Blockchain Statecraft: Russia’s Secret War for Financial Sovereignty

This article—co-authored by Horst Treiblmaier and Gayane Mkrtchyan of Modul University Vienna—was originally published by Russia Matters under the title "Bitcoin Bans to Blockchain Statecraft: Russia's Secret War for Financial Sovereignty."

In 2014, Russia tried to kill Bitcoin. Little more than a decade later, Moscow is using blockchain to survive crippling international sanctions and prop up its war economy. What began as a ban on “monetary surrogates” has become a sprawling system of state-engineered stablecoin rails,¹ mining farms the size of power plants and a digital ruble designed to move money beyond the reach of sanctions. Fueled by the demands of the war in Ukraine and tightening Western sanctions, Russian legislators and central bankers have transformed blockchain into a burgeoning tool of statecraft. As in other spheres, Russia now plays cat and mouse with Western sanctions enforcers in the blockchain domain, building new crypto rails as fast as its old ones are frozen. This shadow conflict is reshaping Russian legislation. As it does, it pulls the Russian financial system towards a new architecture the likes of which previous central bankers vociferously opposed.

From Ban to Experiment: The Digital Ruble

The first Bitcoin block (Genesis Block) was mined in 2009, but it was not until 2014 that the Russian authorities responded to this innovation. The Prosecutor General’s Office declared in February 2014 that issuing or using “monetary surrogates” violated Russian law, effectively banning private crypto activity. Meanwhile, the Central Bank of the Russian Federation (CBR) and the Ministry of Finance initially adopted a defensive posture towards crypto. Russian exchanges such as BTC-e discontinued ruble-denominated cryptocurrency trading, and the Finance Ministry drafted criminal penalties of up to seven years in prison for digital-currency issuers. Over the years, the Ministry of Finance adopted a more accommodating stance towards cryptocurrencies, leading to a confrontation with the central bank, which demanded a blanket ban. Yet even amid prohibitions, the CBR quietly piloted its first blockchain network, Masterchain, in October 2016, a hint of institutional curiosity that foreshadowed the coming pivot.

By the late 2010s, the Kremlin had begun tentatively to shift from rejection to controlled pilot token deployments. In March 2018, the State Duma, the lower and more powerful chamber of Russia’s federal parliament, had its first reading of the proposed Digital Financial Assets Law (DFA), with the goal of prohibiting the use of crypto for payments but legalizing blockchain-based “digital financial assets,” as a subset of digital rights, effectively ring-fencing private crypto while enabling the state’s own digital systems. Concurrently, legislators were adapting to the digital world. On March 18, 2019, Putin signed Federal Law No. 34-FZ on “digital rights,” defined as property rights that exist and are exercised only within an information system, and simplified the rules around electronic transactions. This laid the groundwork for tokenization and the recognition of smart contracts. As progress towards a digital currency continued, the CBR published a white paper in October 2020 laying the foundations for a state-issued token operating on centralized infrastructure. The Digital Ruble Concept formalized the model: the CBR would serve as issuer, operator, and gatekeeper. This became reality when the DFA came into force on January 1, 2021.

As compared to Russia’s single-tier digital ruble, which operates on a centrally managed platform under the CBR’s direct control, the Eurosystem’s proposed digital euro (coordinated by the European Central Bank) functions under an entirely different philosophy. The European Union (EU) views large-scale, state-linked, or offshore stablecoin systems as potential challenges to financial stability, regulatory oversight, and the integrity of sanctions regimes. Therefore, the EU seeks to regulate within its existing financial and regulatory frameworks. Through its Markets in Crypto-Assets Regulation (MiCA), it establishes a harmonized licensing and supervisory regime for crypto-asset issuers and service providers, requiring transparency, disclosure, and robust anti-money laundering and counter-terrorist financing (AML/CFT) controls. In parallel, the EU’s Directive (EU) 2024/1640 as part of the EU’s new AML/CFT legislative package, extends customer due diligence obligations, while the Transfer of Funds Regulation extends “travel rule” obligations to crypto-asset service providers. At the same time, work on a potential digital euro is framed as a gradual and law-dependent initiative.

