Hi, This is Qadir A.K, Crypto lover, and Research Columnist.
Every chapter of my writing series has gifted me with great wisdom and now moving forward to my next region to explore in the series, ‘The Cryptocurrency Breakthrough 2020 – Synopsis 10’ Cryptocurrency Regulation in Russia.
Russia is one of the most interesting cases of blockchain and cryptocurrency’s intersection with geopolitics and global affairs. There have been many speculations over the Russian government’s attitude towards cryptocurrencies and the possibilities of the regulations on it are still vague.
Russia is at present a global powerhouse for development talent and business sharpness in the blockchain space. And therefore the Russian government’s decision on the cryptocurrencies would surely impact heavily on the crypto community as the blockchain community relies on the Russian development talent.
So in this article, we’ll cover all that is history and also the possible future prospects of the cryptocurrencies in the country of Russia.
Government’s Stand on Cryptocurrencies
The Russian government has welcomed the blockchain technology but the authorities have turned down cryptocurrencies due to the non-transparent nature of the cryptocurrency transactions. The Russian Rouble is considered as the only means of payment in Russia and the issuance of any other currencies is prohibited.
The country’s perception towards the cryptocurrencies and blockchain was not clear as the cryptocurrencies which were to be once regulated in Russia now can face a ban. While Russia’s Ministry of Finance was trying to regularize cryptocurrencies in the country, the Central Bank of Russia wants to ban them. Russia is bringing a bill which could put a blanket ban on Cryptocurrency issuance and sale will be passed in the second half of 2020.
For many years, the Russian authorities paid attention to the potential use of blockchain technology and cryptocurrencies. The focus was mainly on the measures taken to prevent money laundering, corruption and other illegal activities. The Central Bank of Russia and the Ministry of Finance are the key regulators of cryptocurrencies.
Regulations on Cryptocurrencies
The Russian Cryptocurrency market is on the verge to witness a change as the country is about to adopt new rules and regulations for cryptocurrencies by drafting a bill. Due to the Coronavirus pandemic, the legislation procedure has slowed down and the bill will be adopted until the end of spring.
Alexey Guznov, head of legal department, Russia’s Central Bank addressing the risks involved in cryptocurrencies stated,
“We believe there are big risks of legalizing the operations with the cryptocurrencies, from the standpoint of financial stability, money-laundering prevention, and consumer protection.”
Adding to this he further says,
“We oppose the fact that there are institutions that organize the release of cryptocurrency and facilitate its circulation. The coming bill directly formulates the ban on the issue, as well as on the organization of the circulation of cryptocurrency, and introduces liability for the violation of this ban.”
According to the bill, owning cryptocurrencies is not an offence only if they have made their deal under the jurisdiction which does not prohibit.
Taxes and Mining
Cryptocurrencies are not considered as legal tenders in Russia and hence there are no taxes at present. But the country is working in terms of regulating them and also bringing the crypto activities under the taxes.
Russia’s Prime Minister, Mikhail Mishustin is a former taxman and a supporter of cryptocurrency. He is presently working on the tax laws with all the operations with the cryptocurrencies.
“I am convinced that it is necessary to tax such operations and to correctly assess any economic consequences of using cryptocurrencies,” Mishustin stated.
Cryptocurrency mining is one of the profitable businesses in Russia. Siberia is one of the flourishing regions for mining. As it has made the resources available at a reasonable price and the natural cold climate is an added advantage to keep temperatures cool. The huge old abandoned factories are being converted into a mining farm.
Although Russia has come up with a new draft bill which intends to regularize cryptocurrencies, there is no mention of mining in the bill. This could raise new speculations about the government’s intention towards mining. That whether they are in favour of it or no. As the bill has been delayed, it would be interesting to watch if mining also would be regularized or not.
Laws Implemented for Cryptos
Russia has introduced a bill on ‘Digital Financial Assets’ which was drafted in May 2018. The bill termed cryptocurrencies as a digital financial asset which is no legitimate means of payment within the territory of Russia.
The bill requires the crypto exchanges to go through the KYC process of customers for anti-money laundering and counter-terrorist financing purpose. Earlier the upper limit for the investors was set up to 50,000 rubles ($900) as the maximum amount of investment, but now the maximum limit would be defined by the Central Bank of Russia.
