Russia's Crypto Past

Article by Liu Honglin

In February 2018, an unusual incident occurred at a Russian nuclear research center: several employees allegedly used institutional computing equipment to mine cryptocurrencies for themselves.

The incident took place in Sarov. This closed city has deep roots in Soviet nuclear weapons development, and the institution involved was not a typical internet company, but the Institute of Experimental Physics under the Federal Nuclear Center of Russia. A spokesperson for the institution confirmed to Izvestia that individuals attempted to use official computing resources for private purposes, including mining, without authorization. Those involved have been detained and placed under criminal investigation.

If taken in isolation, this news might easily be dismissed as another anecdote about the "combat nation." But looking further ahead reveals more fascinating developments: in 2024, Russia established a dedicated legal framework for mining; by 2026, even cryptocurrency exchange and custody institutions began appearing on the central bank's registry.

What happened in the interim between the nuclear center employees secretly leveraging computing equipment and the state granting the industry its official status, tax framework, and transaction channels?

Many give a straightforward answer: sanctioned, so Russia began embracing cryptocurrencies.

While this explanation captures a key driver, it overlooks the most compelling aspect of this history.

Miners, merchants, fiscal authorities, and the central bank in Russia have always harbored different expectations for cryptocurrencies. The war has intensified their internal debates: foreign trade demands new payment and settlement methods, yet the central bank is unwilling to relinquish capital flow controls just to ensure a single international invoice is paid.

Why Russia Initially Wanted to Ban Cryptocurrencies

As early as January 2014, the Bank of Russia publicly warned against Bitcoin. The announcement emphasized that virtual currencies lack backing, exhibit speculative pricing, and exchange services could become entangled in money laundering and terrorist financing, while also citing Russian laws prohibiting "monetary substitutes."

For a central bank, these concerns are hardly surprising.

When residents exchange rubles for Bitcoin, funds risk leaving domestic banks and financial markets; if merchants start accepting coins directly, the ruble's position as a payment tool would be undermined. Moreover, virtual currency prices are highly volatile—a price crash could translate ordinary citizens' losses into social issues requiring government intervention.

But for operators of crypto mining farms, the rationale to keep running machines remains simple: as long as mined coins can be sold and revenue covers costs, operations continue. Central bank warnings offer no guidance on how to run this business, nor do they make already deployed hardware disappear. The Sarov incident years later showed outsiders just how far profit-driven impulses could go.

Russian leadership also held considerable interest in blockchain technology.

During the 2017 St. Petersburg International Economic Forum, Putin met with Ethereum co-founder Vitalik Buterin. According to Kremlin descriptions at the time, discussions covered the application of blockchain technology in Russia and establishing ties with local partners. This pro-application stance coexisted alongside the central bank's vigilance toward private cryptocurrencies.

2017 St. Petersburg Forum

In 2020, Russia passed legislation on digital financial assets, with main provisions taking effect from 2021. The law established rules for the issuance and circulation of digital financial assets, which may represent monetary claims, securities-related rights, and other instruments. Bitcoin does not fall under this category, and Russia continued to restrict using cryptocurrencies for domestic payments of goods and services.

By January 20, 2022, in its advisory report "Cryptocurrencies: Trends, Risks, and Measures," the central bank proposed banning organizations within Russia from issuing, trading, or exchanging cryptocurrencies, and advocated for outlawing mining.

The Bank of Russia's concerns extended beyond retail speculators. Mining consumes electricity, transactions channel funds outside the traditional financial system, and private currencies could undermine monetary policy. Following this logic, keeping the industry entirely separate from the financial system appeared the simplest approach.

The Russian Ministry of Finance rejected this conclusion.

Ivan Chebeskov, then head of the financial policy department at the Ministry of Finance, publicly advocated for regulation rather than prohibition. Cryptocurrency trading was an undeniable reality; pushing the business entirely overseas or underground would only make it harder for the state to regulate.

Six days later, during a meeting with government officials, Putin addressed this dispute, calling for consensus between the government and the central bank. He also noted Russia's competitive advantages in mining, including power infrastructure and a skilled workforce.

At the time, fiscal authorities wanted to retain existing business domestically, while the central bank insisted on preventing capital flight and private currency risks. While negotiations continued, the financial sanctions brought by the war fundamentally shifted the premises of the cryptocurrency debate.

Sanctions Altered Russia's Choices

On February 24, 2022, Russia launched a full-scale military operation against Ukraine.

In March of that year, in compliance with EU regulations, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) severed connections with seven designated Russian entities and their subsidiaries. De-linked banks lost access to this global interbank messaging network, disrupting enterprises' existing cross-border banking settlement arrangements.

