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Russian Bitcoin Addresses Linked To Arms Exports Blacklisted By US Treasury

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Cryptocurrencies such as Bitcoin and Ethereum have been gaining popularity and adoption on a global scale. The decentralized structure of cryptocurrencies has advantages, but it may also be exploited by criminals for illegal purposes.

Since Russia began a war with Ukraine, a number of sanctions have been put in place. Cryptocurrencies, however, were employed as a workaround to get around these restrictions. The Office of Foreign Assets Control has blacklisted a Bitcoin and Ethereum address connected to the circumvention of sanctions, according to the most recent information from a press statement by the US Department of Treasury.

Igor Zimenkov and his son have been linked to a large group of people and organizations who reportedly attempted to sell military and defense supplies to governments in other countries, according to OFAC.

The information revealed a connection between Jonatan Zimenkov’s two residences and both his father and Rosoboroneksport OAO. The organization that acts as a middleman for Russia’s arms shipments is Rosoboroneksport OAO.

The press release states,

“As part of these efforts, Igor and Jonatan Zimenkov both had direct correspondence with sanctioned Russian defense firms. They have additionally been involved in multiple deals for Russian cybersecurity and helicopter sales abroad and have engaged directly with Rosoboroneksport’s potential clients to enable sales of Russian defense materiel.”

Bitcoin Mining Sector Impacted By Electricity Crisis

As reported by TWJ, according to a recent report from the Hashrate Index, the global energy crisis in 2022 will have an influence on the Bitcoin mining market. Some of the biggest businesses in the sector, including Core Scientific, were on the verge of bankruptcy due to soaring electricity expenses and falling Bitcoin prices.

The paper claims that one of the main factors contributing to the energy crisis and accompanying escalation in electricity prices is a major mismatch between natural gas supply and demand. Due to its flexibility, natural gas is a vital source of energy for the electricity markets and can adapt to increases in demand.

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The study also found a link between a state’s power generation mix and how its rates will change in 2022. The worst electricity price hikes were avoided in hydro-rich states like Washington, Oregon, Idaho, and Montana, whereas price increases were greater in states that were predominantly fueled by natural gas.

The research also highlights how critical it is to guarantee a low, long-term electricity price for the mining industry, whether through long-term physical or financial hedging or by gaining access to hydropower that has been left stranded.

Here’s How Cryptocurrency Miners In Russia Are Capitalizing On The Bear Market

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The continuing cryptocurrency mining problem doesn’t seem to be bothering Russian cryptocurrency miners, since local demand for mining equipment is said to have increased in Q4 2022.

According to local news outlet Kommersant, several Russian suppliers of crypto mining hardware have experienced a sharp increase in demand for application-specific integrated circuit (ASIC) chips made specifically for mining.

Local dealer Chilkoot claimed that their ASIC sales in November and October were greater than all of its sales for the third quarter. The distributor reportedly sold 65% more hardware in the last nine months than in 2021.

Chilkoot development manager Artem Eremin said,

“We are working with legal entities, and we see that they began to buy 30% more equipment in one transaction than at the beginning of the year.”

The demand for crypto mining services has reportedly grown by 150% over the last 10 months at BitRiver, Russia’s largest data center facility.

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Russia is reportedly experiencing a surge in demand for cryptocurrency mining equipment at a time when the mining sector is struggling; in late November, total Bitcoin mining revenue fell to two-year lows. Due to the significant losses brought on by the current bear market in cryptocurrencies, several mining companies, like Argo Blockchain and Core Scientific, have even questioned if they would be able to continue operations.

Russian Miners Stockpiling Cryptocurrency ASICs

Russian miners are likely stockpiling more crypto ASICs as a result of the country’s cheap energy and lower prices for mining equipment.

Despite a sharp decline in the price of bitcoin this year, 51ASIC co-founder Mikhail Brezhnev allegedly stated that mining Bitcoin in Russia can still be viable. The executive claims that mining 1 BTC with the most up-to-date equipment may produce about $11,000 at an electricity cost of $0,07 per 1 kilowatt-hour. According to data from CoinGecko, Bitcoin is currently trading at $16,975, down around 70% over the previous year.

