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Photo Illustration by Grayson Blackmon / The Verge; Photo by Oliyarnyk / CC-BY-SA-4.0

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

With Michael Chobanian, the president of the Blockchain Association of Ukraine

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 your driver license and documents for local travel. It is all in that app, and is equal to the physical documents. This project was only launched in 2019, and we are the first country with the digital passport that is equal to the paper passport.

I think that is the only successful project that we have in Ukraine. The other government projects just fail. They just steal the money and that is it. When I talk about the internet, it is not because the government did something. Same with the crypto. If they do not make problems, then the industry develops. If the government comes, then that is it, the industry is dead.

By the way, I want to correct myself. There was a single telecom provider, but it demonopolized itself and now there is more competition in Ukraine for the internet.

That was a long time ago. It was slightly different from what you are saying, but it doesn’t matter. It was not the government provider. Fifteen years ago, If you wanted to set up a telecom operator, all you needed was to buy some Cisco servers and fiber optic cable to your server. Then you just had to do the wiring to the apartments around you. You could choose a couple of blocks, take the ethernet wire, drill the holes in the walls, and so on. You bring it to the houses. That is how you connected your subscribers to the internet. That’s it. You just built an internet provider and did not have to ask anyone to do that.

It has changed now and is more civilized. You have to get permission to dig and so on. At that time — before the government came — a lot of wire was already in the houses. That is why it was really cheap, gigabit was already there. There is no monopoly on the internet in Ukraine as well. There is no Verizon, there is no AT&T. If you want to be an internet provider, just get your own fiber optics from Europe and here we go, you can sell it wholesale. Same in crypto. There is no government to ask to do something. That is why it is so popular.

I want to make that comparison because these are two big infrastructure projects. Depending on what country you are in, the relationship with the government and infrastructure — with broadband and money — are very different. You have experience in both. It is interesting to draw the contrast to successful internet deployment, perhaps to successful crypto deployment. Broadly, before we get into crypto at this moment in Ukraine, what was the tech industry in Ukraine like before this?

It was booming, as well. We have a lot of bright, educated tech people. The higher education level in Ukraine is 96% or something like that. We have quite a few strong IT universities. In general, we have a lot of IT personnel, and people here are more mathematically inclined. We have a combination of really fast internet, a lot of clever IT developers, and crypto. It was booming. We did billions and billions per day in transactions for the whole country. Even huge markets worked 100% on crypto. It was big.

That is just a foundation. As you said, you have an educated population with fast internet, and they are already interested in using crypto. Then the war happens. Tell me what has happened with crypto in Ukraine since the war began.

Obviously, the volume is down probably three to four times. The reason for that is before the war most of the gray market — and gray market in Ukraine is probably 60% of GDP — was using crypto as the core banking system. You could not use traditional banks if you are in the gray market; not that many people actually use banking for business because it is useless. You cannot buy US dollars, and you cannot easily send SWIFT payments and so on. With crypto, no one asks you a question. If you want to do it, you just do it. Therefore, a lot of businesses worked in crypto.

Since the war, some of these huge markets have been closed and destroyed. Therefore, there is no import. There is no demand for crypto. That is why it has fallen.

People do not really want to speculate right now. Most of the crypto holders came in the past year — and obviously these are not the richest people in the world — so when the war happened, the last thing they were thinking about was crypto. They wanted to buy some food for their families or needed new shelter, because big cities had to flee to other countries or to the western part of Ukraine. The relocation means you have to spend more money. Basically, the speculation volume is down probably 10 times from before the war.

As you are looking at the Bitcoin market now, you are obviously seeing the prices fall. The rest of the crypto market is, I would say, chaos at this moment in time. If you take out speculation and take out gray-market transactions, what is Bitcoin being used for in Ukraine right now?

There are two major use cases. The first one is humanitarian aid. Funds like mine use crypto to pay for goods in Europe or in the US.

Can you be specific here? You said crypto. Are you saying crypto, inclusive of Bitcoin and Ethereum? Are you saying it is inclusive of more cryptocurrencies?

