Russia

Russia-Ukraine war: How both sides of the conflict have used crypto to win

While tens of millions worth of crypto were donated to Ukraine in the last year, pro-Kremlin groups have also leveraged digital currencies to buy military supplies and spread propaganda.

In the Russia-Ukraine war, both sides of the conflict have been leveraging cryptocurrencies to achieve the upper hand.

Pro-Ukraine causes have collected around $200 million from crypto donations, showing how borderless and uncensorable money could be useful in time of emergency.

But the Russian side has taken advantage of crypto too: a total of about $5 million was raised by pro-Kremlin groups and propaganda outlets in the course of the invasion, as revealed by a recent Chainalysis report. These entities are small grassroots organizations that have used crypto to bypass Western financial sanctions.

“We’re really looking at individual actors. So somebody who’s on the front, somebody who’s trying to help provide more military resources to the front […] things like bulletproof vests or drones,” explained Andrew Fierman, head of Sanctions Strategy at Chainalysis and one of the authors of the report.

But those numbers don’t take into account ransomware attacks: As shown in Chainalysis data, over $450 million were paid to these entities last year, the majority of which were believed to be based in Russia. Some of them, like the cybercriminal group Conti, have openly supported the Russian government in its war effort.

“When it comes to ransomware payments, a lot of the time bad actors have some sort of political agendas behind what they’re doing,” Fierman pointed out.

To find out more about the impact of crypto in the Ukrainian conflict and how Russia leveraged it to promote its cause, check out the full interview on our YouTube channel and don’t forget to subscribe!

Russian bank issues first on-chain bank guarantee in Chinese yuan

The transaction was performed through the Masterchain blockchain platform, which is the Russian national blockchain network.

Moscow Credit Bank has issued a blockchain-based bank guarantee denominated in Chinese currency, claiming that the product is the first in the country. The bank guarantee exceeds 100 million Chinese yuan — or nearly $144,600 at the time of publication.

According to a statement, the transaction was conducted through the Masterchain blockchain platform, the Russian national blockchain network created to transfer digital assets between participants.

The financial institution said one advantage of performing the transaction on-chain was that “the beneficiary does not need to wait for the paper version and make a separate request to the bank to confirm the authenticity of the issued document.”

A bank guarantee is a financial safeguard offered by a lending institution. Through a contractual agreement, a bank agrees to assume financial responsibility for a specific transaction if the customer fails to fulfill its obligations. Bank guarantees are commonly used in international trade transactions to ensure that payment is made or goods are delivered as promised.

On the Masterchain blockchain platform, a ready-made bank guarantee is displayed, which is agreed upon by three parties. “It cannot be faked or lost,” stated the bank. The yuan is the currency of the bank guarantee, as the importer’s contracts are pegged to Chinese currency. If a payment is made under the guarantee, the beneficiary will receive Russian rubles at the exchange rate agreed by the parties.

Natalya Bahova, director of the MCB’s International and Structured Finance Department, noted:

“Most foreign trade contracts are serviced in Chinese currency, and the demand for payments in yuan is only growing. This is a logical step for the market, we will see more examples of this in the near future. The decision will be especially relevant for large groups of companies that have many subsidiaries that accept bank guarantees in large quantities and on a regular basis.”

As part of the country’s ongoing crypto developments, Russia’s central bank is preparing to launch the first consumer pilot for its central bank digital currency (CBDC) on April 1, 2023. The digital ruble transactions will be conducted by 13 local banks and several merchants, Cointelegraph reported.

The CBDC pilot was initially scheduled for 2024 but was moved to an earlier date as the Russian central bank sought SWIFT alternatives in light of Western economic sanctions.

Ukraine-based blockchain firm reports company ‘stronger’ one year into war

Russian military forces invaded areas of Ukraine in February 2022, and workers at businesses including Everstake have faced life in shelters and the constant threat of shelling.

According to CEO Sergey Vasylchuk, staking provider Everstake is continuing to move forward despite the continuing military conflict between Ukraine and Russia.

Exactly one year ago today — Feb. 24, 2022 — Russian military forces invaded many areas of Ukraine in what has become one of the largest conflicts in modern Europe since World War II. In the last 12 months, more than 8,000 civilians have died, many Ukrainian cities have been shelled — with at least one almost leveled — and the country continues to be at risk of missile attacks and ground invasions.

