Russia's history with Bitcoin
Russia's interest in Bitcoin has increased since its release in 2009. Bitcoin gained popularity in Russia early in 2010, and most young, tech-savvy enthusiasts purchased it. With that said, its novelty wore off around 2012 when the government started to warn its citizens about the risks associated with decentralized currencies and that they were not a legal form of payment.
In 2017, Russia attempted to introduce the "Digital Finance Assets" Bill to regulate the usage of cryptocurrencies and provide a framework for the initial coin offerings.
The bill quickly became scrutinized and was not passed until 2020. However, this didn't stop Russia's persecution of cryptocurrency. One can assume that their dislike of the currency was due to its decentralized nature, making it difficult to control and track.
Despite their uncertainties, Russia continued to allow cryptocurrency exchanges to operate. This allowed users to buy, sell, and trade cryptocurrencies. Exchanges like Binance, Exmo, and Yobit were popular among the Russians. Further on, toward the end of 2020, Russia passed another law prohibiting using cryptocurrencies as a payment method for goods and services. This law aimed to prevent illegal activity and protect the Ruble. However, in 2021, Russia released the Ruble as a digital currency.
Shortly after releasing the Ruble, the Russian government started to crack down on all forms of cryptocurrency, more so than in previous years. It was imposing strict regulations on exchanges and Bitcoin mining operations. Russia's attitude made another sudden swing to being pro-Bitcoin when it officially invaded Ukraine in 2022.
The Russo-Ukrainian war
Russia Invades Ukraine
The Russian-Ukraine War has been ongoing since 2014. Still, last year on 24 February 2022, President Putin ordered the Russian army to invade Ukraine. The cause of the war steps back to the roots of the Russian empire when the Tsars were still in power. Then, the Russians and Ukrainians were said to be one people or brother nations under one controlled government. This aspect is the center of the current war. Putin is trying to enforce the idea that Ukraine belongs to Russia.
Russia invading Ukraine set up a series of repercussions that would lead to them turning to Bitcoin. The most major repercussion was the US sanctions. The sanction that has the most far-reaching effects thus far has been the SWIFT sanctions. SWIFT is the global financial vein that allows international money transfers for goods and services.
With Russia cut off from this function, their companies no longer have access to regular smooth transactions with international clients. This has massive implications for their ability to trade. With their inability to deal internationally, and the current cost of their war with Ukraine, Russia had to find an alternative way to get money into their country. That's where Bitcoin comes in.
Russia turns to Bitcoin
In reaction to international sanctions, Russian soldiers turned to Bitcoin and other cryptocurrencies to raise money for the war effort. Paramilitary groups like Task Force Rusich, with ties to the Wagner mercenary group, have raised $400,000 in cryptocurrency since the start of the war by promoting themselves on social media platforms like Twitter and Telegram.
Unlike traditional banking transactions, cryptocurrencies are not quickly frozen or confiscated by international sanctions. This has allowed Russian forces to acquire advanced equipment, such as advanced UAVs and tactical radios, at significantly lower costs than traditional purchases.
Furthermore, reports indicate that Moscow has used the fast-growing ransomware industry to steal $400 million worth of cryptocurrency, which can be funneled to military groups affiliated with the Russian government. Russians possess over 12% of the world's cryptocurrency, and the total amount is worth around $240 Billion.
Following their sudden interest in Bitcoin to support their war effort, Russia has become the world's second most significant Bitcoin mining operator. They generated around one gig tonne of Bitcoin between January and March 2023 alone. This is an essential factor in why Russia has become a significant power in the Bitcoin game.
Other factors that contribute to Russia in becoming the next Bitcoin Powerhouse
A few other factors have led to Russia closing the gap between them and the US in Bitcoin mining capacity, like infrastructure expenses and the mining tax. Let's take a look at a few:
Russia's environment is excellent for efficient Bitcoin mining. Because of its rich energy resources like gas and hydroelectric power, Russia has more than enough energy to cope with the demands of high-scale Bitcoin mining.
Furthermore, Russia's low-cost energy sources have attracted miners from around the world. As a result, the country has witnessed a significant increase in Bitcoin mining activities, contributing to its growing influence in the ecosystem.
Their geographic position has also given them an advantage in Bitcoin mining. With its land mass and cold climate, Russia can build large mining farms and data centers. In addition, the chilly weather helps keep mining equipment cool, ensuring its mining efficacy.
Another contributing factor is Russia's proximity to China. Although China crackdown on Bitcoin in 2021, they are still a big player in the Bitcoin game. Being in partnership with them has given Russia the upper hand.