Yes, the three main currencies that we use in the fund are Bitcoin, Ether, and USDT on the TRON network. Well, two currencies and one token. These three are used to pay for things like bulletproof vests, for example.

The reason that people are using the funds — that volunteers and regular people are using the crypto — is for a very simple reason. There is no other way that you could pay for something outside of Ukraine. The foreign exchange market is closed to very specific companies. If you are not in the petrol or food business — or wherever the government is requiring at the moment — you will not be able to buy US dollars. If you cannot buy US dollars, obviously you cannot import anything. The only other solution to buy something outside of Ukraine, is only using crypto. That is the first use case, as international payment.

The second use case is savings. A lot of people converted cash money into crypto because it is much safer and easier to carry. You can take your phone, ledger, or written-down mnemonic phrases with you. It does not weigh anything, while cash weighs a lot of kilos and can easily be taken away from you by the bad guys.

If the war started in late February and you said, “Oh my gosh, we have to put everything into Bitcoin,” your savings would have plummeted precipitously from now until then. Do you think it is a good savings vehicle?

Shit happens. First of all, the way the people of Ukraine do savings is not that they carry money to the bank and deposit it. It does not work like that. We do not trust the banks. I told you. If we have a lot of money — by a lot of money for Ukraine, I mean probably $100,000 and above — the last thing you will think about is actually bringing it to the bank. Once you bring it to the bank, that is it. The likelihood that you are going to get it all back is very slim.

You cannot take out this whole amount because they can ask you 50,000 questions. What are you going to use the cash for? They will find rules saying that you cannot take out a certain amount of cash, and blah, blah, blah. So people do not deposit money in the bank.

People store cash (as in US dollars, because it cannot be easily taken away by the government), they store in crypto, or they use it to buy houses or apartments in big cities, which was a big mistake. These are the only three options. We do not have a stock market so you cannot buy stocks. Where else? Yeah, that’s it. So the only option is cash. You physically store cash, but it devalues because of inflation. You have crypto, and the third option is physical square meters.

So from this point of view, even if you bought Bitcoin or Ether two to three months ago, you probably lost 30% of that value, but you have not lost everything and there is a very good chance that this might go up mathematically because Bitcoin is limited in supply. That is a much better scenario than owning square meters in Kyiv, Kharkiv, or Mariupol, because that does not cost anything. My house — I have a house outside of Kyiv — is not worth anything right now. There is no demand, it is zero. It does not matter what I would try and sell it for. It is zero. No one wants to buy it. You can imagine what happens to the savings of the people who spent their money on apartments. Same in China, it is a bad solution. Crypto only.

You said there are three use cases. We talked about two of them. What is the third?

The third transfers within the country. For example, if you have cash in one city and you want to take out cash in another city, instead of driving and being at risk, you could use crypto. You buy crypto in one city, then you arrive in the other city and sell crypto for cash, then here we go. It will cost you 0.3% to 0.5% depending on the cities and that is it. You use crypto just to transfer cash from one point to another.

Is that happening mostly in Bitcoin, Ether, USDT?

USDT. People trust USDT here, unfortunately. I can understand why, for this use case. I do not trust the USDT as a token or the company, Tether. I have a lot of questions, but it is the most popular stablecoin here.

I would just say broadly in the market, we are watching stablecoins experience a great amount of struggle. Terra and Luna are in what appear to be a death spiral. Are you seeing that for USDT in Ukraine as well? Is that a real risk?

I do not see it in Ukraine. USDT is global so I see a risk for the whole Tether.

How do you think that risk is expressed?

The risk that they just printed a lot of Tether, which is not backed by anything, and there is a risk that if that is true, then it is a big problem. The second question is reputation. Media shows Tether as an evil corporation, which is grayish. It is not as valid as, for example, USDC by Coinbase and Circle. You know that these two companies are public. They are regulated. And Tether is big, but it is from someone who was in trouble beforehand. I think there could be problems in the future, but hopefully not.