Vasylchuk said that prior to Feb. 24, 2022, he had been making preparations to mitigate the risk to Everstake and its employees, but there were still months when many people based in Ukraine were not able to work for various reasons. The Everstake CEO said he felt responsible for the livelihood of around 300 people — roughly 100 workers and their families.

“This […] forced me — I’m the management — to move forward,” said Vasylchuk. “We act mostly instantly. […] We had a lot of help from partners, from other nations, from friends.”

Everstake helped launch the crypto donation platform Aid for Ukraine in March 2022, together with Ukrainian government officials, Kuna and crypto exchange FTX. The website reported more than $60 million in crypto and fiat contributions, going toward initiatives including military equipment, medical gear and humanitarian projects.

“Essentially, [these donations were] a small drop into the budget of what we currently need, but at least it was something,” said Vasylchuk. “Bottom line: Everstake became much stronger.”

According to the CEO, many of Everstake’s employees have continued to work from emergency shelters at various points throughout the last 12 months, facing noise from nearby explosions, loss of electrical power and adjusting to the new “normal”:

“Right now, I can’t imagine what would scare us, what things could challenge us, to impress us — like ‘this is a disaster.’ We definitely could be ready for anything right now.”

Amid attacks from Russian military forces and with a workforce spread across multiple countries, Everstake employees also faced online rumors and conspiracy theories — possibly promulgated by Russia’s propaganda machine — that its platform was used for politically motivated money laundering. Among the theories pushed on social media was one suggesting that Aid for Ukraine’s funds had been funneled to the United States Democratic Party due to the site’s association with FTX and its former CEO Sam Bankman-Fried’s political donations.

Though Vasylchuk described the algorithms leading to the online attacks as “very professional,” he added that he was still shocked that some people in the U.S. were duped into spreading the rumors. North Carolina Representative Madison Cawthorn mentioned the conspiracy theory to his thousands of Twitter followers, and some news outlets picked up on the story.

February 2020: USA is calling all Americans to leave Ukraine ☠️
February 2023: USA is sending the American President to Ukraine ‍♂️
What is going on?

— Sergey | Everstake (@sergattic) February 20, 2023

The Everstake CEO compared the “unlivable” conditions for many businesses in Ukraine to the Securities and Exchange Commission’s enforcement actions in the United States, citing the agency’s recent crackdown on Kraken’s staking program. Though many parts of Ukraine are still under Russian military occupation, U.S. President Joe Biden secretly traveled to Kyiv on Feb. 20 to visit Ukranian President Volodymyr Zelensky.

The fate of dollar-pegged stablecoins in question: Law Decoded, Feb. 13–20

The United States Securities and Exchange Commission (SEC) ordered Paxos Trust to stop issuing Binance USD. That could affect the whole stablecoins ecosystem.

New week, a new element of the crypto ecosystem is under attack. This time, the United States Securities and Exchange Commission (SEC) ordered Paxos Trust to stop issuing Binance USD (BUSD) — a dollar-pegged stablecoin. Paxos received a cease order from the New York Department of Financial Services (NYDFS).

With no other choice, Paxos announced that from Feb. 21, it would end its relationship with Binance for the branded U.S. dollar-pegged stablecoin BUSD. All existing BUSD tokens will remain fully backed and redeemable through Paxos Trust Company until “at least February 2024.” Customers can redeem their funds in U.S. dollars and convert their BUSD tokens to another Paxos-issued stablecoin, Pax Dollar (USDP). At the same time, the company “categorically disagreed” with the SEC’s opinion that BUSD is a security.

From disregarding the issue as “FUD” to calling it an attack against the Binance exchange, crypto community members laid down various theories on the allegations that BUSD is an unregistered security. Crypto analyst Miles Deutscher expressed the most obvious point of bewilderment — nobody expects profit when purchasing a stablecoin.

The situation may have far-reaching repercussions for the stablecoins in general. As Binance CEO Changpeng Zhao has already hinted, the industry may drop the American dollar as a peg currency altogether, switching to the euro, yen or Singapore dollar. However, some experts believe the scrutiny of Paxos was not a direct attack on stablecoins but preventive action against Paxos in particular.

