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Should Russia Bolster or Ban Bitcoin?

source-logo  coindesk.com 30 May 2023 19:11, UTC

Another country is waffling on blockchain. Russia, the belligerent nation led by an egomaniac, has allegedly ditched plans to build a national cryptocurrency exchange, according to local reports surfaced to Crypto Twitter by Wu Blockchain’s Colin Wu. Instead, the country will write rules allowing the private sector to operate crypto exchanges, State Duma member Anatoly Aksakov reportedly said.

The plans for a government-operated crypto exchange appear to date back to 2022, around the time Russia President Vladimir Putin signed a bill banning digital asset payments in the country. At the time, the state’s legislature and central bank were locked in a debate over whether to regulate crypto or ban it outright (an option the Bank of Russia preferred).

Since then, the government in Russia has considered introducing an “experimental legal regime” opening the door for crypto to be used in export-import deals, and tasking “special organizations” with mining crypto and processing international crypto payments. The country has also come around on the idea of using stateless currencies like bitcoin and permissionless stablecoins to skirt international sanction.

In some sense, Russia scrapping plans for a national crypto exchange – which seems always to have been unspecific or at least difficult to search on this side of the splinternet – and potentially allowing tightly-watched companies to move in is a perfect encapsulation of the rampant cronyism that’s taken root since the collapse of the USSR. It’s also a tight bow on the country’s strange stance on crypto.

(For what it’s worth, English-language publications could be overstating whether Russia ever wanted a state-run crypto exchange or mistranslating the country’s previous plans to spin up a national agency to license and supervise crypto platforms.)

Is it surprising that an autocracy has a hot and cold approach to crypto, a suite of technologies that function to undercut middlemen and despots? Putin has imposed internal capital controls to backstop a weakened ruble, in part influencing his decision to ban crypto. At the same time, he’s looked to crypto in his attempts to project power overseas. Crypto, being ungovernable, is a double-edged sword for the country.

See also: Why Russia Isn't Relying on Crypto to Evade Sanctions | Opinion

Only recently, apparently, did Russian leaders come to grasp that the use of crypto is basically inevitable and they’d be better off writing regulations than bans, as my colleague Anna Baydakova reported in April. This is especially true considering Russia has functionally been cut off from U.S. dollar-powered global economic infrastructure.

In fact, Oleg Ogienko of major Russian mining company BitRiver’s, lauded the finance ministry’s most recent move on the grounds that it would “minimize the risks of sanctions.” He added, funnily enough, private crypto exchanges would also “eliminate possible market monopolies” in a country known as much for its oligarchs as its vodka.

See also: Russia's Gazpromneft and BitRiver Partner to Develop Mining Operations

It still remains to be seen exactly which crypto exchanges will be allowed to operate, and what type of internal controls they would be required to follow. Izvestia reported the central bank would “probably” oversee these platforms (the Department of the Ministry of Finance for the Russian Federation might be another contender). It goes without saying Russian crypto exchanges would be exempt from interacting with U.S. citizens and much of the world.

Indeed, crypto occupies a curious place in the world of international politics. For years, Russian citizens have relied on stablecoins like tether (USDT) to move money in and out of the country. And yet, by and large, neither the U.S. nor EU have been all that concerned about crypto being used to avoid their economic blockades.

Crypto is undoubtedly, remarkably and increasingly useful for anyone around the world looking for a way to protect their wealth from volatile fiat currencies or government seizure. And yet, at the same time the industry does not pose much of a threat to the current order. Crypto has a penchant for over-promising and under-delivering – especially when it comes to disempowering The State.

The blockchain, instead, has become one of the most powerful financial forensic tools available to governments. Crypto is part of the reason why we have an approximation of how much North Korea earns from ransomware and internet attacks, and how U.S. investigators have tracked down digital era drug kingpins. Although crypto represents just a tiny fraction of global crime estimates, every crime committed that interacts with the blockchain becomes a potential honeypot.

See also: Who's Watching? Crypto Market Surveillance and Why It Matters | Webinar

More importantly, crypto’s success in empowering individuals is precisely why it is less of a threat in aggregate. If Russia ever really thought crypto would be used for mass evasion of capital controls, then the country failed to consider either the UX/UI issues that prevent countless people from fully integrating into the crypto economy, or how thoroughly on-ramps into crypto can be controlled. Crypto can be incredibly potent for good or bad actors looking to skirt oversight who know what they’re doing, but is essentially a worse version of Venmo for everyone else.

Crypto functions mostly as a symbol – one that borrows heavily from the U.S. highest ideals of personal liberty and sovereignty. And so it’s a sad day when Russia slowly liberalizes on the industry as the U.S. works to blot it out.