To put all of this in context, the digital euro is a two-tier system. Under this system, the Eurosystem issues and settles the currency, while authorized payment service providers (PSPs) distribute the currency and manage users’ onboarding, identification, and access in line with existing EU payment account procedures under the Second Payment Services Directive (PSD2). In comparison, in the United States, the Federal Reserve System frames the digital dollar as a research-based, legislatively contingent project. Oversight of private digital assets remains fragmented across agencies, including the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission, with policy initiatives focusing primarily on regulating stablecoins under federal frameworks such as the GENIUS Act. China, by contrast, has implemented its CBDC pilot within a centralized governance structure. The People’s Bank of China issues the e-CNY through a state-controlled two-tier distribution system in which the central bank retains authority over issuance and monetary policy implementation, while authorized commercial institutions intermediate public access, distribute operational risk and mitigate financial disintermediation within a regulated market framework.

Sanctions and Institutional Adaptations: Garantex and Grinex

Russia’s invasion of Ukraine in February 2022 triggered a wave of Western sanctions. The United States’ Office of Foreign Assets Control (OFAC) moved swiftly, sanctioning the Russian mining giant BitRiver and the exchange Garantex. Garantex ultimately handled over $60 billion in transactions between April 2022 and March 2025 when U.S. law enforcement and Tether (U.S Dollar Tether, ticker symbol: USDT) rail took down Garantex servers and froze $23 million of USDT in Garantex accounts. Garantex was not the only target. In March 2024, OFAC designated thirteen members allegedly operating blockchain services to evade sanctions. In October 2025, the Council of the European Union adopted its 19th package of sanctions against Russia, containing individual listings and economic measures targeting key sectors such as energy, finance and crypto services. Simultaneously, they were also tightening restrictions on Russian diplomatic movements and expanding measures against third-country banks and providers supporting Russia’s war efforts.

Russia’s alternative payment mechanisms have proved agile and adaptable in the face of the tightening Western sanctions regime. New designations have only accelerated Russia’s search for workarounds. The exclusion of top Russian banks from SWIFT, such as VTB,² has incentivized Moscow to sponsor a shift away from Western payment systems, switching over to its own System for Transfer of Financial Messages (SFPS) transactions-processing system for most domestic payments by May 2024.

The sanctioning of Garantex itself was a case in point. A recent Financial Times investigation uncovered large-scale exchanges of Garantex-held USDT into A7A5 tokens. $9.3 billion worth of tokens have since been moved across the newly registered Grinex exchange, registered in Kyrgyzstan, immediately after Garantex was taken down. The transactions themselves occurred almost entirely on weekdays during Moscow office hours. Although Garantex was shut down, Western sanctions were unable to hermetically seal off Russian crypto dealings.

Fusion Under Pressure: A7, A7A5, and Russia’s Banking Sector

As Garantex was being throttled, the situation was becoming more desperate for Russia. “The risks of secondary sanctions have grown,” warned CBR governor Elvira Nabiullina, announcing Russia’s first international cryptocurrency transfers for the express purpose of sanctions evasion in July 2024. A month later, Nabiullina declared that a new digital ruble would be introduced in 2025. Little further detail followed. The intention—circumventing sanctions—was clear. The details, however, were not.

Western sanctions failed to eliminate the Garantex ecosystem, instead driving it further underground. By August 20, 2025, a successor exchange, Grinex, and affiliated Old Vector LLC in Kyrgyzstan were sanctioned alongside the A7 network. A June report by the London-based Centre for Information Resilience found that stablecoin arbitrage generated at least $149 million in direct gains, aided by Russia’s 21 percent interest rates, which incentivized local ruble-denominated liquidity.