The third use case there, to me, is kind of the most interesting place to start, which is transfer within the country. You are describing a country where, even before the war, the banking system was not trusted, perhaps not useful. You want to buy goods and services in Ukraine. Maybe this is the push where a cryptocurrency actually becomes the currency of a country. We have not really seen that happen before, but what you are describing is people move their money into USDT, they travel, and then they sell USDT for dollars and then they transact in dollars. Are people actually transacting directly in cryptocurrency there yet?

Oh, yes. The house I mentioned, I bought for USDT.

The owner of the house was willing to take USDT? Isn’t USDT a stand-in for dollars? You might as well have transferred dollars with some proxy, right?

How are you going to transfer dollars? In that case, I would need to get a big bag, put a lot of cash in it — which I do not have because I do not store in cash — then take that bag with the risk that someone could stop me and take away this cash from me by shooting me or something else. What is the point if you can just press a few clicks to convert to USDT and then send that USDT directly from Uniswap or wire exchange? That’s it, and it is so much easier. It is fast, and it is secure. I have proof on the blockchain that I did this transaction, which is also important for Ukraine because I told you we do not trust the government, so we do not trust the representatives of the government like solicitors or anyone else. Crypto is there already.

Are people buying groceries in any of the cryptocurrencies? Are they buying gas? How is that working?

No. Crypto is used mainly for transactions above, I would say, $1,000 to $5,000. If you are spending below that you have local currency, which is a really good example of gazelle money. There is a term, gazelle money.

I don’t know what that is.

Iit is basically money that devalues really quickly and there is incentive for you to spend it as fast as possible. If you use that system, then theoretically, the economy will grow because people will be spending all the time. They have no incentive to save this currency. They have incentive to spend.

This is a good example or explanation of Ukrainian hryvnia. It is devaluing by 2030, maybe 15% to 10%. The minimum is 10% per year. That is by official statistics, but as I told you before, we do not trust the government. I guess the real inflation is probably close to 20%. That is what I see if you compare prices year to year of your typical grocery store purchases. It is closer to 20%.

What is the point of holding local currency if it is guaranteed that inflation is going to eat it? The exchange rate was 1 to 27, before the war. If you want to store, I don’t know, $100,000, that is like 2.7 million hryvnia. If you are lucky, you got the 500 notes, which means the bag will weigh approximately 30 kilos. Do you really want to carry around 30 kilos of paper? No. I have to explain this because in the US, you do not have these problems.

We don’t. This is eye-opening.

I used to live in the US. The banking system there worked perfectly. If you are inside the banking system, you are okay as long as you do not leave the system. You can send any amount to any other person or a company. The bank is not going to ask you questions if you have the private money and it is in their system. If you want to use crypto, you can easily use crypto in the US. You can pay for a lot of stuff with crypto, but Ukraine is different. If you are buying something above $500, you will be thinking in terms of US dollars, but if it is milk or a loaf of bread, typical everyday goods, you are thinking in the local currency.

Once you pass the threshold of approximately $500, you start to think in US dollars. If you want to buy a car, you are thinking in dollars. If you want to buy a house, you are thinking in dollars. If you want to buy an iPhone, it will be in dollars. If it is a cheap phone, it will be in hryvnia. For us, USDT is basically a bank account in US dollars without government control, because you cannot open a US dollars account and easily transfer US dollars from one account to another account. It is impossible. You cannot do it, because the banking system is shit.

Thank you. I just want to push on that a little harder because it is fascinating to me. Conceptually, you have two currencies that are kind of open and running at once. We have hryvnia on the small side and dollars on the high side, then the crypto. Where crypto comes in as — you are describing it — is USDT as a proxy for dollars that is easily transacted digitally, without the government getting in your way. You do not need a bank’s SQL server to tell you how many dollars you have. With my bank, that is effectively what is happening. They have a database and I trust the database to whatever extent I might trust the United States government. The United States government has back-stopped the bank’s database, so I think my money is safe. You are saying, “Okay, but USDT is on the blockchain. Anybody can read it. I do not need to trust anybody else.” But at the end of day, it is still dollars.

Yes.

It is not Bitcoin.