Russia subsequently increased settlements in currencies such as the Chinese yuan. In its Q2 and Q3 2023 "Financial Stability Assessment," the Bank of Russia disclosed that the yuan's share in Russian export settlements rose from 13% in January to 35% in September of that year. Within less than a year, the yuan became a critical currency for Russian export receipts.

Excerpt from the Bank of Russia's "Financial Stability Assessment": From January to September 2023, the yuan's share in Russian export settlements rose from 13% to 35%.

However, foreign banks handling payments also began tightening operations. In December 2023, the U.S. expanded authority to sanction foreign financial institutions involved in transactions related to Russia's military-industrial base. Banks faced requirements to screen clients, counterparties, and cargo end-uses, leading some institutions to simply reduce or halt Russia-facing settlement services.

In April 2024, Reuters reported after interviewing five sources that certain Chinese banks avoided Russia-related business out of fears of secondary sanctions. Enterprises turned to the Shanghai branch of Vnesheconombank (VEB.RF) for settlements, causing account-opening backlogs. Some respondents noted that Chinese suppliers waited two to three months for accounts, while others went six months without success. Even when both parties agreed to use the yuan, finding a bank willing to handle the business could still take several months.

In July 2024, the State Duma passed relevant legislation allowing import-export enterprises to settle foreign trade payments with cryptocurrencies. Related laws were signed in August, with initial pilot programs organized by the central bank, subject to strict limits on participating firms and trial durations.

By December 2024, Finance Minister Anton Siluanov stated in a television interview that Russian companies had begun using Bitcoin and other digital currencies for international payments, including domestically mined Bitcoin.

The Scale of Russia's Crypto Industry

Behind the domestically mined Bitcoin mentioned by the finance minister lies Russia's mining sector, which has operated for years.

In March 2021, Reuters reported that BitRiver operated a 100-megawatt data center in Siberia, hosting equipment for miners from the U.S., Europe, and Japan. Clients were drawn to cheap hydroelectric power locally, while BitRiver provided electricity and server rooms, charging custody fees in USD or rubles.

How cheap is the local power? According to the tariff schedule published by Irkutsk's power supplier for H2 2024, Tier 1 residential rates stood at 1.58 rubles per kWh for urban households and 1.106 rubles for rural ones. Converting at the early July 2024 exchange rate, this equates to roughly 0.13 RMB and 0.09 RMB per kilowatt-hour.

For comparison, Shanghai's resident electricity price that year was 0.617 RMB per kWh for Tier 1 flat-rate meters—roughly 4.6 and 6.6 times higher than those two tiers.

Low-cost mining attracted gradually accumulated substantial electricity consumption. In July 2024, citing Energy Ministry estimates at an economic work conference, President Putin stated that Russian mining annually consumed approximately 16 billion kWh, nearing 1.5% of national electricity usage.

In 2024, Russia formalized operational rules for the mining sector. In November, the Federal Tax Service launched a mining registration service, mandating that companies and sole proprietors register before operating. Starting in 2025, miners must electronically declare production volumes and wallet address identifiers to tax authorities by the 20th of the month following receipt of digital currencies. Pool participants must similarly report relevant addresses. Locations, operators, and destination wallets now generate auditable records. Associated revenues were also integrated into tax management.

As mining facilities multiplied, local power grids grew strained. In April 2025, southern parts of Irkutsk Oblast implemented a mining ban extending through 2031.

Beyond registration, law enforcement pursued offenses like power theft. In October 2025, the Russian Ministry of Internal Affairs reported cracking down on a suspected illegal mining facility in Leningrad Oblast, with preliminary losses exceeding 1 billion rubles. Six suspects were detained, and the case involves alleged abuse of authority.

Mined coins need buyers, and domestic investment demand persists. Russia has long maintained a large-scale crypto trading market, yet domestic financial institutions historically lacked institutional frameworks to facilitate such business.

Per on-chain fund geographic attribution estimates by blockchain analytics firm Chainalysis, Russian-associated crypto asset inflows reached approximately $376.3 billion from July 2024 to June 2025, surpassing the UK's $273.2 billion over the same period.

Overseas platforms control client accounts, transaction records, and fee revenues. For Russia to bring this industry under domestic supervision, it must allow domestic financial institutions to accommodate residents' trading demand.

In March 2025, the central bank proposed initially permitting a small segment of investors with high asset and income thresholds to trade cryptocurrencies during a three-year trial. By December of that year, a revised proposal included ordinary non-accredited investors, though coin selections and purchase limits remained constrained.

In its report covering Q4 2025 to Q1 2026, the central bank noted that Russian users' visits to centralized crypto platforms fell 32% compared to the previous two quarters. Meanwhile, as of early April 2026, domestic investments channeled through Russia-based financial instruments pegged to crypto prices totaled approximately 3.8 billion rubles.

