Between 20% and 30% of those who own a cryptocurrency, Bitcoin or others, are located in Russia or are Russian speakers. According to the RowIT statistics service, Russia holds a firm second place, after the US, in the number of nodes connected to the web.
Confirming Bitcoin’s popularity among Russians is the fact that WebMoney, one of the three leading Russian e-currencies that operate internationally, has created the special WMX wallet, for which the unit measurement is a Bitcoin equivalent.
Russia’s role in the development of cryptocurrencies goes even further. The BTC-e exchange was set up by Russians, as is well known, and it was intended mainly for Russian speakers. It is now the largest exchange operating with Russian RUB.
A number of alternative cryptocurrencies, such as Copperlark and Novacoin, that complement Bitcoin conceptually in some original way, have been developed by Russian programmers. It should be noted that the development of internet software, especially when it is open code, is always extraterritorial, and many Russian-speaking developers who live outside Russia are part of the Bitcoin community. The founders of companies like Bitfury, which has made such a splash, and promising tech startups like Ethereum, are Russian speakers.
Why cryptocurrencies are so popular in Russia
Cryptocurrencies’ popularity in Russia can be explained by several factors. The first is the country’s traditional strength in programming and disciplines like discrete mathematics and computational mathematics. Second, the government’s increasing desire to control all aspects of e-money circulation gives rise to an increasing desire among innovators and enthusiasts to develop alternative, decentralized technology.
Internet users in Russia have always used a wide range of alternatives to bank cards: electronic wallets, payment through mobile operators, via cash-in kiosks and ATM terminals, etc. So innovative means of payment in general are more likely to find users in Russia than in countries where people traditionally only use cards for electronic payment. This also explains Bitcoin’s current popularity in Russia – and will fuel further growth unless the government bans it.
Who is the Russian Bitcoin community
Russian Bitcoin users can be divided into two groups. First, there are the professionals: developers, miners and private investors. There are numerous cases of early miners, who obtained a significant amount of Bitcoin comparatively cheaply, becoming so-called ‘second-wave’ investors. Traders make up a smaller share.
The second group consists of ordinary users, who are interested in the latest web technology and its applications in their daily lives. There are a number of Russian news publications devoted to cryptocurrencies, and the Russian section of the Bitcoin community forum is one of the most active.
Government wavering
Although there have been statements made by Central Bank representatives and the Prosecutor General’s Office about the risks and undesirability of cryptocurrency use, there are no formal legal limitations on it in Russia right now.
Unfortunately, it is not ruled out that the government could move toward banning transactions with cryptocurrency and even ban mining, suggesting that it is the equivalent of creating ‘monetary substitutes’. Recent statements by Russian Deputy Finance Minister Alexei Moiseev about the upcoming passage of a law to that effect are indicative.
Meanwhile, high-ranking Central Bank representatives have taken a different position, at least this summer. First Deputy Chairman of the Russian Central Bank Georgy Luntovsky said at the beginning of July, “We mustn’t reject this instrument. It may have a future.”
Also indicative is the discussion of decentralized systems going on in Russian political and banking circles lately. This includes block-chain technologies as an alternative to traditional centralized interbank and interstate settlement systems, since block-chain technologies are not liable to sanction or hostile unilateral action from the controlling side.
This gives reason to think that, after denying it for a while, the government will likely change its attitude toward decentralized cryptocurrencies.
Trends and prospects
The popularity of cryptocurrencies is growing, as is the number of their users. Internet stores are extremely interested in accepting cryptocurrencies, but they have little understanding of it and suffer from a lack of convenient software.
Of course, much depends on legislation, but we think that scientific progress cannot be stopped by any bans. (Cryptocurrency and network computing in general are huge recent breakthroughs.) Technological potential will build up and rise to the surface the first chance it gets.
Considering that Bitcoin emission is high and will not continue at this rapid pace, service providers, which engage in exchanging, trading, processing payments, storage, insurance and so on for cryptocurrency owners, have a promising future.
Russia has a unique mix of top-notch programmers working on cryptocurrency and a significant number of miners ready to produce any cryptocurrency. This creates excellent prospects for starting new ‘coins’. No doubt the Bitcoin protocol is only the beginning – the starting point – that, thanks to open sourcing, will inspire new technology and attract new minds. Maybe the currency of the future won’t be Bitcoin as we know it, but Bitcoin will set the tone for many years to come with Russia playing an important role in these developments.
- Vladimir Grankin is Chairman of the Board at Ocean Bank and a partner at Ocean Ventures. With more than 15 years of experience, he has become an active figure of the Russian payment industry and an internationally recognized expert. This article was first published in the Online Payments Market Guide 2014, a yearly publication by ThePaypers.