First of all, you have to distinguish between the money used for regular transactions and savings. If you want to save, you definitely do not keep the USDT. You invest it into any cryptocurrency, real cryptocurrency, because there is no point in holding onto USDT. The dollar has inflation. You are actually losing every year.

With the crypto, especially if you are doing your investment plan for three-plus years, you are most likely to win. That is what history tells us. If you want to do transactions, you use USDT. If you want to do investment or savings, then you use Bitcoin and Ether, or any other crypto. I would suggest Bitcoin or Ether, but that is not investment advice.

Fair enough. The reason I am pushing on this is because the war in Ukraine is an enormous humanitarian crisis. It is a tragedy. I think we all wish it had not happened, but it is also a point at which you might see an acceleration of trends. You might see an acceleration of crypto usage in transactions, or in savings. You do not trust the government or the banks already. Now, they kind of don’t even exist. You might see this rapid acceleration in usage.

What you are describing, though, is that usage has actually gone down and reliance on the stablecoin pegged to the dollar is actually kind of the important piece of the puzzle. Just like in the whole conversation on blockchain and cryptocurrencies, you started off by saying fiat currency would go away. Having this moment put pressure on the system, such that reliance on the dollar goes up, does not seem like a step on the path towards fiat currency going away. It seems like the opposite step to me.

Well, first of all, we have to look at the time scales. For the fiat system and everything that you just said, there are different time scales. It is not going to happen once. It will be a general degradation of the fiat system. Equally at the same time, the role of crypto would be growing — crypto-crypto, not stablecoins. I do not see any contradiction here, to be honest.

For me, it is quite logical that as one fades another one rises, and it happens pretty much at the same time, like it happened in Ukraine. If you cannot use the fiat system to buy goods outside of Ukraine, there was a vacuum, and that vacuum was filled with crypto. What is unique with Ukraine is that we are the first country in the world where a lot of high-ranking officials are pro-crypto now.

We have an army that is highly supportive of crypto because the crypto fund is buying all kinds of humanitarian or defensive stuff for the government. We are more efficient than any of the official government military suppliers because for us, it takes 10 minutes to confirm the block on the Bitcoin. It is 30 minutes to do a transaction in Bitcoin and it is done, it’s paid. For the government, they need about a week just to send the money, because they’re so bureaucratic. They need the stamp, the legal papers, and it has to be sent back and forth. Then it takes a week for the SWIFT to reach the US because the banking system, I’ve told you before, is shit. So for them, it’s really slow.

With the crypto fund, we can buy anything within days and it will be delivered to Ukraine. It will not be weeks and months like with the fiat system. Now we have supporters of crypto from the military, from the police, from the special services, from the court, and from basically all the government. The prime minister and everyone else knows about this fund and how good we do. Everyone knows that crypto is actually life-saving and is really efficient, fast, and convenient.

It is a unique situation because before the war, there was a lot of skepticism among the top-ranking officials in the government. Now they all know about Bitcoin, that it can actually save lives and cross the border to overcome any obstacles that the national bank — which is independent in Ukraine, unfortunately — could present. Now we have a lot of support. After the war, I think we will be the number-one crypto country in the world.

One of the things that you have talked about on other podcast interviews is preventing people from using rubles to buy into your exchanges or other exchanges. You have criticized other exchanges for allowing transactions in rubles. Obviously, that is a proxy towards letting Russian people transact. Explain your criticism of allowing ruble transactions. I kind of want to unpack how you can run a totally decentralized thing and then impose rules like, “No rubles.” Explain your criticism of it.

It is the currency of the enemy. If you continue using the currency of the enemy, you are helping the enemy, because that ruble is used for some kind of economic activity. If there is economic activity, there is a benefit to the economy. If there is benefit for the economy, they can build more tanks, send them to Ukraine, and try to kill more people in my country.

If we, as the world, decided that we impose sanctions on the economy of the country, obviously the ruble should be shut down. Not a single exchange should use this currency for the moment, at least while Putin and his regime is in power and waging war against my country. That is the main idea.

