Tether, the issuer of the world’s most used stablecoin USDT, has invested in an unnamed bitcoin mining facility in Uruguay, according to a Tuesday announcement. This follows a breakout first quarter for the firm, which benefited from a U.S. banking crisis that damaged its principal competitor USDC, and a recent announcement the firm would start buying bitcoin as a treasury reserve asset. The mining facility is reportedly licensed in Uruguay but will not start operating later this year. In other news, the bitcoin mining difficulty, a measure of the amount of power needed to “solve” Bitcoin’s proof-of-work “puzzle,” is on track to set a new all-time high amid an unexpected adoption of bitcoin NFTs. The network automatically adjusts its mining difficulty depending on how much hashpower is dedicated to it, with an increase often resulting in a decline in profitability for miners.
Bridging Chains
On Monday, Bitcoin Miladys, the Bitcoin-based derivative of the popular Miladys NFT collection, introduced a new token standard that will allow users to bridge their Ethereum-based NFTs to Bitcoin. The so-called BRC-721E token standard was built in collaboration with Bitcoin-based Ordinals Market and Xverse wallet providers, and was named after Ethereum’s ERC-721 NFT type. The one-way bridge requires Ethereum NFT holders burn their tokens to “inscribe” them onto a satoshi on the Bitcoin network. Meanwhile, Ethereum scaling protocol Optimism is set to release some $587 million worth of its native token into the open market on Tuesday as part of a planned unlock plan. The move will more than double the current circulating supply of OP tokens, with some 386 million currently held by early contributors and investors. OP was trading down ahead of the unlock.
Digital Euro
The European Central Bank (ECB) has finalized prototypes for a central bank digital currency (CBDC) as it prepares to take a decision later this year over whether to develop the so-called digital euro for the trading bloc, according to reports published Friday. Curiously, the ECB seems to prefer a model based on unspent transaction outputs (UTXO) that are used on Bitcoin but not many other cryptocurrencies, and seems skeptical of Web3-style distributed ledger technology and smart contracts. The European Commission is due to publish a bill covering digital euro privacy safeguards and other major issues next month with many lawmakers expressing skepticism over a digital euro’s benefits, particularly if it doesn’t allow for innovations such as programmable money where users can control how funds are subsequently used.
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Another country is waffling on blockchain. Russia, the belligerent nation led by an egomaniac, has allegedly ditched plans to build a national cryptocurrency exchange, according to local reports surfaced to Crypto Twitter by Wu Blockchain’s Colin Wu. Instead, the country will write rules allowing the private sector to operate crypto exchanges, State Duma member Anatoly Aksakov reportedly said.
The plans for a government-operated crypto exchange appear to date back to 2022, around the time Russia President Vladimir Putin signed a bill banning digital asset payments in the country. At the time, the state’s legislature and central bank were locked in a debate over whether to regulate crypto or ban it outright (an option the Bank of Russia preferred).
Since then, the government in Russia has considered introducing an “experimental legal regime” opening the door for crypto to be used in export-import deals, and tasking “special organizations” with mining crypto and processing international crypto payments. The country has also come around on the idea of using stateless currencies like bitcoin and permissionless stablecoins to skirt international sanction.
In some sense, Russia scrapping plans for a national crypto exchange – which seems always to have been unspecific or at least difficult to search on this side of the splinternet – and potentially allowing tightly-watched companies to move in is a perfect encapsulation of the rampant cronyism that’s taken root since the collapse of the USSR. It’s also a tight bow on the country’s strange stance on crypto.
(For what it’s worth, English-language publications could be overstating whether Russia ever wanted a state-run crypto exchange or mistranslating the country’s previous plans to spin up a national agency to license and supervise crypto platforms.)
Is it surprising that an autocracy has a hot and cold approach to crypto, a suite of technologies that function to undercut middlemen and despots? Putin has imposed internal capital controls to backstop a weakened ruble, in part influencing his decision to ban crypto. At the same time, he’s looked to crypto in his attempts to project power overseas. Crypto, being ungovernable, is a double-edged sword for the country.
Only recently, apparently, did Russian leaders come to grasp that the use of crypto is basically inevitable and they’d be better off writing regulations than bans, as my colleague Anna Baydakova reported in April. This is especially true considering Russia has functionally been cut off from U.S. dollar-powered global economic infrastructure.
In fact, Oleg Ogienko of major Russian mining company BitRiver’s, lauded the finance ministry’s most recent move on the grounds that it would “minimize the risks of sanctions.” He added, funnily enough, private crypto exchanges would also “eliminate possible market monopolies” in a country known as much for its oligarchs as its vodka.
It still remains to be seen exactly which crypto exchanges will be allowed to operate, and what type of internal controls they would be required to follow. Izvestia reported the central bank would “probably” oversee these platforms (the Department of the Ministry of Finance for the Russian Federation might be another contender). It goes without saying Russian crypto exchanges would be exempt from interacting with U.S. citizens and much of the world.
Indeed, crypto occupies a curious place in the world of international politics. For years, Russian citizens have relied on stablecoins like tether (USDT) to move money in and out of the country. And yet, by and large, neither the U.S. nor EU have been all that concerned about crypto being used to avoid their economic blockades.
Crypto is undoubtedly, remarkably and increasingly useful for anyone around the world looking for a way to protect their wealth from volatile fiat currencies or government seizure. And yet, at the same time the industry does not pose much of a threat to the current order. Crypto has a penchant for over-promising and under-delivering – especially when it comes to disempowering The State.
The blockchain, instead, has become one of the most powerful financial forensic tools available to governments. Crypto is part of the reason why we have an approximation of how much North Korea earns from ransomware and internet attacks, and how U.S. investigators have tracked down digital era drug kingpins. Although crypto represents just a tiny fraction of global crime estimates, every crime committed that interacts with the blockchain becomes a potential honeypot.
More importantly, crypto’s success in empowering individuals is precisely why it is less of a threat in aggregate. If Russia ever really thought crypto would be used for mass evasion of capital controls, then the country failed to consider either the UX/UI issues that prevent countless people from fully integrating into the crypto economy, or how thoroughly on-ramps into crypto can be controlled. Crypto can be incredibly potent for good or bad actors looking to skirt oversight who know what they’re doing, but is essentially a worse version of Venmo for everyone else.
Crypto functions mostly as a symbol – one that borrows heavily from the U.S. highest ideals of personal liberty and sovereignty. And so it’s a sad day when Russia slowly liberalizes on the industry as the U.S. works to blot it out.