According to Vladislav Antonov, a financial analyst for BitRiver, the current market environment has been advantageous for the Russian industrial cryptocurrency mining business. He pointed out that a decline in purchasing prices, which have gotten as near as feasible to the cost of manufacture, stimulated demand for ASIC equipment in the wholesale market. According to reports, the expert suggested that was the ideal place to start investing.

A mining entry during a bear market, in Antonov’s estimation, may be able to produce “substantial profit of tens of percent” over the course of three years.

Kraken Bans Russian Clients To Comply With The Latest EU Sanctions

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Kraken, a leading US-based crypto exchange initially refused requests to block the digital wallet addresses of Russian users following the invasion of Ukraine, has now decided to reverse its policy to comply with EU sanctions.

Once admired for upholding cryptocurrency’s libertarian values, the trading firms send emails announcing it would suspend accounts of Russian clients on its platform, without providing any deadline for funds withdrawal.

Kraken in an email statement wrote,

Due to the new European legislation, we have to take measures to restrict your Kraken account. Russian users would be able to withdraw their funds by request. We will update our support center if there are any changes. We apologize for the inconvenience caused.

On 6th Oct, the EU unleashed the eighth package of hard-hitting sanctions against Russia for its continued aggression against Ukraine by banning all crypto-asset wallets, accounts, or custody services, irrespective of the amount of the wallet [earlier up to €10,000 was allowed].

While some crypto firms have quickly reacted and already suspended operations with Russian accounts, a number of others have continued to operate as usual. Among those are Binance, Coinbase, FTX, etc.

With Kraken forced to abandon its earlier stance, more crypto firms may soon join the list if the war worsens.

A month ago, the San Francisco exchange announced that its outspoken co-founder Jesse Powell would step down and that Dave Ripley, Kraken’s Chief Operating Officer, will take over the CEO role after the firm hires a new COO.

Kraken’s New CEO Eyeing M&A In This “Bankruptcy Environment”

The announcement came amidst the growing feud with regulators like SEC which has been probing Coinbase for listing several tokens on its platform, since the July insider trading lawsuit.

On the other hand, Kraken’s newly appointed Chief Operating Officer Ripley made it clear that it has no plans to remove those tokens from its exchange, despite demands from Sec Chair Gary Gensler for crypto platforms to register.

Besides, Ripley said his firm is looking for new opportunities for mergers & acquisitions in this bear market.

“To the extent that there are opportunities for M&A in this environment, and perhaps if it’s a company that is actually going through a bankruptcy process, then that’s a potential for us to consider for sure,” stated Ripley, adding the company has not made any moves yet.

Tornado Cash’s developer turns out to be ex-employee of Russia’s Security agency

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The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury placed sanctions on the virtual currency mixer Tornado Cash earlier this month after discovering that it had been used to launder virtual money.

For the crypto-verse, the past few months have been more than just dramatic. The beginning of the bear market, the demise of Terra, the numerous bankruptcy filings, and the removal and detention of Alexey Pertsev, the creator of the cryptocurrency mixer Tornado Cash.

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Alexey Pertsev, Tornado Cash developer

The majority of the crypto sector was outraged by this episode. Many pointed out that while Pertsev was arrested for only supporting decentralization, the developers behind fraudulent enterprises were still free to operate. Centralized systems were criticized by the crypto community as being unprepared for the degree of decentralization they offered. But it now appears that there was a much more significant motive for the arrest.

According to a recent study compiled by the intelligence agency Kharon, Pertsev had previously worked for a business connected to the Russian security agency FSB. It should be mentioned that Tornado Cash runs on software created by PepperSec, a company registered in Delaware.

Nick Grothaus, vice president of research at Kharon, commented on the issue as follows,

“You had this guy working for [Digital Security OOO] and doing pen testing himself, and then Treasury designated the company for helping the FSB’s hacking capabilities.”

It should be mentioned that this year saw the highest utilization of crypto mixers ever. Russian cybercriminal groups sent exceptionally large sums of money to mixers.

Tornado cash credibility in question

As was already mentioned, the arrest appeared to involve much more than just an open-source platform. The Center for a New American Security’s adjunct senior fellow Alex Zerden made the following observation regarding the same,

“This opens up a lot of credibility issues for the developers of Tornado Cash. This is pretty profound information that informs why the U.S. government and Dutch authorities have taken certain actions. There seems to be a more complex and complicated picture that takes more time to unravel.”

