Crypto first showed face 14 years ago, and Russia has had a somewhat complicated relationship with Bitcoin and Ethereum. From Russia passing laws in favour of using cryptocurrencies to against them. They created a gap in the Bitcoin game with countries like the USA, which have the world’s highest mining capacity. However, Russia has closed that gap relatively fast; let’s see how Russia is on its way to becoming the next Bitcoin giant.
A Brief History of Russia & Cryptocurrency
To understand how Russia got to where they are now, we need to briefly examine the relationship with cryptocurrency and how they interacted with it until now. Russia’s interest in Bitcoin has fluctuated since its release in 2009. Initially, Bitcoin gained popularity among young, tech-savvy enthusiasts in Russia around 2010. However, by 2012, the government began warning citizens about the risks associated with decentralized currencies. In addition, it emphasized that they were not recognized as legal forms of payment, causing the novelty to wear off.
In 2017, Russia made an attempt to introduce the “Digital Finance Assets” Bill, which aimed to regulate the use of cryptocurrencies and establish a framework for initial coin offerings (ICOs). However, the bill faced scrutiny and was not passed until 2020. Despite this delay, Russia’s distrust of cryptocurrencies did not diminish. The decentralized nature of cryptocurrencies made them challenging to control and track, which likely contributed to Russia’s reservations.
Nevertheless, Russia allowed cryptocurrency exchanges to operate, enabling users to buy, sell, and trade cryptocurrencies. As a result, platforms such as Binance, Exmo, and Yobit gained popularity among Russians. However, toward the end of 2020, Russia passed a law prohibiting using cryptocurrencies as a payment method for goods and services. This measure aimed to prevent illegal activities and protect the country’s official currency, the Ruble. Interestingly, in 2021, Russia introduced the digital Ruble as its own form of digital currency.
Previously, Russia’s primary use cases for Bitcoin and Monero were directly related to darknet websites and darknet market-related activity. For example, Hydra Market, a Russian-based darknet market, brought in over 2 Billion dollars worth of Bitcoin in 2021. However, since the war began, use cases have changed drastically.
Following the release of the Ruble, the Russian government intensified its crackdown on all forms of cryptocurrency, imposing stricter regulations on exchanges and Bitcoin mining operations. However, a sudden shift occurred in Russia’s attitude towards Bitcoin when the country officially invaded Ukraine in 2022, leaning towards a more favourable stance on cryptocurrency. The reasons for this will be explained further in the section below.
The Use of Bitcoin in the War
The war between Russia and Ukraine is nothing new. It’s earliest signs go back to 2014 and has roots as far back as the Russian Revolution. The war’s leading cause rests on this: Russia believes Ukraine should be a part of Russia like they once were. This war has led to Russia being the country with the most sanctions in the world currently. The US has imposed around 2500 sanctions on Russia; one of the most impactful sanctions has been the SWIFT. This played a major role in Russia’s shift to crypto.
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a global messaging system that members use to send money internationally quickly and efficiently. Russia being cut off from SWIFT drastically affected its ability to trade internationally. With large amounts of Oil and other resources being at the center of trade in Russia, they were in trouble. They needed to find another method of international transactions.
Russia had it’s hands in Gold and other commodities, but sanctions made this heavy. Additionally, citizens put their funds in Bitcoin as a method of investment outside the Russian rubble. Not only did they need to resume regular trading, but they also had a war to fund. This was when Russia turned to Bitcoin. While the war with Ukraine isn’t the only factor that has improved their position on Bitcoin, it plays a massive part in closing the gap with the US.
To raise funds for the war, Russian Soldiers started to raise funds by posting on social media platforms like Twitter and Telegram. By doing this, these soldiers and paramilitary groups like Task Force Rusich have managed to raise $400,000 in cryptocurrency since the start of the war and continue to do so. Following the growing interest in cryptocurrencies in Russia, the government has jumped on the bandwagon to help them get around international trading sanctions.
Using Twitter and Telegram, organizations like the Novorossia Aid Coordinating Center (NACC) have been responsible for providing up to $1.8 million in cryptocurrencies to the war effort. This is all on a donations basis; we have yet to get to Russia investing in Crypto. While the war has added significantly to their Bitcoin capacity, Russia has recently learned that with current sanctions, they might have no choice but to be pro-crypto and introduce legislation that enables it rather than goes against it.
