Recently, we have been talking about the problem and state of regulation of the crypto industry around the world, and forget that the crypto industry of the Russian Federation has a huge global impact on the entire crypto space.
An ornate road to the legal field
We all rant about how things look in the legal field of crypto in the US, Europe and China. Still, we should consider that there we are speaking about Russia, the country which is also known as one of the most powerful countries in the world. There is no one in the world who can ignore this country, so we also cannot ignore its influence, which we can assume will be of great importance for the future of the entire crypto industry.
Given that Russia is considered one of the most important cryptocurrency markets in the world, are the authorities ready to block crypto assets? Let’s see what we have.
With the update of the crypto law of July 23, 2020, it is prohibited to buy goods using cryptos. A law was passed that officially recognizes cryptocurrencies such as Bitcoin, but does not allow them to be used to buy anything.
Bills that may actually recognize cryptocurrencies as illegal (if they come into force) were submitted by a group of deputies to the country’s Parliament, the State Duma. It is aimed at banning the issue and all operations with cryptocurrencies on the territory of Russia, while individuals and businesses will not be allowed to accept cryptocurrency as a form of payment. People who already own cryptocurrencies will have to register them with the tax authorities and explain how their crypto assets were acquired.
The third reading of the bill recognizes digital currency as “a collection of electronic data that can be accepted as a means of payment” and gives it legal status, but adds that it “cannot be used simultaneously to pay for any goods and services.”
In May, bills said buyers of cryptocurrencies such as Bitcoin could be fined large amounts, or face up to seven years in prison. It was proposed to add new sections to the country’s criminal law for illegal operations with digital assets. For example, if the bill is passed, companies that issue or manage digital assets “using sites registered in the Russian Federation or technical equipment located in Russia” could potentially be fined up to two million rubles if they do not receive approval from the Central Bank. Individuals are subject to penalties of up to 500,000 rubles.
In addition, “in case of violation of the rules of transactions with the crypt (using payment for goods or services)”, companies will have to pay up to one million rubles, individuals – up to 200,000 rubles.
But the approved version of the law is not as strict: holders of Bitcoin or Ethereum simply cannot use them for anything, although the law seems to give holders the legal right to buy and hold cryptocurrency as an investment under certain conditions. “Possession of digital currency, its acquisition and transfer by legal means are allowed only in the case of Declaration,” the law says.
Cryptocurrencies “can be issued, bought, sold and registered within special information systems”, and “systems and their operators must comply with Russian legislation and be stored in the appropriate register maintained by the Central Bank”.
The report also says that the Central Bank will play an important role in regulation. “The Central Bank will have the right to determine the features of digital assets available only to qualified investors,” TASS reports.
Cryptocurrencies have long been a confusing topic in our country, with no real legal framework for digital assets. Experts believe that such laws (at least in their current version) will destroy the Russian crypto industry. Speaking to Decrypt, Sergey Mendeleev, a former Deputy of the Moscow municipal district of Yasenevo and founder of the Garantex crypto exchange platform, supported this view, calling it a “complete ban on cryptocurrencies”.
At the same time, he suggested that the chances that these new proposals of the law on crypto assets will actually take effect are small.
“There are signs that the law will not be adopted. The bill was developed in 2018 by the Ministry of Finance. If it had been introduced on behalf of the government, it would almost certainly have been adopted. The state Duma passes almost all government bills. Instead, it was submitted to the State Duma by a group of deputies, which means that the law did not pass the approval procedure in the government, since there is serious opposition to the bill,” Mendeleev told Decrypt.
He also noted that the proposal was written by only a few little-known authors, while “usually everyone wants to join a reliable project.”
“The bill passed its first reading in the spring of 2018. A year later, they tried to resurrect him, but without success. Nothing has changed since then,” Mendeleev concluded.
Central Bank plans to launch “digital ruble”
The Central Bank responded by offering the possibility of issuing the Central Bank’s own digital currency, the digital ruble. The digital ruble will become an electronic version of the national currency of the Russian Federation and will complement cash. The Bank said that users will be able to use digital wallets for CBDC, as well as “freely” convert their money from digital rubles to cash, or to a Bank account and back.
The Bank explained that it wants to introduce CBDC because the use of “digital financial technologies” in Russia and other countries is expanding, as an increasing number of its citizens now prefer non-cash payments. In fact, the country ranks second in global adoption of cryptocurrencies in Eastern Europe, according to research by crypto research company Chainalysis.
But when it comes to using private cryptocurrencies, Russia is strict in this regard. Meanwhile, a group of Central banks from several countries recently got together to discuss whether to introduce CBDC into their jurisdiction. As usual, the Russian side did not participate in this discussion.
The Central Bank seeks to get feedback from the public, especially financial market participants and “experts”, about the digital ruble project. In his opinion, this consultation will encourage public participation in the project. The Bank said it will collect feedback and other data to eventually pilot the CBDC project.
It should be noted that the report does not specify a time frame for the development of the digital ruble or the immediate launch of CBDC.
A trend that cannot be stopped
The data discussed above, provided by the cryptocurrency research firm Chainalysis, shows that Ukraine and Russia are ranked first and second, respectively, in the adoption of cryptocurrencies such as Bitcoin. But while the vast majority of this activity is legal, Eastern Europe is also a world leader in the illegal use of crypts on darknet trading platforms.
Ukraine ranked first in the world in the global crypt acceptance index, which includes indicators of the value received, exchanged and deposited. Over the 12-month period from July 2019 to June 2020, Ukraine sent $ 8.2 billion worth of crypto assets, and received $ 8 billion. Russia took second place, sending $ 16.8 billion and receiving $ 16.6 billion worth of cryptocurrency.
Overall, Eastern Europe accounted for 12% of global cryptocurrency activity during this period. The study took into account activity in more than a dozen different cryptocurrencies.
According to Roman Sannikov, a Russia specialist at Recorded Future, a cybersecurity firm, the high volume of legal cryptocurrency use in Eastern Europe is a legacy of the Soviet Union and its collapse. For about a decade, starting in the early 1990s, former Soviet citizens did not have proper access to the global banking system, he said. They are used to alternative ways of sending money internationally, including crypto precursors such as e-gold, even for everyday use, such as shopping on eBay.
According to Sannikov, Russian citizens tend to be very tech-savvy, while the ruble has been unstable in recent years, which has only increased the popularity of cryptocurrencies.
But not all crypto users in the region are engaged in honest operations. Chainalysis found that Eastern Europe was the only part of the world where the darknet market – hidden websites offering illegal goods such as drugs to buy with cryptocurrency – ranked among the top ten cryptocurrency services. The Russian market for the Hydra darknet ranks sixth in terms of crypto services in the region, ahead of popular (and legal) crypto exchanges, including Kraken and BitMEX. Chainalysis highlights that Eastern Europe accounts for more total crypto asset activity related to the darknet market than any other region.
If you omit all the nuances, you can clearly see that the Russians are using an alternative to Fiat in huge volumes. The crypto space has become so integrated into the Russian space that it will soon become an integral part of it.
If you believe the assurances of experts, the chances that the law on the crypto space in the form in which it exists today will be implemented are very, very small, since it was initiated by a group of deputies, and not by the government. This is certainly encouraging, since the differences between Centrobank and the Ministry of economic development (the latter sees the prospects of the crypto industry) cannot allow us to come to a common denominator. But the Russian crypto market has a huge impact on the entire global crypto space, and depending on what kind of legal framework we have, this will be the impact.