The public has been outraged by Pertsev’s detention. According to reports, protesters gathered in Amsterdam to call for the Tornado Cash developer’s release. Several people continued to shout, “Open source [code] is not a crime.” Pertsev’s connection to Russia, as Zerden said, may lead to greater opportunities in the case.

Russia’s Sberbank Carry Out First Crypto Transaction On Its Platform

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Russia’s major lender Sberbank announced that it has initiated the first digital financial asset transaction on its own platform, with its subsidiary SberFactoring executing a 1-billion rouble [$16 million] issue with a three-month maturity.

Sberbank’s platform will soon be available to all the bank’s corporate clients, it said.

In early 2022, the lender was forced to withdraw from the European markets due to sanctions imposed by the US and its allies over the invasion of Ukraine.

The sanctions were meant to arrest cash outflows from Russian industries and its Europe-based units.

The country’s largest retail bank which received its license in March said in a statement that “digital assets are issued on its platform using blockchain technology and smart contracts”.

Notably, the permit was granted just two months after the Russian central bank had advocated a complete ban on trading, mining and using digital assets.

A long-time crypto skeptic, The Bank of Russia has warmed up to accommodate other digital assets and gave blockchain platform Atomyze Russia its first license to exchange cryptocurrencies.

Meanwhile, on the legislative front, Russia is working towards improving its monitoring of cryptocurrency transactions and will introduce regulation of the industry later this year, officials said this week. 

Crypto draft regulation will be put in Russia’s lower house during Autumn

Anatoly Aksakov, head of the finance committee in Russia’s lower house of parliament, recently said draft legislation on regulating cryptocurrencies would be introduced in the house by autumn.

Aksakov also expects a cryptocurrency mining law to be brought soon, an area the government is mulling tax.

On 8 July, its financial monitoring agency, Rosfinmonitoring, revealed that it was tracking cryptocurrency transactions using the software as Moscow grapples to counter the frenzy that has gripped the nation with what one lawmaker remarked “cryptomania”.

Besides that, the nation has already identified specific criminal cases involving cryptocurrencies, said Rosfinmonitoring’s head Yuri Chikhanchin, adding that the agency wants to improve its capabilities and identify transactions and blockchains that are currently hidden.

Chikhanchin however stated that it is not currently possible to cover everything, partly because not all nations are eager to regulate the industry.

Russia’s Crypto Regulation is Advancing But There is a Catch

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Russia’s Ministry of Finance is heading closer to finalizing the bill on the mining and circulation of digital assets. As per coverage by Kommersant, the bill contains a comprehensive regulatory framework and for the first time dealt with the mining aspect, at length. 

Kommersant revealed that the current version of the draft law of the Ministry of Finance “On digital currency”, prescribes the rules for trading and mining for such assets. The authenticity of the document was confirmed by two Kommersant sources close to the industry. The Ministry of Finance did not immediately provide a comment.

Coming back to its contents, the draft established a number of aspects such as the terminology associated with digital currency, the legal framework for its circulation, issues, and so forth. Additionally, the document introduces a large number of stringent requirements for identification, accounting, and certification.

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Russia's Crypto Regulation is Advancing But There is a Catch 5

Russia’s crypto bill might drive investors to the black market

Sources close to the industry sought to dispel the fear by saying that these requirements will not affect operations with cryptocurrency outside the Russian information infrastructure. However, Sergei Mendeleev, CEO of InDeFi Smart Bank raised questions about the interpretation of the latter aspect.

Citing an example of the tether website which states that “it does not have an obligated person, but Russian law enforcers believe that it is Tether LTD”.

Apart from that, the document allows only domestic legal entities to carry out the role of both operators. Foreign crypto exchanges, in order to obtain a license to operate in the Russian Federation, must create a business entity.

While many experts hailed the move, believing that the document would provide new opportunities for miners, looking for a way out of “the gray zone,” others, however, feel that this would instead push investors to the black market.

The concerns raised are valid to a certain extent as Russia is known for its high-profile illegal market which has hogged the limelight owing to the current geopolitical situation.

