Russia Legalizes Cryptocurrency Mining to Circumvent Western Sanctions

Executive Summary:

• Russian President Vladimir Putin signed a law legalizing cryptocurrency mining in Russia and inaugurated a pilot project for using cryptocurrencies to pay for international trade as a way to circumvent Western sanctions.
• Russian banks and private interests have also continued to develop Digital Financial Asset technology to settle international payments and overcome the obstacles presented by other countries, including China, refusing to work with Russia due to Western sanctions.
• The continued pursuit of such policies by the Kremlin will likely have ripple effects among countries that seek to lessen their dependence on Western currencies and finance.

In August, Russian President Vladimir Putin signed legislation formally legalizing cryptocurrency mining (RBC, August 8). The law establishes a registrar, to which each mining operation must be added, along with regulations on how much energy these operations can consume (Kremlin.ru, August 8). The Kremlin has signaled a continued interest in cryptocurrency and blockchain technologies, with new measures expanding their use (see EDM, June 5). Mining had previously operated in a gray legal space, with unsanctioned operations often consuming large amounts of energy from the Russian grid. Calculations from Russia’s National Cryptomining Association show that 54,000 bitcoins, worth $3.5 billion, were mined in 2023, leaving Russia in second place for the amount of money generated from mining after the United States (Vedomosti, May 24). Additionally, Russia’s Central Bank estimated that the amount of money transacted by Russians in cryptocurrency between the 4th quarter of 2023 and the first quarter of 2024 was 4.5 trillion rubles ($49.2 billion) (Vedomosti, May 24). Through the legalization of mining cryptocurrencies, the Russian economy will be able to circumvent Western sanctions more easily.

Putin also signed legislation adopting the use of cryptocurrencies for a pilot project by the Bank of Russia to begin to figure out how to establish a marketplace for the use of cryptocurrencies in international trade (Interfax, August 8). Participants in the project include the Chamber of Commerce, the Electronic Manufacturers Association, and any importers of “dual-use technology” (those that could be used for civilian or military purposes), which face increased scrutiny from Western sanctions authorities  (RBC, September 17). In some cases, Chinese banks have refused to facilitate trade with Russian importers, fearing Western sanctions. The ability to use cryptocurrency in international trade will likely reduce the reluctance of international partners to work with Russia.

The Kremlin signed legislation in March 2024 allowing Digital Financial Assets (DFAs) to be used for payment in international trade. These DFAs are still tied to physical assets such as fiat currency—government-issued currency not backed by a precious metal—and they theoretically remove the need for a middleman to facilitate cross-border transfers. Sberbank, Russia’s largest majority state-owned bank, introduced DFAs in September 2024 (Vedomosti, September 2). Several private companies have also begun developing blockchain technology to facilitate the DFA market, hoping that market valuation will reach 1 trillion rubles ($10.6 billion) by 2027 (Comnews, July 18).

The Russian Finance Ministry has also developed plans to use DFAs linked to national currencies for trade with other members of BRICS (a loose political-economic grouping originally consisting of Brazil, Russia, India, China, and South Africa). It plans to use the BRICS Development Bank as a platform for facilitating such trade integration (TASS, June 7). The push to work with BRICS member states is fueled by their desire to reduce reliance on the US dollar for international trade (RosCongress, July 23). Much needs to be done on both a technical and legal level across the nascent BRICS block, however, to enable such trade. This is particularly true since foreign traders will receive assets only denominated in Russian rubles, according to Russian financial experts interviewed by the business press (Vedomosti, March 12).

The Kremlin had previously sent mixed signals on cryptocurrency and what it could contribute to the Russian economy. In a paper on the development of financial markets through 2027, the Central Bank expressed concern about exposure to often volatile cryptocurrencies within the national economy, labeling them, along with stablecoins, one of the greatest economic risks (Bits.Media, September 16). The Central Bank remains opposed to using cryptocurrencies as a means of payment within Russia proper. This concern was confirmed when Binance, the largest cryptocurrency exchange in the world, exited Russia in September 2023 (RBC, May 24). Binance’s departure has proven to be a windfall for scammers who target Russian consumers looking for an alternative exchange, while more Russian businesses are turning to using cryptocurrencies to make payments abroad (Nezavisimaya Gazeta, February 11).

The crypto format does not exist without its own pitfalls, as it can provide financial integrity but not confidentiality. Transactions performed in a blockchain are viewable by the public and trackable using a growing number of blockchain intelligence service providers. In a statement on US support for Ukraine, President Joe Biden said, “To counter Russian sanctions evasion and money laundering, the Department of Justice, the Department of the Treasury, and the US Secret Service have taken action today to disrupt a global cryptocurrency network, in coordination with international partners” (The White House, September 26). The US Treasury Department continues to sanction cryptocurrency companies involved in Russian sanctions subversion, most recently in March 2024 (US Treasury Department, March 25).

The shift toward adopting blockchain systems is also part of a broader pursuit of decoupling Russia from Western-dominated technologies and financial systems. Efforts in this vein include the RuNET (Russian internet) project, creating a domestic TLS certificate system, and shifting away from using Western internet technologies (see EDM, September 3). The legalization of blockchain technologies also involves a longer-term project pursued by Russia’s Ministry of Finance—the mass adoption of a digital Ruble. Pilot projects are already underway with various domestic financial institutions, with plans for a mass introduction in June 2025 (Kommersant, July 30). It remains to be seen how successfully the Russian government will be able to regulate Russia’s growing cryptocurrency mining ecosystem or will be able to use blockchain technology for settling international payments, but the continued pursuit of such policies by the Kremlin will likely have ripple effects among other BRICS members who seek to lessen their own dependence on Western currencies and finance.