The bill states,
“A digital Wallet is opened by the operator of a digital financial asset exchange only after the passing the identification procedures of the owner in accordance with the Federal law on combating money laundering and terrorism financing.”
However the bill was sent back to the authors in December 2018, where-in all crypto and token related terminology was replaced with the term ‘Digital Rights’ and the definition of Cryptocurrency Mining was deleted from the bill.
The document was published on the official website of the President of Russia in February 2019.
Under the newly updated bill, both the sale and purchase of cryptocurrencies would be termed as suspicious activity.
Series of Events
03-04-2020:- The Chairman of the Russian State Duma Committee on Financial Markets confirmed the completion of the much-awaited Digital Asset Bill which would regulate cryptocurrency. However, the delay was due to global coronavirus pandemic.
18-02-2020:- The Central Bank of Russia(CBR) announced in Feb 2020, the successful completion of the pilot platform that allows users to tokenize assets, including equities and currencies.
05-12-2019:- The country’s Ministry of External Affairs has confirmed the report of collaborating with the supreme court and other financial institutions to prepare a draft resolution which would allow authorities to seize cryptocurrencies.
05-11-2019:- The country’s regulatory body, Ministry of Finance proposed a new approach fro the cryptocurrencies, where they would be divided into three categories,
- Virtual Assets
- Technical Tokens
- Digital Financial Assets
20-06-2019:- The Central Bank of Russia is exploring the possibilities of issuing its own national cryptocurrency which would not be private assets.
23-07-2018:- The Chairman of the Russian State Duma Committee on Financial Markets announced a new bill on cryptocurrencies was considered which intended to enforce taxes on the crypto trading and mining.
02-03-2018:- The Ministry of Economic Development of Russia, proposed new laws in the previously drafted laws which included tax exemptions on profits of transactions involving cryptocurrencies and also increase in the individual ICO investments ten times.
13-01-2018:- The Ministry of Finance announced the legalization of cryptocurrencies on approved exchanges.
07-12-2017:- The Russian Government working on the laws to regulate cryptocurrencies proposed to declare mining of cryptocurrencies as illegal as per Deputy Finance Minister of Russia, Aleksey Moiseev.
15-10-2017:- Russian President Vladimir Putin directed the government and the Central Bank of Russia to issue the country’s own cryptocurrency ‘Cryptoruble’. It would be a legal tender which cannot be mined.
09-09-2017:- The Russian government plans to subsidize the energy costs to benefit the miners.
28-07-2017:- The Government of Russia unveiled plans to ban ordinary people to buy cryptocurrencies.
11-03-2016:- The Russian Ministry of Finance which treats cryptocurrencies as ‘surrogates’ proposed to punish the citizens who deal with cryptocurrencies with imprisonment up to 7 years.
28-11-2015:- The Russian Finance Ministry is progressive in exploring the ways the blockchain could be implemented. Deputy Finance Minister Alexey Moiseev told the ministry was working on a draft law that would seek to punish those who convert cryptocurrencies into ruble. He said, “We feel that blockchain technology is very important in the development of various internet-based services”
However, he also told the ministry plans to ban cryptocurrencies.
03-12-2014:- The Ministry of Finance has decreased the penalties for the individuals who potentially face for creating, issuing or promote digital currencies.
13-09-2014:- The Deputy Finance Minister announced the enforcement of the law drafted to ban cryptocurrency transactions by next spring. The miners would face criminal penalties and the exchanges & the online stores accepting bitcoin would be banned.
07-02-2014:- The Central Bank of Russia said, under the current laws, the virtual currencies cannot be treated as money rather be termed as ‘Money surrogate’ which are prohibited.
15-01-2014:- The security committee of the lower house of the state of Duma, approved a draft on counterterrorism bill that included restrictions on anonymous transactions which included virtual currencies.
Russia has emerged as the biggest player in each sector it participates. And also in the crypto market, every move of Russia could impact heavily on the crypto market. Although the government is to streamline the crypto activities, the Central Bank is always in favour of a ban fearing the loss of control over the monetary system.
It would be really very interesting to witness the change in the crypto market in Russia and all over the world after the present bill is enacted and enforced as a law.