Crypto in Russia

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Mar 24, 2022
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5 min read
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This blog post will cover:

  • What’s going on with cryptocurrency in Russia
  • The history of cryptocurrency in Russia

The hottest news of the last week was the proposal of the Bank of Russia to ban Bitcoin and other cryptocurrencies. Is there one more country making a suggestion that regulations are not possible in this sphere? Let’s try to clear this up and understand the reasons behind this proposal.

What’s going on with cryptocurrency in Russia

This year the Bank of Russia issued a consultation paper called “Cryptocurrencies: Trends, Risks, and Regulation”. According to this paper the amount of crypto transactions made by Russian citizens reaches $5 bn per year. The Bank of Russia expresses its concerns about some features of cryptocurrencies, such as:

  • High volatility that may lead to significant losses for the investors
  • Massive usage of cryptocurrency may limit monetary policy sovereignty of Russia, which may lead to some difficulties in dealing with inflation
  • Mass withdrawal of savings from Russian financial sector may lead to difficulties with financing the real economy
  • Cryptocurrencies are used for illegal actions, such as money laundering

However, cryptocurrencies are not the only subject mentioned in the paper. Stablecoins, especially Diem (Libra), are also seen as a potential threat to the Russian economy.

So far the Bank of Russia proposes the following things that should be done in order to control cryptocurrencies in the country:

  • Prohibit the use of crypto as a means of payment for goods and services
  • Prohibit the issue and circulation of cryptocurrencies and establish a liability for organizations for breaching the ban
  • Prohibit the financial institution of investing into cryptocurrencies and organizations related to the crypto industry
  • Prohibit of the crypto mining in Russia

This story was continued a few days later when a Russian Finance Ministry official, Ivan Chebeskov, responded to the proposal of the Central Bank. He said that crypto should be regulated, not prohibited.

After the consultation paper was issued, there could be seen tension between the Bank of Russia and the Ministry of Finance. They could not reach an agreement on the future regulation of cryptocurrency. In February suddenly these two structures agreed to recognize crypto as a type of currency. A draft of the law will be introduced on February, 18. More detailed information will be provided after that.

The history of cryptocurrency in Russia

Russian relationships with cryptocurrencies are not easy. There were periods of love and hate, ban proposals and attempts to endorse. Let’s take a look at the most significant milestones.

In 2017 Russian president Vladimir Putin briefly met with the founder of Ethereum, Vitalik Buterin, to discuss the opportunities of crypto and blockchain. Back then it seemed that Russia’s representatives, including the president, were all excited about the possibility to implement new technologies in the country’s life and to build a digital economy. However, even then they already mentioned that it must be regulated.
Shortly after that meeting the Central Bank called Bitcoin a pyramid, and the president also emphasized several times that there is a chance that this crypto can be used for illegal purposes. That meant that for some reasons the government changed its mind,  and the endorsement was no longer an option.

The 2016 - 2018 period is considered to be a crypto boom time. At that moment there were a lot of initiatives that proposed various ways of using blockchain technologies and cryptocurrencies.

In 2020 cryptocurrencies receive legal status, and since that moment it became illegal to use them as a payment method.

At the current moment, there is no one opinion about the crypto future in Russia. Interestingly, the Bank of Russia and Russia’s Ministry of Finance have opposed opinions on the subject.  The head of the financial policy department, Ivan Chebeskov said that the Ministry of Finance believes that instead of banning cryptocurrencies Russia should think of ways to regulate it. The Ministry also provided some proposals, and at the moment is waiting for the government’s evaluation.

There is also no unanimity of view about crypto mining. Russia takes a big part in the world’s mining process. The Bank of Russia tends to ban this as well. In November 2021 the Duma, the lower house of representatives, suggested giving miners entrepreneurs’ status. This idea was not supported by the Central Bank.

The situation with cryptocurrency in Russia is controversial. On the one hand, more and more people are investing their money into the crypto industry. Despite what the government thinks, Russian citizens have supported crypto for a long time. They do it for various reasons. One of them is an attempt to avoid inflation. On the other hand, there is the government that is trying to stop people from doing this in order to keep as much savings as possible in Russian currency.
The crypto ban may have various results. Undoubtedly, it will stop some people from participating in the Crypto World. Furthermore, it may also provoke the migration of developers and engineers to more crypto-friendly places. 

In any case, the final decision has not yet been made, so let's stay tuned.

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