Only days after the Russian army began its full invasion of Ukraine, all Western states, including the EU and the US, imposed drastic sanctions on the country. The idea behind these was to pressure Moscow through a range of economic crises that the sanctions would trigger into ending its military plans. In essence, the mechanism behind that decision was already tried and tested in many other situations with countries like Iran. So, the governments of the West were not entering unknown territory. Instead, hopes were that the pressures from a crumbling economy would dissuade President Vladimir Putin from forcing further his hand in the escalating full-out war.
However, what was new was the fact that many analysts believed that Russia would turn to cryptocurrencies, including bitcoin, to circumvent all sanctions. Experts feared that these blockchain-based platforms would easily become instruments that move through all existing anti-money laundering regulations and thus manage to stave off any Russian economic collapse. So, the partial consensus was that blockchain tech and digital technologies will quickly become tools in the regime of Vladimir Putin. Not surprisingly too many are involved in the crypto community, the same did not take place and Russia, six months into the war, is not using digital currencies in any meaningful shape or form related to the conflict with Ukraine.
A possible scenario that appeared in the midst of the Russian invasion and the use of digital currencies was its energy reserved. The Russian Federation has plenty of energy to take on digital currency mining for all proof-of-work networks, mainly BTC but all others – apart from ethereum thanks to the Merge. From here, the country could sell the same digital tokens on the open market for USD or EUR, or any other fiat currency. Thus, the government in Moscow could finance independent digital currency accounts where it would funnel the same money and use it to pay for things on the international markets.
This mixture of money laundering and digital currency production has already been in action in Iran, at least from the perspective of the western governments. There too the government slowly opened up the digital currency mining industry and many believe that money from it is going directly to the regime in Tehran. In theory, Russia would have even bigger potential for the same scenario, thanks to its huge energy reserves in all imaginable forms, including electricity.
No Proof of Laundering
Almost seven months into the war, there is no evidence or proof that Russia took this option and actually began laundering or generating money through cryptocurrencies. In April, the data showed that the daily ruble-crypto trading level shot up to 46 million USD immediately after the invasion. It fell quickly to just 1 billion rubles, which ended up around 7 million USD. As of August 2022, the levels of trading volume remain very limited, covering between 10s and in the best case scenario, 100s of millions of rubles.
That is below the level that the start of the war saw, which is in turn far away from any record value. So, the on-chain data shows that Russia is not making a massive pivot towards digital currency in any shape or form. The economic experts are corroborating this notion and point out that the only problems are not simply the willingness to do something like this – which is debatable – but the sheer potential to do the same.
For better or worse, Russia is a massive economy that is a part of the top G20 nations of the world. The mechanisms of its functioning are multiple and complex, depending on not just its local currency but also international reserves and much more. Presently, it might be under a range of pressures and foreign influences that are trying to destabilize it through economic means. But, as finance professors quickly pointed out, a big economy of a nation is not an esports competition that can quickly and nimbly pick and choose its bedrock currencies.
Instead, an economy the size of Russia cannot just switch rapidly to digital currency and see their work as well as the rubble or any other fiat alternative. Even as a source for a potential loophole digital currencies are simply not feasible for money gymnastics on a scale of an entire nation. The whole line of reasoning ends up to a point where Russia is pushing a lot of resources into a process that is neither guaranteed to work nor is fully in the possession of Moscow. That is why the same government has much better and easier alternatives.
Instead of building a structure based on digital currency, it appears that the President of Russia is facing a different solution to his problems. That solution includes the creation of a completely alternative financial system that will counter the USD-based SWIFT, from which Russia is now basically excluded. The Russian version of this system is the SPFS or the System for Transfer of Financial Message.
At the same time, the MIR payments would be the competitors to the Visa and Mastercard setups. Russia is presently trying to gain acceptance for these systems among its non-western partners. These include Israel, India, Iran, and a range of Arab nations. But, even countries like Switzerland, Sri Lanka, and Armenia are already using the same system. With it operational, Russia would not need any crypto-based alternative.
Crypto as the Bad Guy
The line of thinking that saw crypto being employed by the regime of Vladimir Putin is in many ways another spin on the notion that bitcoin is a tool for criminals. The same spin has taken hold here as well. While the narrative holds no actual evidence or even a logical sequence behind it, the appeal in the mass media is clear and easily presentable to the public. The fact that it is simply not functional seems to take, like always, a back seat in the entire discussion.