SEC sues Do Kwon and Terraform Labs for fraud

The SEC has filed a lawsuit against Terraform Labs and its founder, Do Kwon, for allegedly “orchestrating a multi-billion-dollar crypto asset securities fraud.” According to the agency, Kwon and Terraform offered and sold an “inter-connected suite of crypto asset securities, many in unregistered transactions.” Kwon, a South-Korean national, is currently at large and believed to be in Serbia after leaving his residence in Singapore sometime in September 2022 following a Seoul court issuing an arrest warrant for him. Interpol reportedly issued a Red Notice for Kwon to law enforcement worldwide later in September.

Russia to roll out CBDC pilot with real consumers in April

The Bank of Russia is preparing to roll out the first consumer pilot for the nation’s central bank digital currency (CBDC) on April 1, 2023. The upcoming CBDC pilot will involve real operations and real consumers in Russia but will be limited to a certain number of transactions and customers. Following the first pilot stage, the Bank of Russia plans to determine how to scale the digital ruble further. The news comes amid some Russian officials claiming that the Bank of Russia is considering a gold-backed token targeting cross-border transactions.

Kansas state lawmakers look to cap crypto political donations at $100

The topic of campaign donations in crypto is undoubtedly something that will come up before the next electoral cycle in the United States. Still, Kansas state lawmakers are eager to address it beforehand. According to a new bill, no person would be allowed to make or accept crypto contributions of more than $100 for any political candidate in the state’s primary or general election. For donations under $100, the receiver would need to “immediately convert” the crypto to U.S. dollars, not use the crypto for expenditures and not hodl the funds.

Russia to roll out CBDC pilot with real consumers in April

Russia’s central bank is preparing to launch the first consumer pilot for the digital ruble in collaboration with 13 local banks.

The Bank of Russia is preparing to roll out the first consumer pilot for the nation’s central bank digital currency (CBDC) on April 1, 2023.

Russia’s central bank is set to soon debut the first real-world digital ruble transactions involving 13 local banks and several merchants, first deputy governor Olga Skorobogatova said.

The official noted that the upcoming CBDC pilot will involve real operations and real consumers in Russia but will be limited to a certain number of transactions and customers, the local news agency TASS reported.

“We plan to launch the digital ruble project on April 1, with transactions involving individual transfers as well as payments in trade and service enterprises,” Skorobogatova stated at the Ural Forum Cybersecurity in Finance. She added that the banks participating in the pilot have technically confirmed their readiness to start testing the digital ruble.

The deputy governor clarified that general customers would not be able to participate in the pilot in the first stage, as the banks will enter the pilot with chosen customers. Following the first pilot stage, the Bank of Russia plans to determine how to scale the digital ruble further, Skorobogatova stated.

*Bank of Russia’s first deputy governor Olga Skorobogatova. Source: Bank of Russia*

The latest announcement by Skorobogatova follows the roadmap for the digital ruble rollout that the central bank officially introduced in June 2022. Initially scheduled for 2024, the consumer CBDC pilot was moved to an earlier date as the Russian central bank was looking for an alternative to the SWIFT payments system amid Western economic sanctions against Russia.

The news comes amid some Russian officials claiming that the Bank of Russia is considering a potential gold-backed token targeting cross-border transactions. Bank of Russia’s first deputy governor Vladimir Chistyukhin believes that such a “golden token” will help Russia create a new attractive investment product and build a demanded payment method in international settlement.

Bitzlato co-founder released from brief arrest and questioning: Report

The co-founder of cryptocurrency exchange Bitzlato was briefly detained for questioning in Moscow at the request of Interpol, after which he was released.

Local Russian media outlets reported on Monday that Bitzlato co-founder Anton Shkurenko was detained in Moscow on Feb. 6 at the request of Interpol. However, according to a Feb. 10 report from CoinDesk, Shkurenko was stopped and detained by the local police for an identity check and released shortly after.

Shkurenko said he is not involved in any criminal cases in Russia, while not disclosing details of the investigation:

“I hope I convinced the prosecutor of my innocence.”

He did not specify the sector of law enforcement that detained him, though he mentioned he signed a contract to appear when and if requested by investigators. Shkurenko, therefore, received a no-detention warrant to skirt future arrests.

At the time of arrest, Shkurenko attests that he is a “tech consultant” for Bitzlato. However, he reportedly held the keys for the exchange’s crypto wallets, though they have since been handed over to other team members.

Bitzlato still has around 100 active employees despite the recent crackdowns from global authorities. Shkurenko told CoinDesk that a relaunch of the exchange, with a base in Russia, could happen in the near future.