Russia’s Mining Capacity Increases
From the start of 2023, Russia has climbed to being the second-biggest Bitcoin mining hub in the world. From what we can see, they intend to grow even more. With the war effort, and the need to create a new avenue for international trade, Russia has drastically increased its mining capacity. The amount of electricity Russia used from February to March has been around 1 giga-tone. The US generates around 3-4 Giga tonnes. Russia now owns approximately 12% of the world’s cryptocurrency, about $240 Billion.
Russia has every opportunity to change the existing hierarchy of the global crypto mining market. The country has everything you need for this: low cost of electricity, reserves of free capacities, developed energy infrastructure in many regions.
Timofey Semyonov, CEO of Intelion Data Systems
Using Bitcoin for International Trade
While these statics are impressive, Russia continues to open up its country for mining. With new mining centers popping up regularly, Russia is investing a lot in mining Bitcoin. In addition, to solve the international trade problem, the Bank of Russia is working on a bill to establish an “experimental legal regime” for cryptocurrencies specifically intended for export-import transactions. However, Naiullina, the head of the regulatory agency, emphasized that crypto trading and payments within Russia will continue to be prohibited.
The local newspaper Vedomosti reported on Tuesday that the Russian government is developing a bill to create a national agency responsible for licensing and supervising cryptocurrency platforms operating in the country. In addition, Sergei Altukhov, a member of the Russian parliament’s economic policies committee, stated that a new tax code for miners would also be introduced as part of the regulatory framework.
Nabiullina, speaking to a parliamentary fraction of the “New People” political party, mentioned that the central bank’s plan includes establishing particular organizations tasked with cryptocurrency mining and facilitating payments for cross-border trade transactions. The nature of these organizations has yet to be specified. BitRiver, one of Russia’s prominent mining companies, had previously partnered with the state-affiliated oil company Gazpromneft. One can assume that this partnership will restore oil trade functions.
According to Nabiullina, digital assets issued within Russia, in compliance with the local law passed in 2020, can be utilized alongside global decentralized cryptocurrencies for cross-border transactions. Alexey Guznov, the deputy of Nabiullina, explained that the Bank of Russia is currently discussing with the government the criteria for participation in the experimental regime, the required business models, and the involvement of banks.
In the initial stages, government-sponsored companies are expected to be involved. However, if this experimental regime had to be fully backed by the Russian government, Russia’s capacity for Bitcoin would skyrocket. Not to mention the extra Crypto circulating through the country would also boost its statics of how much cryptocurrency it owns worldwide.
All the aspects above are a culmination of how and why Russia has risen to be one of the top Bitcoin miners in the world and why it might be the next Bitcoin Giant in the future.
Does This Mean Russias Darknet Market Will Grow?
When the war against Russia started, there was a belief the Governments focus may shift away from its people and primarily on the war. That black markets and nefarious websites would flourish as no law enforcement put their funds and energy into taking them down. However, this didn’t seem to be the case.
Darknet markets and carding services operating in the country have been taken down in full swing. The Kremlin has challenged those who believe they could get away with this. Additionally, they’ve attacked Tor usage across the country, forcing the Tor Project to build new bridges as a way for citizens to make their way around the restrictions.
Although cryptocurrency as a whole has risen in the country, its purpose has not been for darknet usage. One reason could be due to those who are forced to join the army were many of those using the darknet. Along with a greater focus against vendors and customers, and stricter laws coming into place.
It will be interesting to see how darknet usage has changed in the country as a whole.
Conclusion
From additional Bitcoin mining, to alternative payment methods and use cases within the country. Russia is growing into the largest Bitcoin hub globally. The government may be quite strict on its citizens in various aspects, but with focus on the war they’ve loosened their grip on crypto usage. They realise that allowing Bitcoin and similar payments could lesson the fight back from citizens struggling. Its a tool to get around their sanctions, a solution needed during this time. But will it remain the case going forward?
Hey there, I’m a dark web geek who’s been around for the last 8 years. More precisely, I’m livedarknet’s senior content writer who’s been writing about darknet marketplaces, tutorials, and cybersecurity stuff for educational purposes.