If you are a crypto exchange, and people use the rubles to buy Bitcoin, do you think that that should be not allowed?

Shit happens. It is their government that is sending troops to kill my people. Some of the people who were using my exchange thought that, “Nothing bad is happening in my country. The troops are normal, and the killing of children is also normal.”

I am against any violence. I’m a libertarian. I think the only way we should fight against the disinformation within Russia is with economic means, and I think it works.

Unpack that a little bit. What do you mean by using economic means to fight against disinformation in Russia?

I am talking about economic sanctions. They are cut off from all the civilized services, so they cannot use Amazon, Netflix, Google, Spotify, McDonald’s, cars, electronics, Samsung. All the big brands of the world said, “No, you cannot use our services. We do not want to be part of the bloody regime.”

Obviously, the people who watch TV, and think that this is special operations for the benefit of Russia, will wake up when they realize they can no longer watch Netflix. No one wants to see them in their countries. No one wants to work with them. They are going to ask questions, “What the hell is going on? Maybe something is wrong with Russia, not the rest of the world?”

I am against any sanctions — even though I was against the ruble — but it is a general trend. If we agree that we try to fight Russia with economic means, then we fight with economic means. It was painful to my budget as well. We immediately cut off about 40% of our revenues. But fuck that, at least I will save the country, you know?

I agree with you. You seem very idealistic when you talk about cryptocurrency and blockchains. One of the core pieces of the idealism is it is decentralized. No one can say, “No,” right? No one can get in your way. You can just do the things you want to do.

In a moment like this, when you say, “Well, I want you to stop paying for Netflix. I want you to stop paying for Bitcoin.” You do need some element of centralized or quasi-centralized decision makers to make that decision, and inflict that economic consequence, otherwise nothing changes.

How do you put those two things together so that cryptocurrency is decentralized? It works in Ukraine, because we do not trust the banks or the government. On the flip side, you need to trust me enough to say, “You are not going to get to transact in rubles on Kuna Exchange, which I run.”

Let’s finish talking about the ruble thing. If every single exchange would cut off ruble — and pretty much everyone now cut off ruble — it means it could no longer be used to buy crypto. The only other way for them to buy crypto is to actually exit the ruble zone. If they had savings within Russia, they would just spend it all on crypto, and stop supporting the ruble. There is some logic there.

With regards to global sanctions and what is happening in the world, it is not an easy topic for discussion because it has so many layers. The higher you look, the more complicated it gets. Obviously, we are going to have to change.

I will give you a good example. I have a friend in Russia, and he has quite a large business. The reason he is not publicly calling the war “a war,” is because you have to call it a “special military operation” for Russian propaganda purposes.

For Putin’s ego, you have to call it that.

Yes, so he is not saying much. He says that the second he publicly says something bad about Putin, the army, or the war, all his assets will be frozen. Just imagine for a second what would happen if there was no ruble, and there was crypto instead of a ruble? It would mean that he would be just as free as I am, because for me to leave the country, all I had to take with me is my crypto. It was already outside of Ukraine because crypto does not have borders. My government has no influence on me at the moment at all. I am abroad, in Switzerland. All my assets are with me, apart from the house, which does not cost much at all in Ukraine right now. I can say anything I want about my government.

With the centralized system, like Russia, he cannot say anything. The same thing will happen to him as has happened to Oleg Tinkov. He had to sell for 2% or 3% of the value of his shares, his bank, because on Instagram, he said that they should stop the war immediately. That was it. That is the example of a centralized regime. I am a good example of a d ecentralized regime, because all my assets are in crypto, on the web. There is nothing the government can do to me. There is no censorship.

I am going to ask you this question, and it might be a horrible OpSec for you to answer, but I am asking it anyway.

Go for it.

You keep talking about how your assets are on the web. Do you have a custodial wallet somewhere that someone else is holding your crypto for you?

No no no. We have our own custody solution. It is multi-sig, and there is not just one. There are a couple and they are geographically spread out, and there are different protocols for every single wallet. Then, there are different currencies, which are stored differently. As I told you, I have been with crypto since 2013.

