• As tensions rise with Russia, new data shows that Ukrainian volunteer groups are crowdfunding bitcoin to support the country's military.
• Cryptocurrency donations totaling hundreds of thousands of dollars have been made to Ukrainian NGOs and volunteer groups, according to a report from Elliptic, which sells blockchain analytics tools.
• The crypto raised by Ukrainian activists has been deployed for a variety of purposes, including equipping the Ukrainian army with military gear, medical supplies and drones.

As more than 100,000 Russian troops mass on the border with Ukraine — and global powers work to stave off all-out war between the two countries — new data shows that Ukrainians are crowdfunding bitcoin to fight back.

Donations totaling hundreds of thousands of dollars have flooded into Ukrainian nongovernmental organizations and volunteer groups, according to a report from Elliptic, which sells blockchain analytics tools to banks and some of the world's largest cryptocurrency platforms, including Binance and Circle.

Activists have deployed the crypto for a variety of purposes, including equipping the Ukrainian army with military equipment, medical supplies and drones, as well as funding the development of a facial recognition app that identifies if someone is a Russian mercenary or spy.

"Cryptocurrency is increasingly being used to crowdfund war, with the tacit approval of governments," said Tom Robinson, Elliptic's chief scientist.

Although Russia says it has no plan to mount an offensive, the U.S., U.K. and others have preemptively sent military hardware to Ukraine to help brace for a possible invasion.

Borderless and censorship-proof

For years, volunteer groups have augmented the work of Ukraine's military by offering additional resources and manpower. When Ukraine's pro-Russian president Viktor Yanukovych was ousted in 2014, for example, legions of organized volunteers stepped up to support protesters.

Typically, these organizations receive funds from private donors via bank wires or payment apps, but cryptocurrencies such as bitcoin have become more popular since they allow them to bypass financial institutions that might block payments to Ukraine.

"Cryptocurrency is particularly suited to international fundraising because it doesn't respect national boundaries and it's censorship-resistant — there is no central authority that can block transactions, for example in response to sanctions," said Elliptic's Robinson.

"The advantage of raising funds in crypto is that it's a lot harder to confiscate them," said Boaz Sobrado, a London-based fintech data analyst, who has advised charities in authoritarian countries, including former East bloc nations, on raising funds.

Volunteer groups and NGOs have collectively raised just over $570,000 in cryptocurrency, according to Elliptic's report. Much of that crypto cash was received in the last year.

Elliptic's software is sometimes used to investigate criminal activity on bitcoin's digital ledger and monitor transactions to fight money laundering. For this report, Elliptic identified multiple cryptocurrency wallets used by volunteer organizations across Ukraine, in order to trace where and how crypto funds are being put to use.

One such group, Come Back Alive, which began accepting cryptocurrency in 2018, provides the military with equipment, training services and medical supplies. The group says they saw bitcoin donations surge to $200,000 in the second half of 2021.

Another group, the Ukrainian Cyber Alliance, says it raises money exclusively in cryptocurrency. Over the past year, the group has received close to $100,000 in bitcoin, litecoin, ether and a mix of stablecoins. Since 2016, Alliance activists have engaged in cyberattacks against Russian targets, says Elliptic.

"Their operations have included attacks on propaganda sites, the Russian Ministry of Defense, and various individuals linked to Russia’s activities in Ukraine. Intelligence collected during these operations is reportedly shared with Ukrainian law enforcement and intelligence agencies," according to the report.

Kyiv-based NGO Myrotvotrets Center has taken donations in crypto since 2016 and is currently working on a facial recognition app that would be able to identify "militants, Russian mercenaries, and war criminals" based on a photograph.

The organization — which says donations to its cause have come from more than 40 countries — already publishes information about people considered to be "enemies of Ukraine."

Thus far, the Myrotvotrets Center says it's raised at least $267,000 through more than 100 bitcoin donations.

Ukrainian activists aren't the only ones leaning into crypto.

Pro-Russian separatists have been raising funds in bitcoin since the early days of the Russo-Ukrainian conflict. Sobrado tells CNBC that some Russian officials mentioned they weren't shutting off opposition bank accounts for "fear they'd push them into crypto fundraising, which is a lot harder to monitor."

Sobrado went on to say that there is a long history of crypto fundraising for controversial causes, from WikiLeaks to Russian opposition politician Alexei Navalny, who has also been raising funds in bitcoin.

Ukraine's embrace of crypto

For months, Ukraine has taken steps to embrace cryptocurrencies at a national level.

Ukrainian President Volodymyr Zelenskyy signed a law in 2021 that paved the way for the country's central bank to issue its own digital currency.

The president and parliament are also going back and forth on a law that would legalize and regulate cryptocurrency. If the measure passes, it would go a long way toward elevating crypto out of the legal gray area where it currently sits, though it wouldn't go as far as El Salvador, which adopted bitcoin as legal tender in September.

On an official state visit to the U.S. in August 2021, Zelenskyy spoke of Ukraine's budding "legal innovative market for virtual assets" as a selling point for investment, and Minister of Digital Transformation Mykhailo Fedorov said the country was modernizing its payment market so that its national bank would be able to issue digital currency.

This year, the country plans to open the cryptocurrency market to businesses and investors, according to the Kyiv Post. Top state officials have also been touting their crypto street cred to investors and venture capital funds in Silicon Valley.

A war with Russia, however, could render all those plans moot.