Moscow and Bitcoin have a long-standing relationship; the Russian government (Bitcoin was born in 2008 when Vladimir Putin had already been at the country’s helm for 9 years) has often changed its opinion on whether or not this means of payment, the technology from which it is derived, and other cryptocurrencies are useful, in particular it has often changed its opinion on whether or not this serves the country’s interests.
The pro-crypto mining regulatory framework
Legislation introduced earlier this month and now implemented for mining defines cryptocurrencies as follows:
“A set of electronic data contained in an information system that can be accepted as a means of payment that is not the monetary unit of the Russian Federation, or as an investment.”
Transactions in digital currencies for international trade are now legal in Russia, and it will be possible to trade in Bitcoin.
The government itself is pushing in this direction and considers this step necessary for the circumvention of international sanctions placed on the Kremlin. However, the United States has throttled this possibility by targeting the use of cryptocurrencies to circumvent international restrictions imposed by NATO and the West in general with new legislation in the US Congress.
Pavel Zavalny, Chairman of the country’s congressional energy committee, had already hinted at this idea in March, namely that Russia was open to accepting BTC payments for natural resource exports:
“When it comes to our ‘friendly’ countries, such as China or Turkey, who do not pressure us, then we have been offering them for a while to change payments into national currencies, such as rubles and yuan. With Turkey, it can be pounds and rubles. So there can be a variety of currencies, and this is standard practice. If they want bitcoin, we will trade in bitcoins.”
Mikhail Mishustin, today’s Russian prime minister and number two in the Kremlin said:
“We need to intensively develop innovative areas, including the adoption of digital assets. This is a safe alternative for all parties that can guarantee uninterrupted payment for the supply of goods from abroad and for export.”
Earlier this month, Russian authorities announced that they had begun developing a mechanism for cross-border agreements with cryptocurrencies, and the Ministry of Finance said that a bill legalizing such transactions had been agreed upon with the Russian Central Bank.
The US House of Representatives Congress has not remained in the corner and, aware of the danger that crypto in general and the mining of it in particular could serve as a bypass for sanctions by the international community, has urged and obtained the passage of a new bill that will largely prevent this possibility to Vladimir Putin’s Russia’s purpose.
Calling it the “Great Illusion,” RBC, Russia’s crypto portal page, defines the crypto payment system under sanctions as effective.
Russia explores how to get around sanctions with cryptocurrencies
Development director at digital asset exchange Exmo (Exmo.com) Maria Stankevich, calls them precisely a great illusion and explains that the path to thwart Moscow’s deceptions via this asset has been under study since the annexation of Crimea eight years ago.
Senior lawyer at the law firm Tomashevskaya & Partners Mikhail Zhuzhzhalov, speaking in support of Stankevich’s assertion, says that the idea of bypassing financial barriers with the help of cryptocurrencies is not a recent one, and that in 2018, Kremlin authorities considered allowing international companies established in the country’s special administrative regions to use digital currencies in agreements with partners, but the proposal then was rejected.
Although regulation on cryptocurrencies itself is recent and poorly articulated it is still possible to easily track authorized companies operating legally, Zhuzhzhalov pointed out.
Just as was the case with Ankara banks recently, if market participants are subjects of jurisdictions condemned by the international community, they are obliged to comply with sanctions.
Transactions with the Mir payment system used by Russian tourists visiting the country have been inhibited by five of the major banks in the Erdogan-led country.
Washington reportedly imposed sanctions on nations conducting transactions with Mir but a new payment system developed between Turks and Russians is already in the pipeline to bypass the problem.
The sheer volume of Russian and international transactions passing through the country is impossible to examine without anything slipping through, but according to Maria Stankevich much of it will be inhibited.
Bitcoin mining in Putin’s country
Only 4.7% of the Bitcoin hashrate is allocated in Moscow, despite the large amount of cheap energy resources this figure speaks volumes about the country’s growth potential in this field (mining), just to give a term of comparison of the measure of the magnitudes in the field, it is enough to mention that the United States of America for example reaches a percentage of 37.8%, China 21.1% and even Kazakhstan has a far greater percentage than Moscow reaching 13.2%.
Nonetheless, a shift towards the implementation of Bitcoin mining and crypto mining in general is taking place and the growing trend is a symptom that Russia has the necessary antibodies to overcome international sanctions not only from the energy point of view but also now with this tool that has so far not been exploited at all.
The machinery needed to mine cryptocurrencies such as Bitcoin is complex, manufactured abroad and very expensive, however the alliance between China and Russia and the fact that this represents the largest miner globally make up for the difficulties and very soon we will see Moscow’s hashrate of Bitcoin rise, that is for sure.
However, let’s talk about numbers and how important these are in order to get an idea of the orders of magnitude we are talking about: in total 900 BTC are mined per day worldwide and of this amount only 42 (4.7%) are mined in Russia, this leads us to understand that $800,000 or so is the value mined from Moscow.
In one year, this figure reaches about $290 million and for a huge country like Vladimir Putin’s Russia that is not much at all, hence the need to expand orders of magnitude to affect the country’s budget.
Currently, the aforementioned $290 million corresponds to only 0.02% of GDP, an unfortunately unsatisfactory sum.
Russia’s CBDC: the digital ruble
Alongside the main path leading to mining in order to circumvent the sanctions of the international community is that of the state digital currency or CBDC. According to the latest statements by the President of the Russian Central Bank, Elvira Nabiullina, the so-called digital ruble will see the light of day no later than 2023.
The currency has already been tested in simulations for quite some time, and final technical details are being filed within the walls of the CBR in anticipation of the official launch next year.
“The question is, when this will happen, how will it be regulated, now that the central bank and the government are actively working on it but everyone tends to understand that … sooner or later this will be implemented, in one format or another.”
Moscow’s plan is to strengthen the fiat ruble and then launch and focus on the digital ruble. Coupled with mining, this could give rise to the combo that will allow it to circumvent sanctions and attract capital effectively, elevating the Kremlin to one of the most crypto-friendly countries on the planet.