Well, you are a special case. I think if you are a regular Ukrainian citizen, it would seem tempting to move all your assets into crypto, and then maybe set up with Kuna Exchange, have Kuna Exchange hold your assets, and then get out of the country. That is a level of risk that I would say is still very high for an average person.

Yes, it is. I am the only founder of the exchange that tells my clients, “Guys, do not store your crypto with me, because it is not your crypto. It is my crypto.” You have the blessing by God that Satoshi Nakamoto came up with the Bitcoin, and you can store your crypto on your wallet, with your private key. So go and do it.

That is why I publish quite regularly, probably once a month or so, a step-by-step tutorial, how to set up a wallet on your phone, how to properly store your seed phrases, how to set up Trezor, Ledger, how to create it differently on the computer and run a full Bitcoin node, and how to use Electrum.

All that stuff I am advocating for. I think that is only the future, because in other cases, you are just taking risks from the bank and giving to the other guy, which is kind of stupid. Do not trust any exchange, not even mine, guys. I am centralized. Until we are a decentralized exchange (DEX), even if we are DEX, there is still some risk, as history shows us. I think private keys are the only way forward. In that case, you are fully decentralized and you can tell pretty much any government — if it is not the US — to go and ... I don’t want to swear.

You can swear on this show, especially in your situation. Swear away. So far, we have made a lot of jokes about the 30-kilo bag of cash that you might have to have. That is very risky. Someone might come and get you.

It’s heavy.

It is heavy, right? The smallest part of the risk is someone could come and take it from you. If you actually make the bag way lighter, and you put all the crypto on your phone, then custody it, your risk is still very high. Someone could come and hurt you, and take your phone. Now they do not have to carry a heavy bag, they just have your phone. How do you balance all those risks?

To me, one of the big benefits of having a bank and a semi-functional American government is that there isn’t any cash in my house. I do not think that anyone is going to come and try to take the cash out of my house, because there is none here. There is like $20 here.

Two answers. The first one with self-custody. First of all, never keep your crypto on the phone that you are using on a daily basis. It has to be a separate device. The pneumonic phrase has to be written down on like three pieces of paper. Then these three pieces of paper should be stored in safe locations, in totally different geographic locations. It is ideal even to have it on different continents.

There are a lot of ways you can do it, but obviously, 99% of the people would never do that because they are lazy. Some of them are even stupid. For them, there will always be a centralized agent that would help or do it for them. That is the truth of life.

At least for the smart, cautious, forward-thinking people there is an alternative, a crypto on your wallet, on your wallet, your crypto, with your keys. That is the only way forward. It is on you if you are lazy and willing to take that risk to trust that guy or service, but you do have an alternative.

This to me is the heart of the future of crypto, in Ukraine or out of Ukraine. People choose banks because they do not want to hold all the money in their house. They choose music streaming services because they do not want to collect all the CDs at their house. People pick convenience, and they outsource security pretty regularly when it comes to computers.

I think you are describing a system where, the more we have spoken, the more it feels like the reason people value cryptocurrencies is because dollars are useful currency. Then all of the benefits of having it totally decentralized get recentralized by some actors sometimes. Even if you personally write a lot about how it should be totally decentralized and you custody your own crypto, the services of the third-party custodians of crypto exist. They are growing businesses.

What is the question?

Well, I think as we come through this grand change in Ukraine and its relationship to crypto, you are saying all the powerful people in that country are now with it. What is the actual change that has been accomplished, other than some transactions going faster and we are less reliant on a bad banking system?

Well, for me, it is freedom. I cannot be free with a bank account, especially if I come from a developing country. In developed countries, it is also a risk. I mean, if you go crazy in your position to the US government, they are most likely to impose sanctions on you, and block your accounts and assets.

If we look at what happened with the Russians, it is a good example of how the centralized system can behave for pretty much anyone in this world. Putin is a public figure. All the sanctioned lists are public figures, but we totally understand that this is possible. You can block anyone’s asset in pretty much any part of the world. There is no other solution or alternative apart from crypto. For me, it is quite obvious and self-explanatory.

