What Does Russia’s Overseas BTC Pools Mean?
Last week, the President of the Central Bank of Russia, Elvira Nabiullina, made a very important statement. She said that Russia is conducting experimental work to use cryptocurrencies in international payments. But more importantly, she said that they are working on a special permit that will allow state related organizations to mine abroad.
Russia has the space, cheap electricity, and workforce to establish mining facilities in its own country. In fact, in the first quarter of this year, they managed to rank second among the countries where the most BTC is mined. So why are they planning to set up these facilities abroad instead of in their own country at a much lower cost? After all, this mining is not a mining agreement made with poor countries where they say “you have the mine, and I have the technical infrastructure, let’s share the income.” It would be too naive to think that they are environmentally conscious. Let’s add one more question: why a special permit for state related organizations?
The importance of the statement related to mining is that it signals a BTC-based change in Russia’s insurance and guarantee in international trade.
Normally, when governments borrow or make large-scale commercial agreements, they insure these credits or trades with assets accepted by everyone, such as gold, government bonds, or “hard assets”. Especially when it comes to debt, many countries keep gold in financial centers like London or the United States, so that these gold reserves can be seized if they cannot repay their debt.
Of course, countries can also store these gold reserves domestically, but if their international reliability is not high, no one can be sure that the gold reserves will be sent to the lending country in case of a possible bankruptcy. Indeed, Russia’s situation is exactly in this direction. Moreover, the reliability of any country that falls out with the US or the EU is automatically undermined, and this situation can be politically exploited.
Russia’s decision to engage in BTC mining abroad means creating BTC-based asset pools in different countries. Let’s assume that a facility established in Country A has mined BTC worth $100 million over time and become an asset holder. The BTC held by this facility will enable insurance up to $100 million in trade between the country where the facility is located and Russia.
Let’s assume that these facilities are established in several countries at once. In other words, Russia will have BTC pools in many countries. Therefore, these countries will be new “trusted” centers created by Russia, just as gold is held in the US and the UK.
The US is already a suitable center for such an innovative transition. The US is by far the largest BTC producer. So if such an adaptation occurs, the US’s use of BTC miners in its country to control the market will be sufficient to maintain its current position of dominance through gold. By already beginning to create this competition in the field, Russia is also bringing the US into this playing field.
Forced Innovation
There is a high probability of BTC gaining a foothold in the insurance and guarantee sector because of its highly suitable structure. The reliability problem mentioned at the beginning of the article actually makes it unimportant which country Russia sets up its BTC pools in. As we know, one of the most fundamental functions in the cryptocurrency sector is the ability to transact without the need for parties to trust each other. Russia’s BTC facilities transmitting these guarantees to the counterparty via smart contracts will also remove obstacles for countries that want to trade with Russia but do not trust it.
(Although BTC’s own network is not very promising in terms of smart contracts, it is quite possible to achieve this with a system similar to WBTC.)
Australia is an ideal country to illustrate this topic. Australia has a kind of manifesto or whitepaper related to web3.0. In this report, it says that Australia is not a producing country like China and does not have such a competitive purpose. However, it is a country with a developed financial sector, a legal system that inspires trust, and large organizations and companies in the insurance and logistics sectors. Nevertheless, due to its geographical location, its dependence on both China and the US implies that Australia does not have the luxury of choosing one side, which may have a negative impact on Australia, regardless of which block loses in global competition.
It is stated that in order for Australia to maintain its dominance in the areas it is currently strong in, it needs to develop CBDCs and develop infrastructure for web3.0 technologies both technically and legally. The report is also important in showing how the East-West blocks have become interdependent due to globalization. Everyone now realizes that ignoring CBDCs can cost much more than developing them. It is only natural that a tokenized currency is backed by tokenized assets. Therefore, these BTC pools that Russia plans to establish not only cover BRICS countries but also mean an area that Western countries will be obliged to adapt to.
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The Russia-Ukraine war has triggered many painful tragedies as well as profound global changes. Unfortunately, we continue to see that chaos has always been the first step in transforming the existing order throughout history. This article is definitely not aimed at supporting Russia during the ongoing Ukraine war. The focus should be on how this change implemented by Russia is making BTC increasingly a ‘hard asset’ or a commodity/digital gold, which I believe is one of the biggest news we have seen recently.