By September 2026, the Law on Digital Currency and Digital Rights took effect, providing residents institutional channels to trade cryptocurrencies through regulated domestic entities. Ordinary non-accredited investors must pass proficiency tests, with purchase scope and quotas still restricted; meanwhile, brokers, exchange providers, and custodians began conducting corresponding business under the new law.

On October 6, the central bank announced that the first batch of five digital custody institutions and four crypto exchange providers entered the registry. Exchange providers may conduct OTC trades using own capital, while custodians are responsible for record-keeping and transferring relevant assets. These institutions must align their operations with the new law's requirements by September 2027.

Import-export enterprises gained broader cross-border crypto payment space under the new law, while bans on domestic goods and services payments remained intact. The central bank permitted crypto assets into regulated trading markets while continuing to uphold the ruble's dominance in domestic payments.

Evolution of Market Access

After Russia's Exchanges Were Targeted

As Russia began formally licensing trading institutions, a wave of earlier-operating platforms had already drawn international law enforcement scrutiny to the market.

One such platform is Garantex, formerly a major Russian cryptocurrency exchange.

Originally registered in Estonia, the platform's primary operations lay in Moscow and St. Petersburg. In 2022, it lost its Estonian digital asset service license and was added to the U.S. Treasury's sanctions list, yet continued operations thereafter.

In March 2025, Garantex faced joint law enforcement action. The U.S. seized associated domains, German and Finnish authorities confiscated servers, and the U.S. Department of Justice unsealed charges against two executives. Prosecutors alleged the platform processed at least $96 billion in crypto transactions since 2019, accusing operators of engaging in money laundering and sanction evasion.

Subsequently, Tether, the issuer of USDT, announced it would assist the U.S. Secret Service in freezing $23 million linked to Garantex transactions.

The frozen funds utilized the dollar-pegged stablecoin USDT. As the issuer, Tether can restrict transfers to specific addresses via token control mechanisms. Once funds leave banks and enter the blockchain, holders may still lose access due to issuer-imposed freezes.

Schematic of USDT Freeze Mechanism

Per U.S. Treasury sanctions designations in August 2025, Garantex personnel migrated clients and funds to successor platform Grinex, utilizing the ruble-backed A7A5 token to bridge customer capital flows. A7A5 was issued by Kyrgyzstan's Old Vector, with cross-border settlement entity A7's ownership tied to Russian bank Promsvyazbank and businessman Ilan Saul.

Russian enterprises using dollar stablecoins easily find accepting counterparties but remain vulnerable to issuer freezes. Shifting to ruble-backed tokens requires convincing overseas merchants to accept them and establishing sufficient exchange liquidity.

In October 2025, the EU's 19th sanctions package directly targeted A7A5 and related entities, banning transactions involving the stablecoin within the bloc. By October 2026, the U.S. designated the A7 network as a sanctioned transnational criminal organization; FinCEN simultaneously proposed new transaction restrictions, then still in draft form.

After Garantex's crackdown, capital flowed to successor platforms and ruble tokens, with sanctions lists expanding accordingly. As Russian enterprises continuously sought new settlement methods, overseas counterparties, issuers, and intermediary exchanges retained decisive influence over whether invoices ultimately became usable.

What China Can Learn from Russia

Lessons from elsewhere can sharpen one's own edge.

Russia's evolving cryptocurrency regulatory policies, to some extent, pose practical questions for other nations equally concerned with capital flows and financial security: what challenges can cryptocurrencies solve for a state, and what new dependencies will they create?

Particularly for China deeply integrated into international markets, what precedents does Russia's shifting stance and choices regarding mining, domestic investment, and corporate settlement offer as reference points?

Mainland China's regulatory stance on cryptocurrencies remains clear and continues to tighten. The February 2026 "Notice on Further Preventing and Handling Risks Related to Virtual Currencies," among other things, maintains prohibitions on domestic fiat-to-virtual currency exchanges and ongoing anti-mining campaigns. Overseas institutions and individuals are barred from illegally providing related services to domestic entities.

The notice extends oversight to offshore issuances: domestic entities and their controlled overseas affiliates must obtain prior approval from relevant departments to issue virtual currencies abroad. For yuan-pegged stablecoins, coverage broadens further, requiring any domestic or foreign individual or entity issuing them overseas to secure explicit regulatory consent.

Against this policy backdrop, Russia's opening of domestic investment raises the critical question of capital mobility. Under the central bank's 2026 law interpretation, ordinary investors passing competency tests may purchase up to 300,000 rubles worth of liquid cryptocurrencies annually per intermediary. Cross-border trading requires domestic residents to use overseas bank accounts; routing domestically bought coins abroad must pass through regulated intermediaries, and overseas crypto holdings must be declared to tax authorities.