Last week, TronWeekly reported on how Russia’s most dreaded darknet market- Hydra, and a cryptocurrency exchange Garantex have come under US sanctions for their alleged role in ransomware activities. The US Treasury Dept teamed up with the FBI, and German Federal Criminal Police to shut down several Hydra servers in Germany, seizing $25 million worth of bitcoin.

Russia’s biggest darknet and crypto exchange suffers a major blow

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Russia’s most feared darknet market- Hydra and a cryptocurrency exchange Garantex are soon to be sanctioned by the United States Department of the Treasury’s Office of Foreign Assets Control for their alleged association with ransomware activities, as per an announcement.

In a press release published on the Treasury Department’s website, Secretary Janet Yellen said, the move against Hydra and Garantex would serve as a reminder to criminals that they can no longer hide on the darknet or their forums.

The U.S. government agency alleged Garantex in particular, saying that it had “willfully disregarded” Anti-Money Laundering and Combating the Financing of Terrorism requirements imposed by many regulators on digital currency exchanges. It further accused that the firm was run by individuals who showed “wanton disregard for regulations and compliance.”

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It is to be noted that cybercriminals allegedly linked to Russia are notoriously reputed for their several high-profile attacks around the world. Data from blockchain researchers confirmed that roughly 86% of illicit bitcoin received directly by Russian crypto exchanges in 2019 were traced back to Hydra, which the Treasury Department described as the world’s “largest and most prominent darknet market.”

Additionally, the new sanctions would prevent U.S. citizens from making or receiving “any contribution or provision of funds, goods, or services” to Hydra or Garantex, the Treasury said.

The US dismantle Russia’s largest darknet

The department said the sanctions, which prohibit U.S. transactions with Hydra and Garantex and seek to freeze any assets they may have under U.S. jurisdiction, are part of a global effort to disrupt the overall structure of malicious cybercrime services, drugs, and other illegal offerings, including ransomware activity, that arise out of Russia.

The Treasury worked in tandem with the U.S. Department of Justice, the FBI, and the German Federal Criminal Police, in shutting down several Hydra servers in Germany and seizing $25 million worth of bitcoin.

In September 2021, The U.S Treasury Department had imposed sanctions on Russia-based business Suex OTC for its alleged role in facilitating transactions for ransomware attacks. Since then agencies from the FBI to the Justice Department have been extra vigilant and set up task forces to enforce and investigate malicious actors using cryptocurrencies for illegal activities.

Sbercoin, Russia’s largest bank trills out its cryptocurrency

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Following the invasion of Ukraine, Russia’s largest bank, Sberbank, launched its own native cryptocurrency, the Sbercoin.

Russia has been battered by a barrage of sanctions since its invasion of Ukraine. It was eventually cut off from the majority of its foreign currency reserves as well as the global financial system. In the midst of it all, Russia’s largest bank, according to local media, announced the launch of a cryptocurrency.

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Sberbank Europe AG, headquartered in Austria 

On March 17, the Russian Federation’s Central Bank granted Sberbank a license to issue and exchange digital financial assets. Sberbank was placed on the central bank’s register, along with financial ecosystem Lighthouse, permitting both companies to issue and trade digital assets on their platforms.

However, Sbercoin was reportedly introduced on the same day by Russia’s largest bank, according to media sources. Sbercoin’s introduction, according to some industry observers, could be a mechanism to trade rubles for other currencies without avoiding Western sanctions.

Sberbank announced that it would use blockchain technology to maintain the security of digital transactions, allowing firms to develop their own digital assets, buy Sberbank’s, and conduct other transactions. Sberbank CEO German Gref stated in late 2020 that the bank was working with JP Morgan on the development of its own cryptocurrency, Sbercoin, which has yet to go live.

Sbercoin, a savior in disguise

Since the conflict, Russia has struggled to pay its dollar-denominated obligations. Some believe sbercoin will be utilised to circumvent the restrictions. However, Asheesh Birla, the general manager of RippleNet, believes that this idea is debatable. In an interview with Markets Insider, the CEO of the blockchain-based payments service provider remarked,

“It’s going to be super-problematic for them to get much traction here because they also need a liquid exchange that is going to take the Russian ruble.”

On March 17, Sbercoin started trading at $0.0003617, with a 24-hour trading volume of $948,000. According to data from CoinMarketCap, the coin, which is traded on Pancakeswap, has dropped 30.94 percent to $0.00006707 in the last 24 hours.

