Russia prioritizes Ruble CBDC as the overall crypto outlook looks positive

After the Chinese authorities put a total ban on cryptocurrency transactions in September by equating them with illegal financial activity, local cryptocurrency miners disappeared from the radar or moved to other countries to continue their business.

Subsequently, the United States became the leader in Bitcoin (BTC) mining volume with a 35.4% share. In second place is the humble Kazakhstan (18.1%) and third place is occupied by Russia (11.23%).

This is not surprising given that Russia has several advantages, which means that conducting cryptocurrency trades in the country is extremely lucrative for almost any miner. There is cheap electricity and, at least for the time being, a friendly legal regulation. According to analysts, the price of electricity in Russia in the spring of 2021 was $ 0.06 per kilowatt-hour for household use and $ 0.08 for businesses. For comparison: in France one kWh of electricity costs 0.2 US dollars for households and 0.14 US dollars for companies, which is four times as expensive as in Russia. Other estimates suggest that the difference in electricity costs when mining bitcoin in Russia and Europe is actually closer to 7.5 times.

Russia prioritizes Ruble CBDC as the overall crypto outlook looks positive
Russia prioritizes Ruble CBDC as the overall crypto outlook looks positive

Many cryptocurrency farms and private mining companies have sprung up in the country. Of course, as in the rest of the world, many Russian miners did not survive the “crypto winter” of 2018 when the price of Bitcoin fell to almost $ 3,500, making crypto mining unprofitable. But COVID-19 has forced many to look for additional income and look for alternative ways to replenish their capital.

Favorable mining conditions even helped state oil companies propose cryptocurrency mining on their deposits and use associated gas to generate electricity. Incidentally, Gazprom Neft, the largest gas supplier to European countries, opened a data center for mining at its locations in Siberia in 2020.

Vitaliy Borshenko, co-founder of the industrial mining operator BitCluster, is certain that mining in Russia will be supported not only by private companies, but also by the authorities, even with high energy consumption:

“The bitcoin mining sector is a single electricity consumer. The uniqueness of the sector arises from the great flexibility of the sector in terms of the indifference of the location of the payment method and the distribution of the electrical load. Huge plants are being built in remote parts of the country, generating tax revenue for local households and jobs for local residents. And since there is no shortage of electricity, the authorities can only support this process. “

Are cryptocurrencies legal in Russia?

Today every state regulates the cryptocurrency industry according to its own interests and in very different ways. Some countries completely ban cryptocurrencies while others have taken steps to legalize them.

There are already rules and regulations that regulate the circulation of cryptocurrencies in the Russian market. But, like in many other countries, there are problems regulating cryptocurrencies as the sector is still very young and not all regulators are familiar with it.

Like many other countries, Russia followed global trends, and in 2014 the first signs of various bills regulating the industry began to emerge. The first clear steps towards regulation began in 2018, and in 2019 the federal law “On digital rights” came into force, which laid down procedures and rules for the use of digital assets and tokens. A full law “On digital financial investments” was also discussed. In January 2021 a still very “crude” and unfinished law came into force. This was the first law specifically aimed at regulating cryptocurrencies and mining, as well as introducing taxation, but it still did not recognize cryptocurrencies as a means of payment. Russian banks and stock exchanges can buy, sell and exchange securities if they are listed in a special register of the Central Bank.

However, the state lacks a mechanism to track the benefits from cryptocurrencies. When this law is applied to ordinary users, a person who wants to store Bitcoin and does not tell anyone about it can do so safely thanks to the anonymity of the network. Anonymization occurs when cryptocurrencies are exchanged for rubles, dollars, or some other fiat currency, allowing the state to intervene in these transactions and create barriers.

In general, Russian regulators do not find consensus, not only on the introduction of cryptocurrencies, but also on their labeling and subsequent regulation. Recently, the Russian Ministry of Economic Development proposed that mining be understood as a business activity within the meaning of the Civil Code. The proposal was supported by the Ministry of Finance, the Ministry of Energy and the House of Commons, the State Duma.

