Bitcoin will help Russia’s international trade

Although the possibility of using cryptocurrencies in international settlements in the context of sanctions and a shutdown from SWIFT has been discussed for a long time (this topic began to be discussed long before these sanctions and shutdown actually took place, and many banks tested such opportunities), this seems to be the first practical implementation of the scheme work with cryptocurrency, and aimed at the end client – the importing company. However, the mechanism for making transactions in cryptocurrency, which the bank has chosen, is rather complicated. The first step is to agree with the supplier of goods that he is ready to accept cryptocurrency, and receive from him an invoice with the address of the electronic wallet to which the supplier is ready to accept this cryptocurrency. Next, you need to deposit coverage in fiat (recognized by the international monetary system) currency to the bank to buy cryptocurrency at the current rate. To carry out transactions, the bank uses an intermediary company that buys cryptocurrency in friendly countries and transfers it to a supplier who fulfills its obligations and sends the paid goods. The schemes of work between the bank and the intermediary company are not disclosed. At the same time, the participant in the transaction from the Russian side is required to undergo full authentication in accordance with international banking rules.

In this form, the scheme is indeed completely legal in the Russian legal field. Our citizens and organizations can buy and own digital assets, including cryptocurrencies, and are not prohibited from transacting with it outside the Russian Federation. But will this scheme be a popular and demanded banking service? Will other financial institutions follow the pioneer bank of cryptocurrency transfers? The question is open.

There are many problems with this approach. At the very first stage, the provider must be ready and able to accept cryptocurrency. And already here the questions are obvious. How many providers in the world are ready to work with crypto? Cryptocurrencies are not a very convenient way to store assets, with very controversial liquidity, which depends on trading volumes, which in turn depend on a significant number of external economic factors that are difficult to predict. Producers of the real sector of the economy for their daily activities need not crypto, but ordinary money. Most suppliers of raw materials do not accept any currency other than freely convertible, as do most consumers who pay not with crypto, but with national currencies. Although it is possible to quickly sell cryptocurrency for fiat money, the overhead costs are quite high.

In addition, cryptocurrencies are not a very convenient way to carry out transactions, with a very high volatility. The rate of bitcoin and ethereum constantly floats in relation to the main fiat currencies in a very wide range. So, on July 6, bitcoin cost 2.9 million rubles per unit, and on July 10 – already 2.7 million, that is, it fell by 200 thousand rubles. And this is not the limit: in the history of bitcoin, there were cases when it fell in price by half in a week. How to cover with such volatility? Working with transactions takes time in days and weeks – the course changes, unfortunately, faster. Having fixed the price in bitcoins, you can face the fact that at the time of the readiness for the transaction, the price of bitcoin will fall or double, which will make the transaction meaningless.

Of course, there are cryptocurrencies that are not as volatile as bitcoin and ethereum, such as tether, which is pegged to the dollar and is a “stable” crypto. But working with any “stable” cryptocurrencies faces another problem – the legality of the work of a Russian company in the legal field of foreign states. When working with a “stable” crypto pegged to the dollar or euro on legal Western foreign exchanges, companies are required to go through client identification procedures similar to banking ones. That is, no person affiliated with Russia and its citizens, due to the sanctions adopted today, most likely will not be able to pass such a test. Of course, there are exchanges in neutral countries that do not block accounts affiliated with Russia, but here another problem arises – secondary sanctions and sanctions for circumventing sanctions. Since the blockchains underlying cryptocurrencies are systems in which all transactions are always recorded, open and known, it is always possible to understand who paid where and for what.

Another point in the mechanism of the described cryptocurrency transfers that raises questions is how the intermediary company, receiving the currency coverage of the transaction in the Russian Federation, buys cryptocurrency in a friendly state for them. For such a purchase, you need to transfer rubles, dollars or euros to such a state, which is quite difficult in the absence of SWIFT and Russia’s disconnection from the international financial system. Banks even in friendly countries, fearing secondary sanctions, are not inclined to carry out currency transactions with Russian companies, especially if the purpose of such transfers is controversial schemes with the purchase of cryptocurrency. That is, roughly speaking, in order to carry out transactions with cryptocurrency to bypass the blocking of international money transfers, you still have to somehow make the same international money transfers.

The law on mining in Russia, which has long been considered by various authorities, but is still under discussion, could help us solve this paradox. Let’s imagine that this activity is allowed. Then domestic miners (organizations and individuals who “mine” bitcoins by solving a complex computational problem and confirm transactions in the blockchain) have the opportunity to sell cryptocurrency immediately for rubles to domestic companies, and the need to buy crypto in friendly states naturally disappears. Alas, the adoption of the law is still in question.

Of course, in theory, you can buy yuan in Russia, transfer them to China and buy bitcoins without an exchange, directly from miners, for subsequent transfer to suppliers. But this scheme is also controversial. Financial control in China is more than strict, the yuan is not a freely convertible currency, the international yuan is not equal to the domestic one, and mining in China since the fall of 2021 is an illegal activity.

In general, there are not many countries in the world that have legalized mining. Of the states friendly to Russia, in fact, only in Kazakhstan mining is legal and makes economic sense, and from the neutral ones, only the United Arab Emirates come to mind.

But let’s not guess about the scheme for buying cryptocurrency by intermediaries. Obviously, this is their know-how and competitive advantage. Let’s look at the essence of trading transactions for cryptocurrency from the other side. What and where can you buy with crypto? Alas, it is practically impossible to acquire goods from the USA and Europe that are interesting to Russians in this way. Most Western companies do not officially sell goods in the Russian Federation, especially sanctioned goods, which are controlled by supplies and track the entire chain of intermediaries. And parallel imports do not require the use of cryptocurrencies. The existing schemes of work through third countries and their currencies are quite working and do not cause problems for participants in international trade. Goods from friendly countries all the more do not require cryptocurrency transfers.

What, then, does it make sense to buy for a crypt and who is ready to accept it? The choice seems to be small – digital services and digital goods, ranging from hosting to virtual goods for games. Digital companies are generally willing to accept cryptocurrencies, digital goods and services are rarely sanctioned (with the possible exception of films and music), their delivery does not require logistics, they are pumped over the Internet. At the same time, the market for digital goods, according to various estimates, is from 20 to 50 billion dollars a year. There is something to compete for intermediaries, providing payment services!

Thus, despite all the questions and concerns, the banking service of cryptocurrency transfers can be, and most likely will be in demand. Its introduction into the Russian legal field is seen as a great success for our financial system.