‘I like that it’s corrupt here’: welcome to the crypto capital of the world

Bornyakov has taken that message — Ukraine as the ultimate destination for entrepreneurs in search of low taxes, a minimum of paperwork and plenty of skilled engineers — on a road show, including a summer tour of Silicon Valley. The country’s president, Volodymyr Zelenskyy, met Apple’s CEO, Tim Cook, as well as students at Stanford.

Plenty of economists and policymakers are deeply suspicious of crypto, decrying it as the currency of choice for money launderers, terrorists, mobsters and ransomware extortionists. But an international Crypto’s Got Talent contest is now underway, and many countries are competing. As entrepreneurs pour into the field, some governments have made a simple calculation.

If investors are going to pump money into these companies, then the companies should be enticed to relocate. And lately, investors have been pumping at a hectic pace. Funding of all blockchain-related tech — cryptocurrencies, gaming, infrastructure, nonfungible tokens — soared to $US7 billion in the first half of this year, according to CB Insights, a firm that tracks the industry.

Ukraine has already lured some Americans and Brits in the crypto industry, and they didn’t come because they’re sticklers about the rule of law. Instead, they rhapsodise about everything from affordable restaurants to unhinged raves. Better yet, the government has not a clue about what they are doing or how much they earn.

“There are no rules,” Chobanian said, with an odd kind of civic pride. “Well, there are rules, but you can break them. It’s the perfect balance between absolute anarchy and possibilities.”

Waking up ‘a superstar’

Ukrainians are among the most avid cryptocurrency users in the world, ranking fourth in the Global Crypto Adoption Index compiled by Chainalysis, a data firm. Roughly $US8 billion ($10.9 billion) worth of it now enters and exits the country annually, and the volume of cryptocurrency transactions each day, about $US150 million, exceeds the volume of interbank exchanges in fiat currency.

This isn’t about crypto-fever so much as a lack of better options. Banks in Ukraine are so sclerotic that sending or receiving even small amounts of money from another country requires an exasperating obstacle course of paperwork.

Kuna now handles about $US3 million a day in transactions, a pittance compared with Goliaths such as Binance, but enough to land the company on a recent Forbes list of Ukraine’s most valuable companies. It took years to achieve this level of popularity. The first time Chobanian sold crypto, he said, it felt like a drug deal.

It was March 2014, the month he had launched Kuna, named for an animal skin that long ago was used as currency. It was a three-man company at the time and little more than a website with a phone number and a posted exchange rate. Chobanian had staked Kuna with about 50 bitcoins, which he had acquired after studying the banking and payments industry in 2011 and concluding that crypto could change the world.

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A customer called who wanted about $US100 worth of bitcoin. The two met on the street in the centre of Kyiv. The guy handed over cash; Chobanian wired bitcoin through his mobile phone.

“I was petrified,” he recalls. “I thought I’d be arrested immediately.”

It took a little longer. The police showed up at his apartment in November 2015, in a then-common attempt at a shakedown. Kuna at the time conducted all of its business online and had become the exchange of choice for a growing number of crypto fans. Five police officers spent hours searching Chobanian’s apartment and confiscated his mobile phones, computers, even his Wi-Fi routers.

“They assumed I had cash, too,” said Chobanian. He didn’t. He knew he was supposed to show up at the police station and buy back his equipment. Instead, he wrote an impassioned essay on his lawyer’s computer, posted on Facebook, describing the ordeal.

“I woke up the next morning a superstar,” he said. “I was on five or six talk shows, including the top-rated political show in the country.”

“I like that it’s corrupt here. Here, we get to play the game that only elites in the US play. I don’t need a lobbyist. I need to pay someone at the border, I can. I need to pay politicians, I can.”

Penny ante corruption, such as traffic cop bribes, have all but vanished, and since 2012, the country has improved its results in Transparency International’s corruption perceptions index. A free-for-all mentality, on the other hand, endures. Ukraine is cracking down on fake COVID-19 vaccination certificates, and nobody seems very bothered that the mayor of Kyiv, former heavyweight boxing champion Vitali Klitschko, lives above a strip club known as a place to meet prostitutes. (Whether the mayor owns Rio, as the club is called, is unclear. Although it does seem to operate under its own rules; a group of entrepreneurs singled out Klitschko in an April protest in front of City Hall, complaining that Rio was open during the pandemic while other businesses were forced to close.)