The Grinex transfer also prompted the creation of a new layer of infrastructure: a ruble-linked stablecoin called A7A5, issued by a private entity registered in Kyrgyzstan and backed by Russia’s Promsvyazbank (PSB), which has many Russian defense enterprises among its clients, through its platform Tokeon. The Promsvyazbank connection is telling: the bank was recapitalized by the Russian state in January 2018 specifically to service Russia’s defense sector. This leaves few illusions about the importance of projects such as A7A5 to the Russian war economy. According to Re:Russia, A7A5 alone processed about $9.3 billion in flows during its first months of activity in 2025.

A7A5 is a crypto token based on the A7 system, a Russian-made crypto payment network that serves as a digital parallel to SWIFT and is issued on the blockchain networks Tron and Ethereum with A7A5 as its in-house currency, a stablecoin pegged 1:1 to the ruble. The A7A5 token contracts are centrally controlled and not governed by a Decentralized Autonomous Organization (DAO). Not long after Nabiullina’s digital ruble announcement, PSB announced the launch of a “unique mechanism for cross-border transactions.” Subsequent investigations have shown that this “mechanism” is likely to have been the embryonic A7 system. A recent webinar for Russian businesses held by A7 outlined how importers could buy promissory notes from A7 as “IOUs” to Chinese exporters, transactions which would then be settled by A7—backed in turn by PSB—entirely outside the SWIFT system. A7 has proven to be a mixture of old and new techniques in Russia’s gray-zone repertoire,³ which also includes coordinated drone overflights of EU civilian and military infrastructure.

While open state backing of crypto infrastructure is relatively new, the people involved in the project are not. Moldovan outlets report that the majority owner of A7 is Ilan Șor, the Moldovan-Israeli fugitive oligarch convicted of stealing $1 billion from the National Bank of Moldova in 2014. Șor is thought to currently reside in Moscow, running (as-yet-unsuccessful) influence operations for Moldova’s pro-Russian Patriot Electoral Bloc.

Russia has increasingly leaned on “friendly countries” in the former Soviet Union, especially Sadyr Japarov’s Kyrgyzstan. In January 2025, A7-Kyrgyzstan was registered to an address in Bishkek, and a month later, the A7A5 token was launched from Kyrgyzstan. On January 20, it was listed on Garantex. As the cat-and-mouse game of sanctions and countersanctions continued, Tether froze $28 million of A7A5-related wallets, and the United States and European Union imposed coordinated sanctions on March 7, 2025. At the time, these authorities estimated Russia’s shadow crypto trade at roughly $10 billion.⁴ Nevertheless, the net was closing in on Russia’s Kyrgyz workaround—or so Western legislators seemed to have thought.

Still, Western sanctions regimes reached A7A5. In August and October 2025, the U.S., U.K., and EU, respectively, implemented new sanctions on Russia- and Kyrgyzstan-based crypto networks, including A7. However, the wheels were already in motion. In October 2025, the CBR issued a non-objection letter effectively approving A7A5 as a “digital financial asset”. Russia just formalized a technology that Western regulators were still trying to contain—a striking example of adaptive legalization under sanctions pressure.

In response to the growing risks linked to stablecoin-based payment systems, the EU has adopted a deliberately restrictive regulatory approach, with the MiCA Regulation providing a legal framework for stablecoins. MiCA introduces activity-based thresholds, enhanced safeguards, and supervisory intervention mechanisms for certain stablecoins. It subjects “significant” stablecoins to enhanced supervision by the European Banking Authority, with specific intervention powers for the European Central Bank where monetary or payment-system stability is at risk. In parallel with the EU’s AML/CFT and Travel Rule framework,⁵ these measures are intended to prevent stablecoins from being used to facilitate illicit finance and sanctions evasion.

The Kremlin Enlists Crypto Mining

Around the year 2022, Russian bankers and legislators also turned to crypto mining⁶ to bolster income and circumvent sanctions. Previously, crypto mining occupied an uncertain place in Russian law. Until summer 2024, it was essentially illegal. Law No. 221-FZ, which Putin signed on Aug. 8, 2024, legalized crypto-mining, turning what had been a gray-market export industry into a regulated sector. Estimates for 2024 cited the existence of 136,600 mining farms using than 11 GW of installed capacity (of which illegal activity comprised roughly 8 GW), an industrial-scale sector for converting Russia’s cheap energy into digital and ultimately liquid currency. The Russian state has consistently sought to incentivize crypto mining in recent years, with the Russian tax service even launching a database of government-approved crypto miners in late 2024. According to recent estimates, the global hash rate⁷ in Russia has approximately tripled since 2022, growing more than 15% in 2025 alone.