Russia’s Biggest Bank Rolls Out Its Native Cryptocurrency

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Russia’s biggest lender Sberbank has launched its own cryptocurrency-Sbercoin [SBER] in an effort to steer its struggling economy that has been badly beaten down by a host of sanctions since its war with Ukraine. The move reflects the nation’s struggle to meet dollar-denominated debt obligations,

In early March, trading in Sberbank came to a halt in London after its shares plummeted 95%, leading to its closure. But a few weeks later, on March 17, the Russian central bank allowed Sberbank a license to issue its own cryptocurrency, according to media reports. That led to the launch of sbercoin the same day.

A person walks by Sberbank HQ in downtown Moscow

The news of the launch was met with skepticism as one expert questioned the feasibility of the project. Asheesh Birla, general manager at blockchain-based payments service provider RippleNet said,

“It’s going to be super-problematic for them to get much traction here because they also need a liquid exchange that is going to take the Russian ruble.” Birla pointed out that while Sberbank can launch a cryptocurrency, it might not help move cash in and out of the country.

The idea for a Sberbank-issued cryptocurrency was first put forward in 2020 when the banking firm began experimenting with blockchain technology. Its CEO Herman Gref said at the time the bank could look at issuing sbercoin in 2021, a local news site reported.

Russia on a Panic Mode

The US and its allies worked together to ban Russia from using SWIFT, a global communications service that oversees international financial transactions, effectively shutting it out of international trade.

Following that the nation now demands payment in its currency the ruble for natural gas exports. Another Russian lawmaker has suggested buyers from countries friendly to Russia could pay in their own fiat currencies — or in bitcoin.

The sanctioned hit country has also begun looking out for safe havens elsewhere. In an earlier report by TronWeekly, several crypto exchanges have received a ton of requests from individuals based in Russia seeking protection for their fortunes. Some clients are reportedly resorting to investing in real estate in the UAE through crypto while others want to convert it into fiat and stash it elsewhere. 

Japan Tightens Forex Norms To Block Russia’s Crypto Escape Route

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Japan is currently working to revise its foreign exchange law to prevent Russia from circumventing Western financial sanctions through cryptocurrency assets, top government officials announced on 28 March.

Hirokazu Matsuno who is the Chief Cabinet Secretary revealed in a press conference that a revised draft of the Foreign Exchange and Foreign Trade Act would be submitted in the ongoing parliament session.

Even the country’s premier Fumio Kishida voiced his support for the law to be amended in a Monday parliament session, where he stressed the need for coordinated moves with Western allies after attending last week’s Group of Seven summit in Belgium.

A finance ministry official told Reuters that discussions are currently in progress about the proposed amendment, but refused to divulge any further details.

Japan's new Chief of Cabinet Secretary Matsuno Hirokazu announces new cabinet members, in Tokyo

Attempting to provide some clarity, Saisuke Sakai, senior economist at Mizuho Research and Technologies said, The revision “presumably enables the government to apply the law to crypto-asset exchanges like banks and oblige them to scrutinize whether their clients are Russian sanction targets.”

Japan has joined its western allies in slapping sanctions

Following the invasion of Ukraine, the Japanese government has imposed asset-freeze sanctions on more than 100 Russian officials, oligarchs, banks, and other institutions. It has also banned high-tech exports and revoked the most-favored-nation trade status for Russia, which calls its actions in Ukraine a “special military operation”.

Japan, a key US ally has been working in tandem with other nations, calling for stricter action on Russia. After G7 raised concerns in a written statement a few weeks ago, Japan immediately urged its crypto exchanges to not process transactions involving digital-assets subject to asset-freeze sanctions against Russia and Belarus.

The East Asian trading platforms which are among the most tightly regulated exchanges in the world grabbed headlines recently when they complied to implement Financial Action Task Force [FATF]’s Travel Rule on April 1. The Travel Rule essentially requires platforms to get rid of anonymity in crypto transactions in an effort to fight money laundering.

As per Japan’s regulator, the Financial Services Agency, the travel rule will improve transparency on the individuals and entities crypto exchanges deal with, as the government seeks to prevent sanctions-busting efforts.