The response of every people towards cryptocurrencies is different. Some are very enthusiastic about it. Some are utterly not interested, while some are fearful owing to its volatility. Those nations who are interested in digital assets are more in number than the others, but you will see the Russians on top of the list in terms of cryptocurrency lovers. They are more passionate about blockchain and cryptocurrency than any other country in the world.
Russia is a hub of developers and traders who remain continuously in search of profits from cryptocurrency movements all the time. So it can be said without any doubt that Russians are the backbone of the global cryptocurrency economy. In this article, I will cover various aspects such as the history and present situation of cryptocurrencies, their mining, and the role of the Russian government in all this.
Proliferation Of Crypto In Russia
During the fundraising movement for emerging cryptocurrencies in Russia, Russians showed extreme enthusiasm. The initial coins offerings (ICO) attracted Russians as they were already exploring new methods to integrate cryptocurrencies into everyday usage. These offerings are now in purgatory or listed in scams, but a few of them have earned a big name as well. One of the two founders of Ethereum, Vitalik Buterin, who is a Canadian-Russian, also testifies that the Russians have contributed more than others for the betterment of cryptocurrencies.
People started shifting their investments from other trading instruments to cryptocurrencies, and as a result, more funds started flowing into the crypto industry. The Russians didn’t stop there and started taking an interest in mining as well, especially the newcomers. Entrepreneurs who successfully signed deals for affordable electricity with the government power generation plants remained the most successful. Bitriver is an example of this as it is one of the largest mining firms in Russia. It is being run on cheap electricity provided by the Bratskaya hydropower plant.
At this time, when the cryptocurrency market was thriving in Russia, authorities started to take resolute measures to prepare a set of rules for regulating cryptocurrencies. After a strong opposition by the Russian Government for many years, the meeting of Buterin with Vladimir Putin, the Russian President, was a turning point that provided a sigh of relief to the investors.
Russian Government, like many other countries of the world, had taken a dispersed stance towards cryptocurrency due to the uncertainty spread at that time. This behavior towards blockchain and cryptocurrency is justifiable as people require time to accept the decentralized currency. But soon, the situation started to turn in favor of Bitcoin, the first cryptocurrency ever introduced, because people realized that decentralized digital currencies were going to become more popular.
Now today, after more than a decade of the launch of the first cryptocurrency, the Russian National Bank is planning to launch its digital rubble, but it wouldn’t be decentralized.
Legal Position of Cryptocurrency in Russia
Everyone perceives that the government of Russia would be a strong proponent of cryptocurrency and blockchain because a major portion of its population is investing or planning to invest in digital assets. But unluckily, the situation in Russia is the opposite of what outsiders presume. The status of cryptocurrency remained ‘illegal’ for almost a decade until January 2021.
A bill was brought and passed which changed the status of cryptocurrency from illegal to allowed but still, it is not legalized properly. There are a lot of limitations to possessing digital assets in Russia. Residents of Russia are allowed to hold digital coins but are not allowed to use them for making any purchases. It means that digital coins are being used as a property and not as a currency.
These limitations forbid users to purchase services or goods by using cryptocurrencies like Bitcoin, Ethereum, or Ripple. Not just the civilians but the government personnel also come under the radar of this bill. As per the rules, no government servant is allowed to own any digital asset. It means that the public officials are under more strict limitations. In addition, new businesses can issue blockchain-based currencies only if they possess a license from the State Bank of Russia.
It is also notable, as I have stated earlier that digital currencies are being treated as property. That is why people have to pay taxes on them as well. This is something that was never witnessed before in any country of the world till now. In this regard, a crypto taxation outline has also been presented in the federal assembly of Russia, and it is expected that it will receive a green signal in December 2021. Speaking in favor of this bill, the chairman of the Duma Committee said that Russia needs new laws to guard retail investors against the risks produced by cryptocurrencies.