The Ministry of Energy has stipulated that consumers must report energy consumption for business or private expenses. The State Duma also proposed increasing the electricity tariff for miners as they do not pay taxes. However, the Russian central bank did not support this initiative and called mining a “money substitute”. In September, the central bank proposed that banks stop paying Russian users in cryptocurrencies to combat “emotional purchases” of cryptocurrencies.

For Valeriy Petrov, Vice President of the Russian Association for Cryptoeconomics, Artificial Intelligence and Blockchain, this suggests that despite the desire of local industry to work with regulators, the central bank is delaying a crucial regulatory move:

“The regulation of mining is only necessary in two matters: the recognition of its business activity and the legalization of the sale of crypto-assets acquired outside the Russian Federation in order to organize the entry of foreign currency funds into the country and the procedure for payment of Set taxes to the treasury. The cryptocurrency community has developed all of the problems for a long time. “

A digital ruble

What if the Central Bank of Russia wants to interfere in the young and out of control financial world, but only to become a monopoly and create its own cryptocurrencies?

As early as 2020, the central bank announced that it would look into the possibility of creating a digital ruble. The new currency could be used both online and offline and would be kept in a special wallet. The regulator stressed that their digital currency will be equivalent to the local currency. The digital ruble is becoming a blueprint for a new payment infrastructure that will increase availability and reduce payment and transfer costs for citizens and businesses. According to the central bank, the digital ruble should completely replace cash in 10-30 years.

This summer, the bank made it clear that the development of a prototype of the platform for the digital ruble should be completed in December 2021. The currency test is scheduled for January 2022 and should be carried out in several phases throughout the anus. After this test, the regulator sets a plan for implementation.

In addition to the usual means of payment, the digital ruble may in future also be used to pay taxes, which in Russia can only be paid in a non-monetary way.

Since the central bank has not yet released all the details about the digital ruble, some financial organizations, such as the Association of Banks of Russia, have expressed doubts and suspicions. Critics cite the security of transactions. It is not yet clear how the regulatory authority will ensure the security of data in the digital ruble system and protect it from unauthorized access and data leaks.

The central bank points out that settlement via the digital ruble is reasonably safe and stable. In particular, the system data must be protected by hybridizing systems based on the principle of centralization and decentralization. The regulator has outlined plans to introduce multilevel protection against unauthorized transactions and legal remedies against controversial transactions. Perhaps there will be a digital profile of the citizen, biometrics and other tools used.

Security concerns are not limited to issues related to the digital ruble itself. Some see it as another instrument of monetary control over people and businesses. The role of commercial banks in the digital ruble system is also questionable. With the increase in the circulation of the digital ruble, the volume of its assets may decrease. As they become intermediaries in the system, the role of their own products can be reduced. This can lead to a general decline in bank stability, which could hurt the economy.

Is Russia a threat to cryptocurrencies?

It is too early to talk about the consequences of introducing the digital ruble. The central bank has not yet announced all plans for the new payment instrument or the details of its implementation. But if the system is successfully implemented, it could seriously transform the financial sector, weaken the role of banks, and tighten control over transactions.

The regulator hopes that the introduction of the digital ruble will further advance the development of financial technologies in the country and contribute to greater economic stability.

However, some economists in Russia fear that the introduction of the digital ruble in the Russian market could result in a ban on cryptocurrencies. The general interest in cryptocurrencies can be traced back to a number of advantages the technology brings, including the ability to make cross-border payments.

The Russian government may fear that the cryptocurrency ban will lead to an outflow of funds from the country and the departure of many miners and crypto activists to the black market. Borschenko believes that Russia will not ban cryptocurrencies by introducing the digital ruble:

“The authorities are currently showing a positive attitude. Vladimir Putin said in mid-October that cryptocurrencies can exist as a means of payment.”

Similar Posts