his privacy, because for citizens of Ukraine aged 18 to 60 there is a call. Fleeing the service on the front line meant clearing the border before officials had the opportunity to close it. To do this, he needed two things quickly: a negative Covid test and money.

“I couldn’t withdraw cash at all because the queues at the ATMs were very long and I couldn’t wait that long,” Fadi told CNBC.

So instead he turned to bitcoin.

Fade tells CNBC that he made a peer-to-peer exchange (P2P) with a friend by exchanging his $ 600 bitcoin savings for zlotys, the Polish national currency he then used to pay for a bus across the border, a dorm bed for him and his girlfriend, and a little food.

The speed and ease of this crypto-transaction proved important. Two hours after Fadey’s safe entry into Poland, Ukraine closed its borders to all men of all ages.

Faddy also took with him across the border a USB flash drive that had 40% of his savings, or about $ 2,000 in bitcoins. This flash drive combined with a unique password has become the key to its financial survival.

“I could just write my embryonic word on a piece of paper and take it with me,” Fadzei explained.

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His experience highlights some of the most important characteristics of bitcoin: it operates outside, does not require a bank and is tied to its owner with a password, making it much harder to steal than cash.

Almost a quarter of Ukraine’s population have been forced to flee their homes for the past four weeks, and the war has strained the country’s financial system. As ATM raids across the country began to run out of cash, some people stood in line for hours to face the $ 33 limit per transaction. The transfer of money from national bank accounts proved equally ineffective after the central bank suspended electronic remittances on the same day as Russia invaded the country.

Add closed borders, a fast tunnel currency and the looming threat of Russian seizure, which will displace the Ukrainian hryvnia ruble, and it was the perfect option to use cryptocurrency.

“In this part of the crypt world – despite its volatility, despite the West’s attitude towards it – they don’t ask,‘ Why a crypt? They just ask, “How?” Said Brian Mosaf, CEO of crypto-investment platform Ether Capital in Toronto.

“It’s a very strong thing for a group of people who don’t have financial or political stability right now. To be able to keep their capital in some type of asset or product that, in fact, can be stored in a password.”

A man with a Ukrainian passport

Where outdated banking fails

Hours after Russia’s attack on Ukraine, the country’s financial system began to show signs of tension.

“The country’s economy has stalled for several hours,” said Alex Gladstein, chief strategic director of the Human Rights Foundation, which has supported activists in Ukraine since 2009.

“Everything is freezing. Suddenly it’s a wartime economy. It happened in a matter of days. We talk from 24 to 48 hours,” Gladstein continued.

Fadzei says he cannot transfer his Fiat-based savings to Poland, but the crypt has blunted the impact. After his bitcoins the rest of his net worth is divided between his share of the manner he keeps on the cryptocurrency exchange Binance and his Ukrainian bank account.

Alex Hammond, a researcher at the Institute of Economic Affairs, told CNBC that a few weeks before the invasion it was difficult to withdraw money from Ukrainian banks.

Civilians continue to flee Irpen due to prolonged Russian attacks on Irpen, Ukraine, on March 7, 2022.

Wolfgang Schwan | Anadolu Agency Getty Images

“In the weeks leading up to the invasion, most of the Ukrainian people I knew were actively trying to transfer as much money as possible from their Ukrainian bank accounts, be it to UK banks, US banks or cryptocurrencies,” Hamand continued. who spent several months in Ukraine last year and is now in Poland.

Maria Chaplya, for example, a citizen of Ukraine, now lives in Poland. Initially, she engaged in cryptocurrency, when her Ukrainian bank did not allow her to withdraw a significant amount of money, and the fees charged by PayPal were higher than she wanted to pay. “Everything was much easier with cryptography,” she said.

On the other side of the border trying to access cash through banks leads to similar friction.

“How are you going to access your Ukrainian bank account in Poland? Good luck,” Gladstein said. Even with the laws passed to protect asylum seekers, Gladstein warns that most Ukrainian refugees will not be able to simply go to the Bank of Poland and open a bank account.

“Not everyone has a crypto-wallet, but those who do have it treat it like a bank account and make transactions with it for these needs,” said Pablo Villalba of the Kimchi Fund, which invests in a mix of cryptocurrencies.

Citizens board a train fleeing the Russian invasion of Ukraine, in Odessa, Ukraine, March 9, 2022.

Alexander Avramidis Reuters

Bitcoin economy

Long before the war gave Ukrainians a reason to turn to bitcoin, Ukraine was one of the most progressive crypto-jurisdictions on the planet. Country ranks fourth in the world in terms of digital asset adoption, and earlier this month it passed a law legalizing cryptocurrencies.

Gladstein tells CNBC that Eastern Europe in general enjoys digital assets, and Ukraine in particular is a well-known technological point.

“There were many Ukrainian exchanges, companies, even major developers,” – said Gladstein. “They all have phones. It’s a country with a high degree of connectivity, very IT-driven. Very computer literate. Highly literate telephony is probably more than your average American.”

These technical know-how were especially useful when Ukrainians turn to their crypto-wallets as the only way to banking services.

In Poland, for example, there are more than 175 bitcoin ATMs that allow refugees who have fled with bitcoins to cash them out for fiat currency.

Recent advances in payment technology have also made it easier than ever to make transactions in cryptocurrency. Lightning Network is a payment platform built on the basic level of bitcoin, which allows for almost 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 such as Muun Wallet, make a four-digit pin code and start sending and receiving cryptocurrency payments by simply specifying a QR code.

“I’m sitting in California, I can still send you any amount of money instantly to your phone at any time,” Gladstein said. “We don’t have to worry about you being a refugee. It doesn’t matter that you don’t have a Polish passport or a bank account. None of these things matter.”

Residents of Irpen and Bucha are fleeing fighting over the destroyed bridge on March 10, 2022 in Irpen, Ukraine. Irpen, a suburb northwest of Kyiv, has endured days of constant shelling by Russian forces advancing on the capital. More than two million people have fled Ukraine since Russia’s February 24 attack.

Chris McGrath Getty Images

Konstantin Kogan is a co-founder of the blockchain-based gaming ecosystem, and he has team members in both Ukraine and Russia. Kogan tells CNBC that one of his Ukrainian employees remained in place but sent his wife and children to the border with a crypto-wallet.

This employee was not sure where his family was – or what border they had crossed – but he had a plan for their financial security: to make regular deposits in his wife’s crypto-wallet. The main amount of its capital (about 60%) it keeps in the crypt, mostly in stablecoins.

Heron says many of her friends in Ukraine are “very, very deep in the crypt”, but for her moving some of her money to bitcoin, etherium and leash served as digital gold: a way to keep it safe and forget about it.

“I used to be skeptical about the crypt, I have to admit, but because of the war I had to give it a chance,” she said.