How could Russia, which prohibits the use of cryptocurrencies as a form of payment, and Ukraine, where the asset class effectively exists outside of the law, rank one and second in terms of crypto adoption?
The recent Chainalysis analysis, which indicated that despite being the fourth-largest market by volume, Eastern Europe has the highest grassroots-level adoption of bitcoin, seeks to answer this question.
When it comes to cryptocurrency adoption, Russians and Ukrainians are at the forefront
While it’s undeniable that the crypto industry has grown dramatically in recent years, understanding its exact size requires far more than anecdotal evidence. The Global Crypto Growth Index was built by analytics firm Chainalysis to track the adoption and use of cryptocurrencies around the world. The index, which is comprised of four distinct indicators, including value received weighted by purchasing power per capita, offers fascinating insights into how and why individuals utilize cryptocurrencies.
According to the survey, Eastern Europe now has the highest rate of grassroots acceptance of cryptocurrencies. Russia, Ukraine, Belarus, Poland, Romania, Bulgaria, Hungary, and the Czech Republic make up the fourth largest cryptocurrency market, accounting for 12% of total transaction volume.
The fact that Eastern Europe has the two highest-ranking countries on the crypto adoption index—Russia and Ukraine—is the most intriguing finding. Russia sent approximately $16.8 billion in cryptocurrency during a 12-month period, receiving around $16.6 billion in return, while Ukraine paid $8.2 billion and received $8 billion.
“While those numbers are much lower than the amounts we see for China, the US, and other leading countries, they indicate a much higher level of adoption when we consider the size of both countries’ populations and economies,” it said in the report.
But why are these two nations, where cryptocurrencies are either outlawed or restricted as a form of payment, leading the massive Eastern European region in adoption?
Cryptocurrencies thrive under unique historical and geopolitical situations.
It’s easy to blame a lack of trust in the government for the massive increase in bitcoin acceptance seen in these two countries. Russia is ranked dead last in media and government trust in studies conducted by everyone from Reporters Without Borders (RSF) to public relations agencies. More than half of Russians stated they don’t trust banks, with many citing the early 1990s and the country’s economic catastrophe following the demise of the Soviet Union as the source of their mistrust.
These two causes may be sufficient to explain why, in recent years, so many people in Russia and Ukraine have turned to cryptocurrencies. However, knowing that similar unfavorable political circumstances exist in other nations does not provide a clear picture of what is driving this increase in adoption.
The fact that the citizens of these two countries are all accustomed with electronic payments makes them far more open to the adoption of cryptocurrencies.
The lack of banking infrastructure prompted Russians and Ukrainians to think of other ways to transport money, according to Roman Sannikov, director of Cybercrime and Underground Intelligence at cybersecurity firm Recorded Future.
“The banking industry in the Eastern Block did not develop the same way it did in the west,” he told Chainalysis. “Particularly, the process of transferring funds between accounts and overseas was particularly problematic because much of the infrastructure was simply not there.”
As a result, he continued, people had to devise “a lot of homemade and unofficial techniques” to move money, such as vouchers and hawala trades.
Unconventional tactics like this were frowned upon by the government, which constantly cautioned people about the hazards they were facing—fraud, theft, money laundering, and so on.
As a result, it’s no wonder that Russians and Ukrainians, who are accustomed to exceedingly dangerous money transfer methods, saw cryptocurrency as a far superior alternative. The low fees and lack of government monitoring make cryptocurrencies more appealing than even the most established services such as Western Union with the development of remittances in countries such as Ukraine, which has a big population of ex-pats residing in countries such as Slovakia.
What does Russia’s future hold?
The rate of cryptocurrency acceptance witnessed in the Eastern Block’s two major countries may not continue to rise at the same rate in the foreseeable future.
When it comes to Russia, it’s vital to remember that the majority of adoption occurred while the government was sending confusing messages about cryptocurrencies. However, Vladimir Putin’s government has taken a considerably harsher stance on how the new asset class should be used in the last two months. While the country currently recognizes cryptocurrencies as an unique asset class, its usage as a form of payment is practically prohibited. A few weeks later, the Russian parliament passed a bill prohibiting the use of anonymous online wallets for cryptocurrency transactions.
The government’s increased grip on the crypto business, according to the Chainalysis Crypto Adoption Index, is unlikely to hinder adoption. However, this is an extremely conservative estimate. While the new legislation may not be able to sift out all of the existing cryptocurrency users, they will most likely impede the influx of new users into the field.