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Sanctions target Russian cryptocurrency mining

Posted on 21 April 2022

The US Office of Foreign Assets Control (OFAC) has added Bitriver, the Russian cryptocurrency mining company and its subsidiaries to its sanctions list.

This is the first time a mining crypto company has been sanctioned, although further sanctions may occur in this space as the war in Ukraine continues.

Mining is the process by which new transactions are added to public blockchains such as Bitcoin or Ethereum. Miners earn rewards in the relevant cryptocurrency for mining blocks. It requires large amounts of computing and therefore electrical power. Bitriver did not conduct mining itself but provided space, power and other services such as maintenance.

The timing of these sanctions is interesting as Bitriver is currently pre-selling their own crypto token (BTR) which was expected to be more widely traded on Friday. The token sale was to find further development of mining farms in Siberia and targeted buyers globally hoping to raise $35 million.

The sanctions target Bitriver's predominantly Russian business operations, even though it is held via a Swiss holding company, Bitriver AG.

Bitriver is one of the largest mining companies in Russia. Founded in 2017, it provided hosting for mining equipment and targeted institutional investors for financing. It has a partnership with Russian energy and resources business EN+ who is also previously sanctioned. 

The demand for large amounts of electricity and the need to dissipate the resulting heat from major computing limit the regions of the world suitable for mining. The US Treasury highlighted Russia's comparative advantages in mining crypto due to energy resources and a cold climate. Russia is the third biggest mining location after the US and Kazakhstan according to research by the University of Cambridge

Crypto mining companies in Russia will also rely on relatively high-tech imported equipment and fiat payments, which could make them vulnerable. It is likely though that operations will continue as much of the required equipment is likely imported from China.

This may be a turning point for the Russian government's attitude to crypto mining. Prior to the war in Ukraine, reports suggested that mining could face a ban or higher electricity tariffs, although this could change given the wider sanctions miners now face.

Our teams are able to advise on compliance matters associated with crypto transactions and sanctions regulations

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