Russia has taken different stances on crypto assets and blockchain technology. Firstly, the Moscow administration has argued that crypto assets should not be accepted as a legal means of payment; the significant increase in the investor base of crypto assets in 2017 and 2018 caused the related assets to come to the agenda of the mainstream media for the first time. For this reason, Russian President Vladimir Putin made a statement in January 2018 and stated that the initiative on the regulation of related assets is in the Central Bank of Russia.[1] In addition, Putin stated that the assets concerned could not be a store of value since they were not based on any physical assets. Nevertheless, he stated that the related assets have various benefits in performing financial transactions, that it would not make sense to ban the assets in question by the state, and that the risks related to the related assets should be taken by investors.
The breaking point in Russia’s stance on crypto assets has been its financial isolation by Western countries over its invasion of Ukraine. After this stage, Russian authorities, who are looking for alternative international payment systems and liquidity channels, have started to make more frequent and positive statements regarding crypto assets. Another consequence of the financial isolation has been that many crypto asset users, who do not want to be exposed to sanctions, have stopped receiving services from existing crypto asset service providers and started using “decentralized” and “uncensored” financial protocols.
The defence of Russia’s use of distributed data retention networks, which can be freely transacted “without the need for approval”, in the current conjuncture is like a double-edged knife. On the other hand, it ensures that occupied Ukraine receives financial support easily and efficiently. As a matter of fact, “stable” crypto assets were used by the United Nations (UN) when sending humanitarian aid to Ukraine.[2]
The Central Bank of Russia supports a ban on crypto asset miners operating within the country from selling the crypto assets they mine on the domestic market. Because the sale of related crypto assets in the domestic market will cause the monetary liquidity in the country to shift to firms that are foreign; this will have a negative, if not great, effect on Russia’s monetary sovereignty. As a matter of fact, with the amendments to the law enacted by the Russian or State Duma in November 2022, the fact that crypto assets can only be realized by “national” intermediary firms or institutions has come to the agenda.
Russia approaches distributed data retention technologies as an “open door” means of payment that it can use in its foreign trade. The Kremlin does not support the use of related assets by citizens as an investment tool. The Central Bank of Russia has announced that it has begun work to create an alternative international payment standard based on distributed data retention. Again, the Central Bank of Russia has announced that all digital asset uses can be made possible in trade with “friendly” countries.[3] The Russian Ministry of Finance and the Central Bank of Russia have agreed on the use of crypto assets for international payments following a disagreement since the Moscow administration was subjected to severe financial isolation.[4] Putin directly supports the mentioned international payment standard.[5] The Russian leader accuses the current international payment systems of being “monopolistic.”
Otherwise, although Russia strives to establish and use an alternative international payment system based on distributed data retention technology, NATO member countries, especially the United States (US), exert pressure on companies and institutions that carry out transactions with Russia or have a high potential to perform transactions or subject the relevant institutions and organizations directly to sanctions. It is doubtful how successful the crypto asset-based alternative international payment standard targeted by Russian institutions will be.
The central bank digital currency “digital ruble”, which Russia is developing, is different and independent from the crypto assets and distributed data retention technologies mentioned in this article, both in terms of the purpose of use and the technology used.
Although the authorities have said that activities related to crypto assets will be banned in Russia for various periods, it does not seem possible for Moscow to ban all crypto asset activities in the country for various reasons. These factors are; (1) Russia’s exploitation of the crypto asset mining sector without making it possible to access cheap electricity, (2) Moscow’s liquidity from “decentralized” financial protocols, albeit a small amount as a result of the heavy financial isolation it has been subjected to, (3) the search and effort to establish an alternative international payment system to SWIFT to solve the problem of “double spending” (4) Russian citizens are expected to be crypto due to the policies of the Russian state restricting financial freedom, is the formation of sensitivity in public opinion on the subject due to its adaptation to assets.
As a result, throughout the process, the Kremlin has had a fluctuating stance on crypto assets and blockchain technology. The Central Bank of Russia has explicitly stated that the crypto assets of “public” blockchains should be restricted, and that physical assets should be “tokenized” in the infrastructure of distributed data retention technologies in accordance with the closed economic policy. The crypto asset mining sector, which is concentrated in Russia, has turned into a financial “export item” in accordance with the latest legal regulations in the country. The “digital ruble” that the Central Bank of Russia is developing has no direct relation to the country’s policy regarding crypto assets and distributed data retention technologies.
[1] “Putin Says Legislative Regulation of Cryptocurrency Market May Be Needed”, TASS, https://tass.com/economy/984740, (Date of Accession: 23.12.2022).
[2] “UN to Send Displaced Ukrainians USDC to Convert into Local Currencies”, Fortune, https://fortune.com/crypto/2022/12/15/un-crypto-aid-ukrainian-refugees-stablecoin-usdc-stellar/, (Date of Accession 23.12.2022).
[3] Lubomir Tassev, “Bank of Russia to Test International Crypto Payments With Companies”, News Bitcoin, https://news.bitcoin.com/bank-of-russia-to-test-international-crypto-payments-with-companies/, (Date of Accession: 23.12.2022).
[4] “ЦБ и Минфин договорились разрешить трансграничные расчеты в криптовалютах”, Kommersant, https://www.kommersant.ru/doc/5572328, (Date of Accession: 23.12.2022).
[5] “Artificial Intelligence Conference”, Kremlin, http://en.kremlin.ru/events/president/news/69927, (Date of Accession: 23.12.2022).