Despite such legalization, Russian authorities are still grappling with the high energy uptake and criminal appetite for crypto mining in Russia. The more permissive Finance Ministry and the relatively restrictive CBR have previously clashed on the issue of crypto mining. Raids on unlicensed crypto-mining operations have been ongoing throughout this year and 2024 across Russia, especially in the cities of Irkutsk, St. Petersburg and Novosibirsk. Moreover, mining continues to use increasingly scarce power resources, costing roughly 1.5% of national electricity per year and resulting in 1.3 billion rubles in annual losses for the state grid operator Rosseti, which were caused by illegal crypto mining based on unauthorized electricity consumption. As the Russian government attempts to gather existing mining activity under state oversight and grapples with the consequences of crypto-permissive legislation, unapproved operations are likely to encounter increasing state pressure.

Cryptographic Sovereignty

Taken together, these moves reveal a coherent logic: Russia seeks digital sovereignty rather than technological openness, especially when faced with intrusive Western sanctions. The digital ruble aims to replace private payment channels with a centrally programmable currency; legalized mining converts relatively cheap domestic energy into exportable value; state-tied stablecoins such as A7A5 maintain sanctioned trade flows under semi-offshore supervision. Each layer reinforces the next, forming what analysts have dubbed a “state-first, retail-last” ecosystem. These changes are happening as we speak.

The state has taken on an ever more assertive role in this process. In October 2024, the CBR announced it would systematically fine important banks failing to provide clients with access to digital ruble transactions by July 2025. At the same time, Russian authorities are keen to strip away the pseudonymity protections offered by public and permissionless blockchains such as Bitcoin and Ethereum. In August 2024, the financial regulator Rosfinmonitoring received 10.6 billion rubles for the period up to 2030 to develop programs to deanonymize crypto users. Additionally, Russia’s Federation Council has indicated that cryptocurrency exchanges will, in the future, be required to disclose the identities of their users upon request. By July 1, 2027, all federal and local administrations will be able to execute budget items using the digital ruble. Simultaneously, the state has moved to ban private crypto retail transactions, including Bitcoin wallets.

The responses of the West to Russia’s invasion of Ukraine have relied mostly on punitive financial measures, including asset freezes, transaction prohibitions, export controls, and the partial exclusion of Russian banks from the Western financial infrastructure. These measures were designed to restrict Russia’s access to hard currency, disrupt cross-border payments, and raise the cost of international trade. In response, Russian authorities and state-aligned non-state actors have created a range of evasion and adaptation strategies, including the development of alternative payment channels, the use of crypto assets and stablecoins for cross-border settlement, the monetization of energy through crypto mining, and the deployment of centrally controlled digital instruments that operate outside of Western compliance regimes.

In comparison, the EU’s Markets in Crypto-Assets (MiCA) framework is an alternative model that integrates crypto assets into a rules-based and transparent regulatory system. Rather than seeing crypto as a sanctions-evasion tool, MiCA treats it as a potential source of market and financial-stability risk, subjecting issuers and crypto-asset service providers to authorization, disclosure, governance, and AML/CFT requirements. The Western model constrains crypto through law and supervision, whereas the Russian approach instrumentalizes digital finance to achieve strategic flexibility amidst international sanctions.