“I could launch the exchange from my apartment.“

According to the co-founder, the team has held onto the majority of its users’ funds. Shkurenko said he could “quickly” resume operations.

This comes on the heels of a series of updates involving Bitzlato’s operational status. On Jan. 18, authorities in the United States took action against the exchange with accusations of money laundering and allegedly bypassing sanctions against Russia.

According to the U.S. Department of Justice, the exchange handled nearly $700 million of illicit funds.

As the investigation against the exchange continues, various prominent companies in the crypto space have been called out for connections with Bitzlato. One is Binance, named by the U.S. Financial Crimes Enforcement Network a major receiver of Bitcoin (BTC) from the exchange.

LocalBitcoins, another cryptocurrency platform, shut down on Feb. 9 and was also linked to Bitzlato as a big sender of BTC.

On Jan 23. Europol reported that it seized $19.5 million in crypto in an enforcement action against Bitzlato. A little over a week later, on Feb. 2, Spanish authorities detained the exchange’s CEO.

Russian government subsidizes crypto mining facility in Siberia

The facility, which opens this year, will possess 30,000 crypto mining machines, hire 100 workers and consume 100 megawatts from the power grid.

The crypto mining industry has faced moratoriums in some parts of the United States and Canada in recent months. Now, Russia provides tax incentives for those who want to invest in crypto mining. With the government’s direct support, the new $12 million crypto mining center will open in east Siberia.

According to local media, the state-owned Corporation for the Development of the Far East announced the launch of the crypto mining center in Buryatia — a republic in east Siberia and part of the Russian Federation.

The facility will possess 30,000 mining machines, hire 100 workers and consume 100 megawatts from the power grid. It will open in the first half of 2023 and be owned and run by BitRiver, Russia’s largest crypto mining colocation services supplier.

The mining center will enjoy a broad set of incentives, from zero land and property taxes to a lowered income tax rate. The electricity prices will be cut by half for the mining operator.

The government support can be explained by the legal status of Buryatia, which is a “territory of advanced development” — a special economic zone incentivized to attract national and foreign investments. The Corporation for the Development of the Far East is a subsidiary of the Ministry of the Development of the Far East and Arctics and specializes in supporting investment projects.

Since the outbreak of the war in Ukraine and the financial sanctions that followed it, the Russian government has reversed its anti-crypto position, particularly on mining. In July 2022, a state-owned gas giant Gazprom Neft entered into a partnership with BitRiver to provide it with electricity generated from petroleum gas. As part of the collaboration, BitRiver started developing a digital infrastructure in the oil fields where Gazprom provides flare gas for crypto mining facilities.

Russia’s Gazprombank recommends slow CBDC rollout fearing loss of income

Gazprombank, a subsidiary of a state-owned energy corporation, which participates in Russia’s CBDC initiative, fears losing a part of its income as the digital ruble replaces traditional fiat currency.

Gazprombank, a subsidiary of the leading Russian government-owned gas company, Gazprom, publicly proposed giving banks more time before implementing the digital ruble. The country’s central bank digital currency (CBDC) project has been accelerating due to global financial sanctions amid geopolitical tensions.

As reported by local media on Feb. 7, Gazprombank, one of the 15 banks participating in the CBDC pilot, issued a public statement with a suggestion to proceed with caution regarding traditional banks’ interests:

“It is imperative that banks take measures to mitigate potential losses. Hence, it is crucial to recognize the potential risks associated with the transition to a digital ruble and approach its implementation with caution, allowing the financial system sufficient time to adjust.“

However, the statement admits that the CBDC will help raise transparency across the Russian financial system and economy.

The Russian branch of McKinsey estimated the potential losses of traditional banks from the CBDC implementation at around $3.5 billion (250 billion rubles) in five years. At the same time, the consultancy firm estimated the retailers’ profit at $1.1 billion yearly.

The work on a CBDC in Russia started back in 2020. The digital rouble is currently being tested for settling with the banks and is expected to be completed this year. According to the Bank of Russia’s latest monetary policy update, the authority will begin to connect all banks and credit institutions to the digital rouble platform in 2024.

The Central Bank of Russia has also begun developing a cross-border settlement system using a CBDC. The country faced mounting financial and trade sanctions since the escalation of the Russo-Ukrainian war when it launched a full-scale invasion of Ukraine in late February 2022.

