Cryptocurrency
Russia has increasingly turned to cryptocurrencies as an alternative financial tool to navigate the restrictions imposed by Western sanctions. The country faces significant challenges with ruble transactions, including convertibility issues, payment delays, and exchange rate volatility.
By leveraging digital currencies, Russia aims to facilitate limited trade, potentially finance illicit activities, and create a financial network less dependent on traditional banking channels. However, the broader adoption of crypto for international commerce remains uncertain due to the reluctance of Moscow’s trading partners and increasing scrutiny from Western regulators.
Since the onset of Russia’s full-scale invasion of Ukraine, authorities have shifted their stance on digital currencies, moving from initial skepticism to active regulation and promotion. A significant milestone was reached in November 2024 with the enactment of new cryptocurrency laws.
These regulations legalized cryptocurrency mining and permitted the use of digital assets for international transactions, though domestic payments in crypto remain prohibited. Additionally, large-scale crypto miners—who earn digital currencies by using their hardware to validate blockchain transactions—are now required to register with tax authorities.
In late 2024, Russia also initiated its first international cryptocurrency transactions under a confidentiality regime. Central Bank Governor Elvira Nabiullina announced that the pilot program would extend for up to three years, allowing authorities to assess the feasibility and impact of using cryptocurrencies for cross-border payments.
One of Russia’s key objectives is to capitalize on its low energy costs to expand its crypto-mining industry. By 2023, Russia had already become the world’s second-largest cryptocurrency miner, with ambitions to dominate the global market. Bitriver, Russia’s leading bitcoin mining provider, has projected further growth in the sector. Additionally, state-backed initiatives have emerged, such as Gazprom Neft’s plan to use flare gas—a byproduct of oil drilling—for cryptocurrency mining, a practice also adopted by countries like Oman.
Beyond mining, Russia views cryptocurrencies as a potential vehicle for international trade transactions beyond the reach of Western financial regulators. Finance Minister Anton Siluanov underscored this strategic shift, stating that the true significance of cryptocurrency mining lies in using the digital assets for international settlements of goods and services.
Crypto, particularly stablecoins pegged to fiat currencies like the U.S. dollar, offers greater convertibility and less volatility than the Russian ruble. Moreover, these transactions operate with minimal oversight from Western authorities, making them attractive to Russian businesses seeking to bypass financial restrictions.
Recent reports indicate that Russia has begun using cryptocurrencies, including bitcoin and the stablecoin Tether (USDT), for oil sales to China and India. Unlike bitcoin, stablecoins cannot be mined but can be acquired through other cryptocurrencies, making them a stable medium of exchange.
To further integrate digital currencies into its financial system, Russia has drafted regulations permitting “highly qualified” investors to trade cryptocurrencies under an experimental framework.
Despite these developments, Western regulators have intensified their scrutiny of cryptocurrency transactions, particularly as adversarial nations such as Iran and North Korea expand their involvement in the sector. U.S. authorities have taken action against platforms facilitating illicit financial flows. In one instance, the U.S. sanctioned Garantex, a Russian-linked crypto exchange, for alleged money laundering, leading to the arrest of a Russian resident in India and the seizure of $27 million worth of stablecoins.
Experts note that while crypto transactions can be difficult to trace, regulatory bodies have significantly improved their ability to track and seize illicit assets. George Voloshin, a sanctions analyst, explained that Western governments, with assistance from industry professionals, have become increasingly proficient in identifying and blocking unlawful cryptocurrency transactions. Blockchain monitoring tools enable regulators to trace digital asset flows on public ledgers, making it possible to map out networks of illicit financial activity.
A critical challenge for Russia’s crypto-driven trade strategy is whether its major trading partners are willing to accept digital currencies for commercial transactions. While some countries, including India and China, have facilitated crypto-based payments for Russian exports, broader adoption remains uncertain. Reuters reported that Chinese businesses have been converting yuan into crypto through intermediaries before transferring funds to Russia.
However, convincing foreign corporations to conduct large-scale, routine trade in cryptocurrencies remains difficult. Many of Russia’s trade partners impose stringent restrictions on crypto use. For example, Kyrgyzstan has introduced regulatory limits, while China has completely banned crypto exchanges and mining operations.
According to Martin Chorzempa of the Peterson Institute for International Economics, Beijing remains wary of digital assets due to concerns about capital flight and untraceable transactions. Instead, China has reportedly relied on alternative methods, such as barter trade, to maintain commerce with Russia despite sanctions.
Although crypto is being used in specific sectors, such as oil sales and the procurement of civilian and military electronics, most of Russia’s international trade still relies on traditional banking systems. Large transactions between state-owned enterprises, such as oil sales between Russia’s Rosneft and China’s CNPC, are typically conducted through state-controlled banks using direct currency conversions between the ruble, yuan, or rupee.
While cryptocurrency provides Russia with a partial workaround to sanctions, it remains a niche tool rather than a large-scale alternative to conventional finance. Given the regulatory challenges and limited willingness of international partners to fully embrace crypto transactions, Russia’s reliance on digital currencies may grow, but its broader impact on global trade remains uncertain.