I think it is a fascinating thing that is happening there with crypto. You have talked a lot about how the next generation of the government might work with crypto, how there might be a DAO that enhances or supersedes the government. How do you think that would play out?

I have a different plan. I am a bit tired of the government this year, with the National Bank as well.

It hasn’t come through. I have to say Michael, your frustration with the National Bank has not been obvious over the last hour.

I mean, it is a war and they are blocking the means by which we could sell Bitcoin for hryvnia for the crypto exchanges in Ukraine now, because they are so scared, motherfuckers. I am tired of trying to change someone in the government or the whole of the government.

Considering that so many people are in crypto right now, it is my guess that people who use crypto — or at least someone close to them use cryptos — know about it really well. That is probably 10 million people in Ukraine right now, out of 35 million in total. A third of the country definitely knows that crypto is something good, that it is meaningful, you can use it, and it is much better than any government or commercial bank alternative.

I would like to use this momentum when rebuilding Ukraine once the war has finished. Instead of rebuilding an old, bad copy of a democratic society like Europe or the US — instead of being a bad, ugly copy of the capitalist market of the US — why don’t we just propose a DAO Ukraine? There will be no president, and there will be no prime minister. If I will just paint the picture, it will be a government similar to Switzerland, where there are a lot of federations. There is no centralized body which takes care of the whole country.

It will be based on the blockchain instead of traditional centralized systems. You are going to have a digital currency without a national bank. You can use these currency or governance tokens to directly vote for some changes in your government, or you can delegate or stake these tokens to someone who you trust in a specific question. We do not need Parliament or Senate or Congress or any other elections. We do not need the president. We do not need the IRS or the tax service, because we can implement smart contracts which would deduct automatically the taxes that go to the local government. Everything will be transparent. The good news is the technology is here, so we can already do it.

This is the topic of my discussion for the past three months. This is what I am building right now. I want to create the first crypto state. We are going to have some kind of passport or ID of this crypto state, and will be open to the crypto guys. It will be open to libertarians.

The way we are going to do it is we will start rolling out so-called government services, just for ease of understanding for all the regular people. With these rollouts, more and more people will be coming on board with crypto. As I said, it is now 10 million, and tomorrow it could be 20 million. At a certain point of time in the future, we are going to see that most of the services are already on a blockchain and we have no need for a traditional government.

What is the government service you can put on a blockchain right now?

The first service is the tax system. We can implement smart contracts, which would automatically deduct 2% from any commercial transaction. We can create wallets for the merchants and for the people. It could be different wallets. It could be the rules of how the tax system works. We can save a couple of billion hryvnia on just the budget of the tax service.

The second government service is public money. That is a blockchain. That is the easiest thing to do. The good news is we would be able, as a government or country, to evenly distribute tokens to every single citizen of Ukraine. It would be mathematically very viable that only the citizens receive and that they did receive because I have the public keys of pretty much everyone in the country.

How would you prevent a standard DAO governance attack at that moment? If you are the Russian government and you see Michael setting up Crypto Ukraine and it is going to be a DAO, you would take the entire Internet Research Agency — which right now attacks the United States by making Facebook memes — and convert it. And you would say “We are going to do a governance attack on the Ukraine DAO and somehow take over the Ukrainian government. We are going to buy all the tokens and stake them all to Vladimir Putin.” We see governance attacks on DAOs left and right. How would you prevent that?

Good question. I do not have answers to every single question. I am proposing a choice, because there are no other alternatives.

The current government, they just want to rebuild everything that was destroyed, even the government system. It is dead, it is useless. The current system showed me that if not for the US or Europe, Russia would have taken over Ukraine and millions of people would be dead already. Our government did not prepare for the war, because it was so corrupt and it was so shit. We have nothing to lose. Even physically we have nothing to lose, because a lot of cities are just wiped out. What is the point of rebuilding old if we can build new? That is my proposition.

I do not have the answer to every single question. The purpose of today is to actually raise the awareness that it is possible in Ukraine. It is an ideal place to do it because so many people are involved and so many top government officials are really pro-crypto now. They have crypto as well. So we can do it.