Russia’s unmistakably statist trajectory contrasts sharply with the strategies of early crypto adopters. El Salvador’s initial experiment with Bitcoin as legal tender prioritized retail inclusion and global marketing; the UAE, Singapore, and Switzerland built permissive regulatory hubs for private innovation. By contrast, Russia channels all blockchain experimentation through the state. Even China, which officially also banned retail crypto, is ahead in e-CNY pilots that test mass-market applications. Among similarly sized economies, India and Turkey demonstrate the opposite logic: high household adoption as a hedge against inflation and taxes. Western rivals, such as the U.S., EU, and UK, integrate crypto into capital markets through frameworks such as the EU’s Markets in Crypto-Assets Regulation (effective as of late 2024) and spot-Bitcoin Exchange Traded Funds (approved January 2024) while simultaneously policing Russian-linked flows. Stablecoins are already integrated into EU and Western financial infrastructures via regulated exchanges, licensed custodians, and on- and off-ramps controlled by regulated banks, which makes them legally compliant payment and investment instruments. At the same time, their global peer-to-peer transferability, cross-chain bridges, DeFi liquidity pools, and offshore exchanges establish settlement corridors that allow value transfers between Russia and Western economies outside the correspondent-banking system, with sanctions enforcement primarily being possible at the fiat exit points rather than at the transfer layer itself.⁸

By late 2025, the digital ruble pilot had reached roughly 2,500 wallets and 100,000 transactions, according to the CBR. Officials targeted a mass rollout in 2025, signaling intent to integrate Central Bank Digital Currency (CBDC) use into both public procurement and retail payments under tight supervision. Although private crypto remains illegal for domestic purchases and, since September 2024, also cryptocurrency advertising, the state’s embrace of blockchain rails for sanctioned trade underscores a paradox: Russia’s crypto policy is simultaneously restrictive and opportunistic—forbidding decentralization at home while exploiting it abroad.

Instrumental Innovation

Roughly a decade after its first move against Bitcoin, Russia has engineered a sanctions-resilient digital architecture. What began as fear of monetary surrogates evolved into a tri-pillar system of CBDC control, industrial mining, and stablecoin corridors. The approach diverges from market-oriented models pursued elsewhere; its success depends not on openness but on state direction and geopolitical necessity. Comparable to other Russian grand ventures, the digitalization of the economy has encountered delays. RIA Novosti reported in September 2025 that the mass rollout of the digital ruble has been delayed to September 2026. Nevertheless, Russia’s crypto evolution clearly demonstrates how Moscow’s battles abroad are now reshaping its financial and legal system at home. Russia’s crypto journey since 2014 shows how sustained international pressure has driven the Kremlin to adapt and innovate under considerable constraints.

So far, sanctions have constrained, but not crushed, Russia’s ability to transfer value through cryptocurrency. Moscow has deepened its bet on crypto to accumulate currency, and crypto schemes such as A7A5 now have deep state backing. When Western sanctions regimes target the likes of Garantex or A7, they are no longer combating small private initiatives or low-scale foreign intelligence operations, but fully fledged initiatives backed by the Russian banking and defense sectors.

To be successful in denying the Russian state the benefits of this system, Western sanctions regimes will have to adapt. A more integrated approach is necessary: without renewed targeting of PSB and other enabling banks, sanctions will encounter severe limitations in undermining state-backed systems such as A7. Sanctions regimes will also have to anticipate alternative rails, exchanges, and tokens to which Russian crypto holdings can transfer, to seal off loopholes and prevent last-minute exoduses such as the one to Grinex in March 2025. Russia’s value-transfer stack, the layered technical and institutional architecture that enables value (e.g., money, tokens) to be created and settled, relies on entities such as Promsvyazbank and token schemes tied to A7. It remains highly vulnerable at its fiat chokepoints, such as reserve banks, correspondent relationships, stablecoin issuers’ freeze powers (e.g., USDT/USDC), and offshore exchanges that still rely on USD/EUR rails. The system is moderately resilient at the transfer layer, but vulnerable at the custody, redemption, and reserve layers. While technical integration with existing crypto architectures can be relatively easy, economic interoperability with the West ultimately depends on fiat gateways that remain sanctionable, limiting their long-term resilience.

In a glaring irony, the Kremlin seems to have finally coopted cryptocurrency—the financial leveler once promised to shield private transactions from the state’s prying eyes—into its repertoire of economic statecraft.