This bill is not something of a sudden nature because these types of regulations were already been anticipated. People have serious concerns that the government will implement strict rules like other big countries like China and USA. Remember that China has already initiated a crackdown against cryptocurrency miners. All the big countries are more skeptical in response to cryptocurrencies. Not only this, but people also feared that cryptocurrency-related firms would be coerced to shift out of the largest country of the world in terms of area.
This proposed bill and its limitations somehow depict the stance of the Russian Government towards cryptocurrencies, but still, there are numerous question marks. A similar kind of bill was presented earlier as well, which limited crypto exchange activities to offshore trading platforms.
From all these advancements, it looks like that the government doesn’t intend to protect its people from the hazards affiliated with using foreign exchanges. Otherwise, the government would have provided a safer option itself. A major reason behind this approach of government toward cryptocurrency is the Central bank of Russia. Bank of Russia directly influenced the government for more strict restrictions against cryptocurrencies because it doesn’t want decentralized currencies to flourish in the country.
Furthermore, Rosfinmonitoring, Russia’s financial watchdog, has promulgated its plan to monitor and trace digital cashouts. In other words, when you will exchange digital assets for fiat currency, your transaction information will be forwarded to Rosfinmonitoring by your bank.
The consequence of this bill is that cryptocurrency cannot be accepted as a legal tender now. So it is suggested not to use digital currency as a payment method for purchasing anything within the premises of Russia. Cryptocurrency lovers would likely find some trick to bypass this bill and its restrictions but keep in mind that you would become a violator of rules in this way and may end up facing criminal charges.
Contrastingly, Russian people are allowed to pay for services hired from foreign companies located in other countries of the world. It means that you can make cross-border payments without breaking the law and purging yourself. But it is also on the cards that Putin Government will soon put restrictions on cross-border payments as well.
Russians Getting More In Love With Crypto
Despite knowing the fact that their government doesn’t like them to invest in cryptocurrencies, Russian people are still investing more and more in digital currencies. According to stats uncovered by the Bank of Russia, annual transactions made by Russians have crossed the 5 billion dollars mark. The reason behind such a hike in numbers is that people are interested in technologies like blockchain, Defi, and smart contracts.
The data shows that Russians play a significant role in the growing capitalization of digital currencies. According to Binance, its highest traffic comes from Russia. Reports suggest that more than 70 percent of Russian investors are looking forward to investing their capital in crypto assets.
Although people of Russia love cryptocurrencies, the future of cryptocurrency in Russia still looks misty. The government is working on the creation of its centralized currency, but still holding digital currency worth more than 1300 dollars is punishable and even leads to imprisonment. At the same time, Putin has also hinted that cryptocurrencies might be tolerated as they have the right to exist. He warned that it is not time yet to use it for oil trading.
Concerns Raised By CBR
By the end of the third quarter of 2021, The Central bank of Russia had issued a warning stating that cryptocurrency transactions are risky for the stability of the economy and investors as well. It also says that cryptocurrencies are encrypted and anonymous in nature which is why the crime rate may increase, such as money laundering and terror funding. Due to these reasons, the central bank is constantly opposing the legalization of cryptocurrencies to be used as legal tender.
The concerns of the Central Bank don’t end here as it thinks cryptocurrencies as unreliable because of their extreme volatility. There is a common idea in Russia that mining should be recognized as a pure business, but the bank of Russia still opposes it. It is doing so because it doesn’t want it to circulate freely in the Russian economy. Mining is very costly because it consumes a lot of energy. But the Russian population doesn’t agree with CBR at this point because Russia is a rich country in terms of energy and fuel. In most of its provinces, the prices of electricity are very low, which is why it is an attractive destination for crypto miners. Plenty of officials also agree that Russia should legalize mining after bringing them into the tax circle.
CryptoRuble
From the above-given information, it is clear that the Russian Government is not in favor of decentralized currencies. But on the complete opposite side, most of the population is in favor of cryptocurrencies and want to invest as well as use them in their everyday life. The government is under huge pressure for its stiffness against the digital currencies that is why it has come up with an alternate plan. The plan is to provide its cryptocurrency enthusiasts an option to use cryptocurrency, but it is not going to be a decentralized one. Yes, Russia is planning to launch its digital currency with the name ‘CryptoRuble.’
