Bitcoin and CBDC, Russia wants both

9:10 ▪ 6 min read ▪ by Nicolas T.

CBDC or Bitcoin. Or both? One thing is for sure, the Russian president is very interested in all alternative payment systems.

Digital ruble

The testing phase of the digital ruble is coming to an end. The Russian CBDC will soon become a full-fledged means of payment alongside cash and smart cards, Vladimir Putin announced on Wednesday.

At a government meeting on economic issues, the Russian president expressed satisfaction with the test phase. The goal now is to implement it on a larger scale.

“The pilot project of the digital ruble has proven to be functional and effective. Now we need to move to the next stage, which is a broader and larger-scale implementation of the digital ruble in the economy, in business activities and in the financial sphere,” the president suggested.

The idea of ​​introducing a national digital currency was unveiled by the Bank of Russia at the end of 2020. The test phase began on August 1. Its goal is to facilitate national, and especially international, payments. It aims to bypass the SWIFT network, from which Russia has been disconnected since the beginning of the war in Ukraine.

“This is actually another form of our national currency. The peculiarity is that citizens and businesses can use the digital ruble regardless of the bank in which they have an account,” Putin stressed.

The test has so far involved only 600 individuals and 22 companies in 11 Russian cities. It will be difficult to attract the masses. For two reasons. The first is that it will not be possible to borrow in digital rubleSecond, it will not be possible to earn interest on deposits.

A ruble for international use?

Given these limitations, there is a good chance that this CBDC will be used primarily for international payments. Tests have already been conducted with a number of foreign partners, Russian Central Bank Deputy Chair Olga Skorobogatova told reporters. TASS agency earlier this month.

Central Bank Governor Elvira Nabiullina suggested in April that full adoption of the digital ruble for mass use could take 5-7 years.

“This will be a natural process because the choice of citizens and businesses is fundamental: it must suit them,” she told the RIA Novosti news agency.

China appears to be about to complete five years of eCNY testing. Indeed, the “pilot” (prototype) designation has just disappeared from applications.

And while only 34,000 transfers and payments were made in digital rubles, eCNY facilitated 950 million transactions in 2023. However, this remains a drop in the ocean compared to the 542 billion transactions made through traditional payment systems (0.0017%).

It remains to be seen whether conversion rates will be advantageous with these CBDCs. The fact that we have no information on this suggests that they are not. Only large transaction volumes will be able to remedy this.

All this raises many questions:

• What technology is used? A blockchain without proof of work?
• What is the platform for connecting with CBDCs of other nations? Mbridge?

Will BRICS make an announcement at the Kazan summit in October?

What about Bitcoin?

Vladimir Putin has angered some bitcoiners with his logical rebuke of bitcoin miners.

Vladimir Putin warned that cryptocurrency mining could lead to major electricity shortages in some regions of the country:

“Uncontrolled consumption of electricity for cryptocurrency production could lead to power shortages in some regions. We can already see this in the Irkutsk region near Lake Baikal.”

Russia is indeed a heavyweight in the bitcoin industry. Analyst Jaran Mellerud estimates that 40% of the hash rate comes from the United States, 15% from China and 12% from Russia.

The Russian president revealed that “almost 1.5% of the total electricity consumption” is used by bitcoin miners. This is about 17.6 TWh. This gives us in effect 12% of the 146 TWh consumed by the bitcoin network according to figures from the University of Cambridge.

A bill on the bitcoin industry will be considered on July 25. Miners will likely have to declare the extent of their facilities and comply with limitations aimed at avoiding outages.

However, there is another point in the law that may prove unpopular. Only international payments in bitcoins are to be allowed. The law plans to ban payments on Russian territory.

Why so much fear? Bitcoin is not competitive with Mastercard, Mir or Visa anyway. Conversion and transaction fees are too high. It can only be a relatively marginal means of payment.

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Nicolas T.

Bitcoin, geopolitical, economic and energy journalist.

DISCLAIMER

The views, thoughts and opinions expressed in this article are solely those of the author and should not be considered investment advice. Do your own research before making any investment decision.

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