The lighted digging facilities work inside the shelves of the CryptoUniverse cryptocurrency digging farm in Nadvoitsi, Russia.
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Experts say sanctions imposed on Russia over the country’s unprovoked invasion of Ukraine could hamper the growth of its multibillion-dollar crypto sector.
This week, US officials targeted the Russian bitcoin mining company BitRiver in its latest round of sanctions aimed at harming the Russian economy. The Treasury Department’s Foreign Assets Control Service says it is concerned that Russia could cash in on its vast oil reserves and other natural resources for energy-intensive cryptocurrency mining as a way to raise funds and circumvent Western sanctions.
“This is a strong signal from OFAC that it will use every tool in its arsenal to prevent Russia from evading sanctions through cryptocurrency,” said David Carlisle, vice president of policy and regulatory affairs at cryptocurrency firm Elliptic. .
The sanctions will cripple BitRiver and its various subsidiaries, blocking access to US cryptocurrencies or mining equipment. Crypto mining – the process of validating transactions with new digital currencies – requires specialized computers that consume a lot of energy.
The move shows that US officials are “deeply concerned that Russia may use its natural resources to dig for cryptocurrencies to evade sanctions,” something Iran and North Korea have known in the past, Carlisle said.
The potential exploitation of bitcoin production to evade Russian sanctions remains a major concern for global regulators, including the International Monetary Fund.
The extraction of cryptocurrencies, although not close to the replacement of assets frozen by Russian sanctions, avoids ‘on-ramps’ and crypto-fiat ‘off-ramps’ on centralized virtual currency exchanges, thus bypassing the verification of sanctions, “said Anand Sitian, an adviser at Crowell & Moring and a former judicial lawyer in the criminal division of the Department of Justice’s Asset Seizure and Money Laundering Division.
Russian crypto market
Separately, Binance, the world’s largest cryptocurrency exchange, said it was limiting its services to Russian consumers in response to the fifth wave of EU sanctions against Moscow.
Russia’s Binance accounts with more than 10,000 euros in digital currency will be prevented from making deposits or deals and can only withdraw funds, the company said.
“While these measures are potentially restrictive for normal Russian citizens, Binance must continue to lead the industry in enforcing these sanctions,” Binance said in an update on its website. “We believe that all other major exchanges will soon have to follow the same rules.
Russia is home to a huge cryptocurrency market. The Kremlin estimates that the Russians own digital assets worth approximately 10 trillion rubles ($ 124 billion).
It is unclear where this data comes from, but there is growing evidence that Russians are turning to crypto as an alternative to the ruble as the currency collapses in response to the country’s economic isolation.
According to CryptoCompare, the volume of crypto trading in rubles reached 111.4 billion rubles ($ 1.4 billion) in March, which is much higher than in previous months. Activity declined in April, reaching a total volume of only 19.2 billion rubles a month so far. Binance was the most popular exchange for the volume of rubles and cryptocurrencies in March, accounting for 77% of transactions.
In the six months ending March 2022, the volume of cryptocurrency trading exceeded 420 billion rubles, or more than $ 5 billion, according to CryptoCompare.
The third largest bitcoin mining center
Meanwhile, data from the University of Cambridge show that the country is a powerful center in the field of crypto mining.
In August 2021, Russia accounted for about 11% of the global processing power used to dig up new bitcoin units, according to the Cambridge Center for Alternative Finance, making it the third largest mining center after Kazakhstan.
Given the political unrest in Kazakhstan that has led to an internet shutdown that has taken bitcoin miners offline, there is a chance that Russia’s share of the sector will be even higher now.
However, there may be a displacement of Russian miners from the “countries” – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan – where they can “use blocked gas to power their operations”, Charles Hayter, CEO of CryptoCompare he told CNBC.
The Russian government has a “love-hate relationship” with digital assets, Hayter said. While Russia’s central bank is pushing for a ban on the use and extraction of cryptocurrencies, President Vladimir Putin wants to regulate them instead.
According to Hayter, the Russian regime and its oligarchs “may view digital assets as a way to finance activities outside Russia.”
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