‘You need to have lawyers’

Ukraine has suffered through too many financial scandals to expect a major influx of executives from large, international investment banks, with or without inducements. But then along came crypto, which has reputational woes of its own. Maybe this is a perfect match.

That wasn’t how Bornyakov described the upsides of crypto during a pivotal meeting earlier this year with Zelenskyy, a former television comedian who was elected president in 2019 and is perhaps best known as the guy on the phone with former President Donald Trump in a conversation that led to the first Trump impeachment. Bornyakov emphasised opportunities, in terms of jobs and economic growth, as well as the downsides of inaction.

“There’s a shadow economy here,” Bornyakov said in an interview, “and if we don’t do anything about it, there’ll be more and more, and we don’t know how it will end.”

The goal is to double the percent that tech adds to the gross domestic product, from 5 per cent to 10 per cent, and double the number of people in the tech industry, to about 500,000. By 2025, when the World Bank forecasts Ukraine’s GDP will be $US180 billion, tech should contribute $US18 billion to that figure.

As Chobanian proved after the police searched his home, the primary assets of a tech company can’t be confiscated the same way that a malign player could take over, say, a power plant or a nickel mine. It would be a challenge to appropriate a knowledge company such as, for instance, Kyiv-based Hacken, a cybersecurity firm that specialises in blockchain work. Its value resides in a cadre of white-hat hackers who are spread around the world.

Its co-founder Evgenia Broshevan sat in a conference room in Creative States and mused about how she ended up a leader in such a male-dominated industry. All credit to her grandmother, she said, a mathematics teacher who also seems to have gifted her a knack for practical thinking that is clearly a requirement in Ukraine.

“Anyway,” she said, discussing the possible risks to the company, “you need to have lawyers.”

‘I like that it’s corrupt’

The 11 Mirrors Rooftop Restaurant has a $US180 rib-eye on the menu, signed photos of celebrities on a wall and a panoramic view of downtown Kyiv. It feels like a steakhouse that has been airlifted from a Las Vegas casino, and it’s owned by the mayor’s brother, fellow heavyweight phenomenon Wladimir Klitschko. The location is ideal for carousers. Rio, the strip club, is a few paces down the street.

Sitting at a small, round table one recent evening are two members of the international crypto talent pool. Hartej Sawhney, who grew up in Princeton, New Jersey, co-founded Zokyo, a crypto auditing firm, which evaluates the security of tokens and smart contracts. Shadi Paterson is a Brit who runs a company that recruits employees for crypto companies. He’s wearing a T-shirt that reads “Take Your Pills.”

Both men are residents here, and both radiate the sense that they have found the right place and the right sector at precisely the right moment.

“Today, we have multiple opportunities to 100 X your money in crypto,” Sawhney said. “At its peak, the internet was growing, in terms of users, at 63 per cent, year over year. Crypto, since its inception, has been growing at 137 per cent.”

Sawhney and Paterson are of two minds about the new crypto law. They grasp the potential benefits of the legitimacy that comes with a government imprimatur. They also like running companies that sweat no regulations and pay no Ukrainian taxes. As for the country’s tenuous relationship to scruples, that is a selling point.

“I like that it’s corrupt here,” Sawhney said. “Here, we get to play the game that only elites in the US play. I don’t need a lobbyist. I need to pay someone at the border, I can. I need to pay politicians, I can.”

Sawhney prefers that his business remains not merely under the radar, but off it entirely. Paterson understood the impulse. But he said that he’d either have to pay a percentage to gangsters to launder his money or a percentage “to the other gangsters,” namely, the Ukrainian government, which would transform his crypto savings into a fully protected stash.

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In its future road shows, the Ministry of Digital Transformation will surely phrase it differently, but Paterson had gotten the gist of the government’s message.

“I can legalise all my money and there’s nothing any country can say about it?” he said, as if describing a dream. “I can send it anywhere? I can buy a house with it? That, to crypto people, is pretty crazy.”

This article originally appeared in The New York Times

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