Russia’s Sberbank plans to launch DeFi platform on Ethereum

DeFi systems are able to displace the traditional market of banking services, Sber’s Blockchain Lab product director Konstantin Klimenko said.

Russia’s largest bank, Sberbank, is moving forward with the plan to launch its decentralized finance (DeFi) platform, preparing to trial the product in a few months.

Sberbank expects to launch open trials of its DeFi platform by May 2023, Sber’s Blockchain Lab product director Konstantin Klimenko announced, the local news agency Interfax reported on Feb. 3.

Currently being tested in private beta, Sberbank’s upcoming DeFi platform will be fully open by the end of April, enabling users to conduct the first commercial transactions, Klimenko said.

The executive noted that the blockchain platform will be compatible with the Ethereum blockchain, allowing customers to use major wallets, such as MetaMask, to move their assets. Klimenko also noted that users will be able to transfer their assets from other platforms.

The blockchain executive stated that Sberbank’s DeFi platform aims to become a prime DeFi ecosystem in Russia. He also expressed confidence that DeFi systems are able to displace the traditional market of banking services.

The announcement comes in line with Sberbank’s previously disclosed plans to enable DeFi applications on the bank’s infrastructure. In November 2022, Sberbank announced a set of new features for its proprietary blockchain platform, including compatibility with smart contracts and applications on the Ethereum network.

It appears to be unclear how the upcoming platform is going to be regulated because Russia is yet to come up with digital currency regulation. According to Anatoly Aksakov, the head of the Duma’s Committee on Financial Market, Russia will “definitely” adopt crypto regulations in 2023.

As previously reported, Sberbank was struggling to launch some blockchain tools over the past few years due to multiple delays of registration by the Russian central bank. Originally expecting to launch its digital asset issuance platform in 2021, Sberbank eventually received the Bank of Russia’s approval in spring 2022. The Russian government is the majority shareholder in Sberbank, holding 50% + 1 share.

On Feb. 2, Alfa Bank, one of the largest private banks in Russia, became the fourth financial institution in the country allowed to issue digital assets alongside Sberbank, the state-backed tokenization platform Atomyze and fintech company Lighthouse.

US Treasury lists BTC, ETH addresses tied to Russian sanctions evasion group

The government department said it would impose “full blocking sanctions” on Jonatan Zimenkov and his crypto addresses due to his connections with a sanctions evasion network.

The Office of Foreign Assets Control of the United States Department of the Treasury has added two cryptocurrency wallets allegedly connected to a Russian sanctions evasion network as part of its list of Specially Designated Nationals.

In a Feb. 1 announcement, OFAC said it had added one Bitcoin (BTC) address and one Ether (ETH) address to its list of sanctioned entities as part of a move to “methodically and intensively target sanctions evasion efforts around the globe.” Treasury said it would impose “full blocking sanctions” on 22 individuals, including Jonatan Zimenkov, a Russian national with access to at least one BTC wallet and one ETH wallet.

According to the U.S. Treasury, Jonatan is the son of arms dealer Igor Vladimirovich Zimenkov, who runs the sanctions evasion network. The group was allegedly behind supplying technology to a Russian company following the country’s invasion of Ukraine in February 2022, as well as supporting certain “sanctioned, state-owned Russian defense entities,” including Rosoboronexport and Rostec.

“Igor Zimenkov was designated pursuant to E.O. 14024 for operating or having operated in the defense and related materiel sector of the Russian Federation economy,” said OFAC. “Jonatan Zimenkov was also designated pursuant to E.O. 14024 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Igor Zimenkov.”

Treasury is taking more action as part of the U.S. strategy to methodically & intensively target Russia’s sanctions evasion efforts around the globe, and to make it harder & costlier for Russia’s military-industrial complex to re-supply Putin’s war machine.https://t.co/q7a6DIxhZg

— Deputy Secretary Wally Adeyemo (@TreasuryDepSec) February 1, 2023

The BTC address provided by Treasury showed no balance at the time of publication. The ETH address likewise contained no tokens but showed four transactions totaling roughly 5,463 ETH in early 2022 — more than $16 million at the time.

The U.S. Treasury seems to have stepped up efforts to include crypto wallets in its sanctions efforts. The government department effectively barred U.S. residents from using the controversial Tornado Cash mixer, an action that later prompted lawsuits from crypto advocacy groups and investors.