How Ukraine’s wide use of cryptocurrency is playing out during the war

The terrible, unprovoked war in Ukraine has destabilized that country’s economy and banking system, leading both Ukrainian politicians and citizens to more seriously consider cryptocurrency. I’m pretty skeptical of crypto, but I want to come by that skepticism honestly, and I want to understand more about what was happening there, so I’ve invited Michael Chobanian to the show.

Michael is president of the Blockchain Association of Ukraine and founder of the Kuna Exchange, which lets people buy cryptocurrency and swap between them. Earlier this year, the Ukrainian government set up wallets on Kuna and other exchanges to accept donations to the war effort in crypto; in April, Bloomberg reported it had received over $60 million in crypto donations.

What’s more, earlier this year Ukrainian President Volodymyr Zelenskyy also signed a virtual assets bill into law, which will recognize cryptocurrency as an asset in Ukraine when the war is over. As president of the Blockchain Association, Michael lobbied for this law, which you’ll hear him talk about — especially in the context of how little faith he has in the banking system. He says several times that, even before the war, it couldn’t be trusted and that people were already using a combination of crypto and dollars for large transactions instead of Ukraine’s actual currency, which is called the hryvnia.

Throughout the course of this conversation, you’ll hear dollars come up a lot. Michael says the most popular cryptocurrency in Ukraine is Tether, or USDT, a stablecoin that’s backed by the US dollar in what is supposed to be a 1:1 ratio: one dollar per tether coin. Now, there are lots of questions about how stable stablecoins really are — a stablecoin called Terra is currently crashing in value, and there’s a lot of controversy about whether Tether has the financial reserves to back its stablecoin. You’ll hear Michael express his reservations about USDT, but what I came back to several times is my main question about cryptocurrency, which is whether people only care about it because they care about dollars. We went back and forth on that; it’s a good conversation.

Okay, Michael Chobanian. Here we go.

This transcript has been lightly edited for clarity.

Michael Chobanian is the founder of the Kuna Exchange and the president of the Blockchain Association of Ukraine. Welcome to Decoder.

Hey, guys.

I am very appreciative that you have made the time to come be on the show. I know that things in Ukraine are quite tense and quite complex, but I think it is important to talk about what you have been doing there. You graduated from Columbia University here in the United States, you have lived in London, and worked in tech in Ukraine. We mostly talk to Americans and American companies on the show. Can you give me a brief description of what you were working on in Ukraine in the tech industry? How did you make the move into crypto?

Yes. I was working at the telecom company; I was in charge of business development. We were the first company to launch 3G in Ukraine. It was based on the CDMA standard, the American standard, while Europe was GSM. At the time that was quite amazing.

A couple of months later, I saw that mobile traffic was growing really fast. I also had data on fiber optic — the fixed-line internet — and I saw that traffic was not growing as fast there. For me, it was quite obvious that everything was going to go mobile, especially after the iPhone was released. That was when I was really starting to get interested in using mobile as the universal key to the digital world.

I went to London Business School, Columbia Business School, and University of Hong Kong to do my executive MBA degree. During that time I was socializing with a lot of people from all over the world. One of the guys asked me what was happening with digital marketing in my country. I told him it was booming, and then he asked me, “So are you in it?” When I said no, he asked, “Why?” I didn’t have an answer. I asked myself why I was not doing anything in the space, considering that I have a telecom background. I saw that traffic was growing and it was quite obvious mobile was going to take over the world. So that was what I did; I started my own digital marketing and web studio. We were basically doing simple stuff, creating pages, websites, and mobile apps for companies.

I actually found out about Bitcoin around 2011, during one of the projects we were developing about digital banks. At the time, they did not exist in Ukraine — and there were only a few examples in the world — so we were doing marketing research on what was happening with the money in the world. It was the global financial system with a lot of banks with electronic money, a lot of institutions. Bitcoin couldn’t fit into any of the bubbles that we drew. I asked my guys, “What the hell is Bitcoin?” They said, “This is digital currency, fully decentralized. It has nothing to do with the fiat system.” I was like, “What is a fiat system?”

We had all these difficult questions that all of us know now. To be honest, I did not believe in Bitcoin in 2011. As I can remember now it was dropping from $30 to $3. I didn’t quite spend that much time studying it.

The next time I shook hands with Bitcoin was in 2013, when the Cypriot financial crisis happened. It turned out that a lot of investors were trying to save their money from the government, so they were buying Bitcoin. I was like, “Whoa. So you can use Bitcoin to avoid government sanctions. This could be interesting.” That is the minute when I started doing Bitcoin full time, and did not do anything else apart from that. That was in April 2013, which means it has been exactly nine years and one month.

I want to talk to you about what is happening with blockchain in Ukraine now, when obviously the entire country is under stress. Russia’s launched this war, and the country is fighting back. It seems to be going well but there is a lot of destabilization. You can see why Bitcoin would be interesting in that context right now. Before we talk about that, help me understand the foundation before the war. What was the tech industry in Ukraine like? What was the status of Bitcoin or cryptocurrency adoption in Ukraine like, before the war?

In terms of the number of crypto users per capita, according to a lot of researchers, Ukraine was always among the top five, if not the first. The reason for that is we have a lot of mobile phones and fantastic internet penetration — with average speeds getting close to 1 gigabit for the whole country — but a really bad banking system. We have the shittiest banking system you can ever imagine. You can’t do anything. If you want to do a service, they say, “No you can’t do that.” Why? “Because the national bank said no.”

Obviously, a lot of developing countries are in similar situations, where the banking system is so bad you cannot send money abroad, cannot take out the money, or cannot put money into the bank. If something starts to happen in the economy, the government decides that your money is now government money. They did that a few times, so we do not trust the banking system or the government. We don’t trust anyone.

With crypto we have a system which does not require you to trust any particular person. It belongs to everyone and to no one at the same time. It is fully decentralized. With a lot of different crypto currency; you can go 100% decentralized, or you can go fully centralized. You can choose if you want a smart contract or you just want to make sure that everything is good with your Bitcoin. It is an amazing system. That is why the per capita usage in Ukraine was huge before the war. Now after the war, well, during the war … I’m thinking as if it is already finished.

It would be nice.

It will be soon. I see the trend as well, it is just a matter of time. Just like with the fiat system, Putin is going to lose as well.

That is a bold prediction. I want to point out that you have now predicted the war will end and the fiat currency system will end.

We are going to have to fight with the banking system, but yes, the world is going to change so much that the traditional fiat system has no chance. Anyway, what was I talking about?

You were talking about Ukraine before the war. You told me about the status of cryptocurrency before the war and you said the uptake was high because the banking system was bad. Tell me about the tech industry though.

The status there was — and still is — none. We have a law, but it is not going to go into action until at least next year. No one knows exactly when, because of the war. The ministries are worried about winning, and not about drafting or implementing the law.

At the moment, crypto is nothing there and it does not exist. But that did not stop us. As I told you, we do not trust the government, so we do not really need any government official or any documents saying that Bitcoin is something. We just use it. It exists and we use it and we do not care about the government.

Let me just put two things in contrast here that I think are interesting. You mentioned that you worked at the telecom provider. As far as I understand, Ukraine only really has one telecom provider, but that telecom provider was really fast to 3G. On top of that, it has delivered very fast internet to most people. The median speed for the internet in the United States is not a gig; it is barely 200 Mbps. Decoder listeners know, I would complain about United States telcos all day and all night. In one sense, it seems like the government is doing a very good job of delivering internet access in Ukraine for whatever reason.

It is not the government. That is the whole point. The government does not have a single successful project, except for one called Diia. This is an app that enables you to have your online passport for international travel and…