Following the economic blockade of the West toward Russia, the US has put in place new penalties to check the actions of the Russian government. Hence, Russia’s ranking position as the third-largest destination for mining Bitcoin faces a major threat.
The US treasury declared a new sanction targeting firms and companies like BitRiver acting as server farms and mining Bitcoin in Russia. This action has been taken in response to the continuation of the war between Russia and Ukraine as it stretches into three months of violence.
The European Union has proposed to ban oil and coal importation from Russia. These steps are similar to those that the USA has taken in stopping the importation of Russian gas and coal. However, the economic blockade seems to not be enough force to stop Russian operations in Ukraine.
The Logic Behind Placing the Bitcoin Mining Sanction on Russia
IMF estimation shows just how much Russia makes from Bitcoin mining and why the US has targeted this sector. As of 2021, Russian miners owned about 11% of the $1.4 billion total monthly Bitcoin mining revenue.
It may be possible and feasible to sever the trading links between Russia and countries worldwide. However, with the above statics, the IMF pointed out that there is still a possibility of Russia generating funds through blockchain mining since these currencies are decentralized.
Hence, while sanctions may affect the importation of computers that mining companies need to thrive, they can still raise funds. Income from mining is generated in a direct transaction between the companies and users. All they need do is channel their energy towards the digital currency beyond the jurisdiction of the economic sanctions.
Russia’s climate and energy resources place it at an advantage for virtual currency mining to thrive. The funds that they get from Bitcoin mining alone have the potential of minimizing the consequences of any economic sanctions that will be enacted, rendering it less productive.
For instance, BitRiver alone has 10 subsidiaries and three offices housing 200 employees for its smooth running in Russia. According to the Office of Foreign Assets Control, this large company is only one of many others that has contributed to the economic growth of Russia through Bitcoin mining.
The primary aim of the sanction on Bitcoin is simple. For the USA, no type of asset whether physical or virtual should be used by the Russian government to evade economic sanctions. Neither should assets be able to promote an attack on Ukraine. For this reason, all perceived threats would have to be addressed.
The Implication of the Mining Sanction
The action taken by the US treasury is known to be the first of its kind as a measure to restore order. While this action against Russia would drive home its message, it may affect the crypto industry globally. Since it is the third-largest mining region in the world, mining operations generally may experience hiccups. A direct implication is that there may be a decline in bitcoin mining globally.