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One day after the IMF’s warning, the US treasury has hit multiple Russian Bitcoin mining companies with secondary sanctions. The increased restrictions should prevent Russia from monetizing its energy resources using proof-of-work crypto networks.
Cutting Off Mining Resources
As reported by CNBC, this marks the first time the Treasury has ever placed trade restrictions on virtual currency miners.
Last month, President Biden announced that America would no longer accept Russian oil, with other jurisdictions following suit. Gas prices in the country have soared since then, creating added incentives to ensure the sanctions have their intended effect.
However, Brian Nelson – Under Secretary for Terrorism and Financial Intelligence – believes Bitcoin mining could interfere with that.
“By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources,” he said in a news release on Wednesday afternoon.
The International Monetary Fund made the same claim on Tuesday in its Global Financial Stability Report. As the authority explained, sanctions cannot directly target miners as they receive pay directly from the global, permissionless Bitcoin network.
This came alongside the more common fears of Bitcoin on sanctions, like non-compliant exchanges helping Russia cash out Bitcoin trades. One congressional energy official has even suggested that Russia would accept Bitcoin payments for natural gas exports to friendly countries.
Yet there are other ways to hurt Russian mining industry participants. For example, while Russia can supply its own oil, it relies more on imports for the computers required to mine. Those computers must be paid for with fiat currency, of which Russia’s has collapsed in value.
Russia’s Relationship with Bitcoin
According to data from Cambridge University, Russia is currently the third most popular country for mining Bitcoin. It supplies approximately 11% of the global hash rate and is popular due to its oil resources and cold climate.
The recent sanctions targeted various companies, including BitRiver, which operates using hydroelectric power. It currently employs 200 full-time staff across three offices in Russia.
Despite its warning, the IMF still considered the magnitude of mining revenues to be “relatively contained”. All Bitcoin mining revenue last year averaged at $1.4 billion per month.