Russia has overtaken Kazakhstan to become the second largest cryptocurrency mining country in the world by 2023. Kommersant reports April 12.
Bitriver, Russia's largest bitcoin mining provider, says that Russia's coin generating capacity had reached 1 GW in January-March this year, second only to the US with 3-4 GW capacity. .
Cut off from the international payments system following the imposition of SWIFT sanctions shortly after the start of the war a year ago, Russia has accelerated its plans for digital currencies, which operate outside the control of international regulators. The Central Bank of Russia (CBR) has already launched a pilot program to test the use of a state-backed digital ruble.
Bitcoin and other cryptocurrencies are already being widely used by the population to circumvent restrictions on money transfers to the EU. And Russian companies are investing in the development of new cryptocurrencies.
Russia has made significant progress in the crypto mining industry in recent years. By contrast, Kazakhstan has slipped to ninth due to its restrictions on crypto mining activities in 2022, due to its drain on the electricity sector and unlicensed activity.
As reported by well IntelliNewsthe Kazakhstan Financial Supervisory Agency (FMA) turn off ABS Change, a cryptocurrency trading platform that had been operating illegally without a license since 2021. Three people were arrested and $342,000 and KZT7mn ($16,000) in cash were seized during a raid on the company's headquarters in Astana. Additionally, ABS Change had $23,000 worth of crypto assets in two wallets on Binance, which was temporarily restricted.
Kazakhstan, which lured many cryptocurrency miners with its cheap electricity after China banned the crypto industry, has taken steps to regulate the sector, including laws restricting mining farms' access to low-cost power, and introducing licenses for miners. . Kazakhstan suffered multiple power outages throughout 2021 and 2022 due to increased crypto mining operations.
The inhabitants of Ekibastuz, in the Pavlodar region of north-eastern Kazakhstan, were ran out of heat during freezing winter days this year after cryptocurrency miners exhausted local electrical power, until authorities shut down their operations.
China has been implementing a similar crackdown since 2021 and also failed to make Bitriver's top ten list. China banned crypto mining in 2021.
However, the use of bitcoin is limited in Russia due to restrictive cryptocurrency laws, including President Vladimir Putin's 2020 law on digital financial assets. Although the law legalized cryptocurrencies, it prohibited their use to pay for goods and services. CBR's commitment has been to propose a regulated digital ruble, which is not a true cryptocurrency, as the regulator controls the supply of currencies and can therefore fulfill the traditional role of a central bank of controlling the money supply.
After initially rejecting the idea of cryptocurrencies, the famously conservative Central Bank of Russia (CBR) has recently softened its stance on the potential use of cryptocurrencies as a recognized means of payment. CBR Deputy Director Xenia Yudaeva said the regulator was toying with the idea of allowing the use of crypto for international payments, noting a looser stance on crypto mining in June last year.
“We have changed our position on mining, and [could] allow the use of cryptocurrencies in foreign trade and outside the country,” Yudaeva said in June 2022.
However, Yudaeva reiterated the regulator's position that cryptocurrencies were a highly speculative instrument that is actually a Ponzi scheme. She warned that the legalization of cryptocurrencies in Russia could fuel illegal activity and tax evasion.
Seeking solutions to avoid sanctions restrictions, Russian Prime Minister Mikhail Mishustin added his name to the list of Senior Russian officials back using digital money to close international trade deals in September.
Aware that unregulated and decentralized cryptocurrencies pose a threat to the effectiveness of SWIFT sanctions on Russia's ability to make international payments, the US has already begun trying to close the loopholes. The United States already blacklisted a bitcoin and ether address in February, suspecting its involvement in sales of Russian defense equipment abroad, and is examining several crypto exchanges for their role in breaking sanctions.
One of the largest cryptocurrency exchanges, Binance, Announced last April that after the fifth package of EU sanctions is “forced to limit services for Russian citizens or natural persons residing in Russia, or legal entities established in Russia, holding crypto assets exceeding the value of €10,000”. Another exchange, Coinbase, has also warned Russian users that their accounts will be blocked on May 31.
Additionally, the European Union imposed a total ban on cryptocurrency transactions with Russian citizens and anyone residing in the country as part of its eighth round of sanctions introduced last summer. The United States Department of the Treasury also noted Swiss-based Russian cryptocurrency mining holding BitRiver in September.
But Russia has taken the first step towards international crypto payment when the Russian Ministry of Industry and the Central Bank of Iran agreed that, in theory, imports could be processed using cryptocurrencies last August.
Iran is another cryptocurrency hotspot, accounting for 4.5% of global coin mining. according to a study last year, partly due to the country's cheap electricity.
If it does happen, Russia's use of cryptocurrencies to strike international trade deals won't happen anytime soon. In May 2022, Moody's Investor Service warned that cryptocurrencies will not help Russia circumvent sanctions due to limited market size and payment tracking mechanisms. Moody's believes that the low liquidity of the ruble/bitcoin pair of around $0.2 million makes the cryptocurrency an unlikely instrument to cover $46 billion of daily transactions by Russian financial institutions in the foreseeable future.