CryptoRuble is in the developing phase at this moment. It is going to be different from other available cryptocurrencies in terms of a few aspects. The major difference between Cryptoruble and other cryptocurrencies is that it will be created and issued by the government itself rather than mining. The initial market price of CryptoRuble will be the same as the price of a normal ruble. The testing phase of Cryptoruble has been started since June of the current year, and a dozen of financial institutions are participating in it. It is rumored that the testing phase will be completed before the New Year, and its transactions will start in early 2022.
CryptoRuble is not a completely new thing at this moment as the President of Russia, Vladimir Putin, had announced way back in 2017 that his country is going to issue its cryptocurrency. It means that the proposed bill related to cryptocurrencies is linked with CryptoRuble because the limitations are being used to pave the way for their cryptocurrency.
Central Bank Digital Currency
The CryptoRuble is being launched as a (CBDC) Central bank Digital Currency which means that it will not be decentralized. It will be managed by the central bank on the instructions of the Russian Government. Not just the central bank but other banks have also been taking great interest in CryptoRuble. Two big names that I want to mention here are Crimea’s Russian National Bank and the Credit Bank of Moscow. These banks are also taking part in the testing of CryptoRuble that in its final stages right now.
The second testing phase is going to commence in the first quarter of 2022, in which citizens will also be allowed to test the digital currency. The basic idea behind the launch of CryptoRuble is that it can bring the cost down within the financial system and boost competition among financial institutions as well. Keep in mind that Russia still doesn’t allow digital currencies to be used as legal tenders.
As I have already mentioned, if the currency is going to be centralized, it will lose some of its attractiveness. It is designed to serve as a digital and coded form of Russia’s currency, Ruble. Its price will be the same as Ruble’s and will be easily exchangeable from CryptoRuble to Ruble and vice versa. It will not require to be mined as it will be regulated by some authority, most probably by the Central Bank of Russia.
Purpose of Launching CryptoRuble
One of the main reasons for which President Putin personally took an interest in blockchain is that transactions are encoded. It makes sending money not only easier but confidential as well, and you can send money secretly without being noticed by anyone. In bigger pictures, he likes the idea of dodging the international community.
The upper given theory is supported by a 2018 report of Financial Times in which a senior economic advisor of Putin, Sergei Glazyev, said that CryptoRuble suits them the best for sending or receiving money anonymously on behalf of the government. He further said that accounts related disputes could be settled without being sanctioned by the international community. Keep in mind that Sergei Glazyev himself came under the radar of the US and faced sanctions by the President of America. He was barred from traveling and trading within American territory.
The other reason behind the launch of CryptoRuble is that Russians believe that they need to win the economic war against their opponents. This is why they want to be in control all the time, which is not possible when it comes to decentralized currencies such as Bitcoin and Ethereum. The Russian Premier once said that cryptocurrencies are created for criminal purposes. It shows the lack of confidence in cryptocurrencies, but with the launch of their currency, they will feel safer.
De-dollarization
The ties between Russia and America rarely come to peace. That is why Russia is planning to replace its dollar reserves with any other option, most possibly with digital assets. This is why now is the right time to launch CryptoRuble for Russia. In this way, not only its dependence on the US dollar will lower, but its asset will also strengthen. This Dedollarization movement was also confirmed by Alexander Pankin, the Deputy Foreign Minister.
Conclusion
By reading this article, you would have grasped that the public of Russia has welcomed the technology, but the Russian government is double-minded between creating a friendly environment for technological advancements or retaining authority over the economy of the country. Over time, it will become clear whether the public will allow its rights to be damped or raise its voice to join the rest of the world. CryptoRuble, though not decentralized, its success can surely remove the doubts of the Russian government to legalize Bitcoin and altcoins as well.