Russia attempts to redirect flows previously destined for overseas platforms to domestically accountable entities, while retaining cross-border reporting and intermediary mandates. For China, equally vigilant about capital flow management, the efficacy of Russia's new regime warrants continued monitoring: for instance, whether post-regulation actual trading becomes more transparent and whether regulators can track asset transfers rather than merely registering additional operators.

Cryptocurrency mining presents parallel dilemmas. Bitcoins produced domestically using local grid power can easily be cashed out once moved to overseas wallets. Russia's mandate to report output and wallet addresses aims to trace asset origins before cross-referencing trade and tax records; while these logs strengthen audit trails, they cannot guarantee accurate miner disclosures nor single-handedly prevent capital flight. Retaining the crypto mining sector means tax and anti-money laundering agencies must assume continuous verification responsibilities.

When China opted to phase out mining in 2021, it confronted an already massively scaled industry.

University of Cambridge sampling estimates released that year showed China's share of global Bitcoin hash rate dropped from 75.5% in September 2019 to 46% by April 2021, still hovering near half before rectification. Research also noted miners migrating seasonally between Xinjiang and Sichuan to arbitrage dry and wet season electricity spreads. China's domestic mining crackdown rippled across global mining layouts.

In explaining the rectification reasons in September 2021, the National Development and Reform Commission cited limited economic and industrial spillover effects alongside energy consumption, carbon emissions, money laundering, tax evasion, and cross-border capital transfers. In essence, China's prohibition on crypto mining represented a comprehensive compromise balancing industrial development and financial governance.

Russia's combination of farm registration and regional mining bans offers China a policy design reference: future trials leveraging surplus power could initially confine operations to grid-confirmed areas with curtailment challenges, adjust runtime according to supply conditions, and halt operations during peak demand. Aligning farm power usage with coin output, wallet addresses, and tax records would calculate net local benefits. Such trials require national policy adjustments and explicit authorization; current mining prohibitions cannot be automatically waived merely due to local renewable curtailment.

Regarding cross-border trade settlements, for SMEs receiving frequent overseas payments, transaction fees and settlement speeds dictate business continuity. Russia's experience introduces an inescapable consideration: should external restrictions widen, how many of today's functional banking and clearing channels will remain viable? Proactively establishing compliant collection channels holds daily operational value and determines whether enterprises can honor contracts amid external shocks.

The stablecoin pilot underway in Hong Kong, China provides a concrete pathway to broaden payment options. On April 10, 2026, the Hong Kong Monetary Authority granted the inaugural stablecoin issuer licenses to Andian Fintech and HSBC Bank China Limited. The HKMA disclosed that both entities initially plan to launch HKD-pegged stablecoins targeting cross-border payments, aiming to leverage respective banking networks to reduce client transaction costs.

Upon receiving stablecoins, enterprises typically convert them to fiat currency to cover local operational expenses. If conversion channels break down, booked token balances may become unusable for procurement and payroll. Hong Kong's reserve and redemption requirements for licensed issuers ensure clear liability for continuous settlement. Chinese companies' overseas entities may explore such collection methods within local regulatory boundaries, though mainland-facing business and repatriation of funds must strictly comply with domestic regulations.

Russia's reactive pivot demonstrates that waiting until banking channels constrict before seeking counterparties or organizing settlements imposes steep adaptation costs on businesses. Given China's massive overseas operational and trade demands, preserving regulated experimental space during normal periods helps mitigate the future cost of scrambling for alternatives under duress.

Nevertheless, assessing how much autonomy stablecoins actually provide requires asking who they rely on. Dollar stablecoins are bound by issuers, reserves, and redemption mechanisms; HKD stablecoins operate within the currency board system and traditional banking framework. While on-chain crypto transactions remain relatively free, they still face freezing, FX, or redemption bottlenecks due to stablecoins' inherently centralized issuance. The strategic value of Hong Kong's pilot may lie in accumulating diverse payment options and operational resilience capable of withstanding broad sanctions.

Conclusion

Revisiting Russia's crypto journey reveals how a state continually adjusts its strategies amid industry shifts and international competition. Initially wary of capital outflows, the central bank advocated outright bans; war and sanctions rendered foreign trade settlements urgent, prompting the government to construct institutional pathways for mining and crypto payments. While a highly centralized government confronting decentralized digital assets retains its apprehensions—indeed, such fears are ineradicable—external pressures and domestic needs drive recalibrations on permissible versus restricted uses. Ultimately, this adaptive response can either be reactive or proactive.