In a groundbreaking move, Russia has set a historic precedent by adopting Bitcoin and other cryptocurrencies for international trade settlements.
Traditionally viewed as high-risk assets—often labeled as Ponzi schemes—Bitcoin and similar cryptocurrencies were far from being considered viable for global trade. In many countries, even basic transactions involving them remain prohibited.
Yet, Russia isn't alone in this shift. Former U.S. President Donald Trump once boldly proclaimed plans to designate Bitcoin as a strategic reserve asset, aiming to position the U.S. as a global Bitcoin superpower.
What’s driving governments to embrace Bitcoin? With Russia now using it for trade, has cryptocurrency finally gained legitimacy? Could it eventually replace fiat currencies?
Let’s explore these questions in detail. If you find this analysis valuable, feel free to like, share, or bookmark it.
Bitcoin as a Financial Lifeline
Russia’s decision to use Bitcoin for international trade stems largely from economic sanctions.
Following the Russia-Ukraine conflict, the U.S. expelled Russia from the SWIFT global banking system, crippling its international trade and leaving the country starved for foreign currency.
In this desperate scenario, Bitcoin emerged as an alternative to the U.S. dollar.
But how did Russia acquire Bitcoin in the first place?
There are two primary methods to obtain Bitcoin:
- Purchasing it through trading platforms from existing holders.
- "Mining" it through computational processes.
While buying Bitcoin is straightforward, mining requires deeper understanding.
As a cryptocurrency, Bitcoin isn’t issued by a central authority but is generated through a specific algorithm, with a fixed supply capped at 21 million coins.
The algorithm dictates that a new "block" is created every 10 minutes, with the block reward halving every four years. Early blocks yielded 50 Bitcoins, but over time, rewards diminish until no more can be mined.
This process of generating Bitcoin is called "mining."
Like modern AI training, mining grows increasingly difficult, demanding higher computational power and massive electricity consumption. Effective cooling solutions are also essential.
Enter Russia, the "chosen miner":
As early as 2021, Russia established a massive crypto-mining farm near a hydroelectric power plant in Irkutsk, Siberia.
This early adoption positioned Russia as a pioneer in state-backed mining, laying the groundwork for its current use of Bitcoin in trade.
Governments Betting on Bitcoin?
Interestingly, the U.S. also appears poised to "officially invest" in Bitcoin.
With prices soaring past $100,000 per coin, this rally began when Trump won the U.S. election.
Why the sudden surge under Trump?
Once a vocal critic, Trump has become a vocal Bitcoin advocate.
In 2019, Trump publicly denounced cryptocurrencies, stating:
"I’m not a fan of Bitcoin or any cryptocurrency. They’re not money—their value is too volatile."
Five years later, his stance flipped. At the 2024 Bitcoin Conference, Trump endorsed Bitcoin and proposed adding it to the U.S. strategic reserve.
Within 24 hours, Bitcoin’s price jumped from $67,000 to $69,000.
More tellingly, Trump’s actions suggest seriousness:
- The Republican Party submitted the Bitcoin Act to the Senate, urging the U.S. to build a strategic Bitcoin reserve.
- Key Trump-appointed officials, including PayPal’s former COO, are now leading U.S. crypto policy.
With giants like Russia and the U.S. diving into Bitcoin, its value hitting $700,000 RMB per coin isn’t surprising.
Ponzi Scheme or Inevitable Future?
As major powers embrace Bitcoin, optimism grows—some believe it could eventually replace fiat currencies.
Cryptocurrencies offer distinct advantages:
Decentralization ensures neutrality and transparency. Unlike fiat currencies controlled by governments, cryptocurrencies resist inflation and wealth erosion. Historically, gold and silver preserved wealth across generations, but modern savings lose value over time. Cryptocurrencies could restore this stability.
Yet, risks remain:
Cryptocurrencies lack intrinsic value. Fiat currencies are anchored by government credit, but cryptocurrencies rely purely on collective belief. If consensus collapses, so does their worth—essentially making them a speculative bubble.
Whether cryptocurrencies dethrone fiat hinges on societal acceptance. While possible, this shift would take decades. For now, Bitcoin’s rise and state endorsements are undeniable.
At $100,000 per coin, even nations can’t ignore the potential windfall.
FAQ
Q: Why is Russia using Bitcoin for trade?
A: Sanctions cut Russia off from SWIFT, forcing alternative solutions like Bitcoin.
Q: How does Bitcoin mining work?
A: Miners solve complex algorithms to earn Bitcoin, with rewards decreasing over time.
Q: Can Bitcoin replace the U.S. dollar?
A: Unlikely soon—its volatility and lack of intrinsic value pose significant hurdles.