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IMF Believes Countries Can Monetize Energy Using Bitcoin Mining

The International Monetary Fund (IMF) recently released its Global Financial Stability Report for April 2022. Covering the financial system’s resilience amidst the Russia Ukraine war, it repeats oft-cited concerns about crypto threatening financial integrity.

Among these worries is that Russia, despite worldwide sanctions, could manage to monetize its energy resources by mining Bitcoin.

Crypto: A Double-Edged Sword

As claimed in the report released today, cryptocurrencies could “undermine domestic policy objectives” as they gain more widespread use. For example, crypto asset trading volumes surged against some emerging market currencies after the West sanctioned Russia.

That’s not to say crypto is all bad. The IMF recognizes technology as a venue for financial inclusion, development, and competition. However, the risks it poses are unique and could require “multilateral cooperation” and “comprehensive global standards” from policymakers to address.

Talk of Bitcoin’s use in financial crime and sanctions evasion is the subject of hotly debates since the start of the war. One U.S. Senator even put forth a bill calling for secondary sanctions on “transaction facilitators” that support sanctioned parties. According to the legislation, these “facilitators” could even include cryptocurrency node operators and validators.

In response, crypto intelligence firms like Chainalysis have reassured policymakers that financial crime in crypto is both difficult and uncommon. For example, the share of criminal transactions in the space has declined drastically every year, according to on-chain data.

Nevertheless, the IMF remains skeptical. Even when centralized intermediaries managed crypto, it fears that legal openings may persist among non-compliant exchanges. Furthermore, anonymizing services like mixers, DEXs, and privacy coins could make regulators struggle to track illicit funds.

In the weeks after the war started, Ukraine appeared to benefit far more from cryptocurrency than Russia.

The Mining Work-Around

The firm followed by calling out Bitcoin mining, in particular, as a source of concern beyond mere transactions.

“Mining for energy-intensive blockchains like Bitcoin can allow countries to monetize energy resources, some of which cannot be exported due to sanctions.”

Mining gives users access to newly created Bitcoin, alongside recent transaction fees, in exchange for energy. As the report notes, such monetization takes place directly on proof-of-work blockchains, and sanctions cannot prevent it.

Miners captured about $1.4 billion in value each month in 2021. Russia, which is a relatively popular country for mining, captured about 11% of that value.

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Notably, this avenue for monetizing oil isn’t possible with proof of stake currencies, which don’t use energy for security.

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