Why not just try it and experiment? I do not know whether it is going to be good or bad, or what the outcome of it is, but at least we are giving a choice and we are trying. If we succeed, great, we can copy it to other countries. If we fail, at least we tried. That is my point. If you want to join, just help us out. Let’s do it together. The first crypto state. There’s no government opposition at the moment in Ukraine.

One of my jokes on the show all the time is that every DAO hits a fatal point when it tries to interact with reality. DAOs are great when you are moving bits around a database, because the smart contracts can execute and people can see it. Then when you have to take custody of a physical item, which many DAOs have tried to do, you realize, “Okay, one guy has to have the painting, and one guy has to go shovel the driveway.” The DAO has to make somebody do something. That is usually where they hit a pretty big crisis moment. How would your crypto state shovel the roads when it snows, or fight fires? Who would be in charge of making those things happen?

You probably didn’t get me. So I will repeat with different words.

Okay.

We are the first country in the world where crypto guys have enough power to take over the whole country. Is that clear?

That is clear.

That is what I’m saying. With a little help, we can do it. It will be the first crypto state. It will not be like what is happening in El Salvador, which seems crippled. I am just saying that we could be the first crypto state in a DAO. Don’t call it DAO if you have bad feelings for the DAO.

It’s not that I have bad feelings with DAO. It is that my history with covering DAOs is that when DAOs talk about bits, they do great and when they talk about atoms, they tend to fall apart.

We can do it. There is no opposition. There is not any single one, especially special forces or the guys with the guns. They are not going to be against us; they are with us. That is something unique in the world.

With my experience, nine years and one month in crypto, when we try to approach any government ministry or national bank and say, “Let’s do this on the blockchain. Let’s get rid of this ministry or do that,” there was always opposition from within the government because this is the way the system resists, because any system tries to protect itself. I’m saying that there is no system in Ukraine. We have a lot of political power right now to create the first crypto state. It does not matter which passport you hold right now. I don’t care. If you are for crypto, you are for Ukraine. Welcome. Why not?

I believe you on all that. You have the political capital, for lack of a better word. You have the opportunity. Have you thought through the execution, that one day you will need to stand up police and firefighters and ambulances just to do the basics of government in a community?

There will be police. What else do we need? Fire service. There will probably be an army.

But what if the members of the DAO choose to take all the money away from the fire?

That’s stupid. Why?

I don’t know. What would be the control to make sure that doesn’t happen? You would not be the king of the country, so you cannot just say that it is stupid.

Okay. Good point. Again, it would be decentralized. Who says that it has to be one big DAO? It could be brought down to the level of the city or it could be brought down to the area of a neighborhood. That is why I said Switzerland is a good example, because here everything is decentralized. Each city has its own citizens and they all vote for local changes. It is up to them how they spend their budget and who they choose as their mayor.

There will be someone, but he will be chosen transparently. At any time the vote can be taken away and we can choose a new mayor. That is a problem that we have right now with the presidents and prime minister. During the elections, they promise a lot of stuff and then nothing happens and you do not have any means to take your vote back and choose the other guy. With a blockchain, it’s staking. You unstake your tokens and he will go. He is not the mayor, and you choose a new one. It is how you find consensus among your neighbors.

Obviously, if you see that you live in a danger zone of massive fires, you are going to use your budget on safety first before you are going to spend it on the rest of the stuff. It will be your money of your neighborhood. It is transparent, without anyone stealing the money, because you can see what is going on. There is no secrecy of how you spend your money, not anything like the Soviet Union where everything was secret. It is possible.

It is down to architecture. I am definitely not the wisest guy in the world, but I am saying that there is momentum and we have political power. Now we need really smart guys in the world who know exactly how to implement this so-called new government. I don’t know. I will have to find all of these guys or they will find me. Together, we will create something new. We have this opportunity. Why not? Let’s use it.

That is very exciting. It is also a great place to end it. You have given us so much time. Michael Chobanian, thank you so much for coming on Decoder.

Thank you.

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