There is one catch. According to the head of the Russian Union of Industrialists and Entrepreneurs (
RSPP), Alexander Shokhin, one won’t be able to use cryptocurrencies for payments. “If we are talking about prohibitions, then that is rather about a ban on the use of cryptocurrency as a means of payment, while other aspects are subject to regulations,” he told reporters.
After the new law comes into force, only licensed providers will be able to accept crypto transactions, to avoid fines. Since it will be treated a foreign currency, licensed providers are allowed to accept transactions, but when it comes to day-to-day transactions, any token will have to be converted into rubles.
Any cryptocurrency transactions valued at over 600,000 rubles — around ₹6 lakh — will have to be declared to tax authorities, else it will be a criminal offence.
Even after crypto trade and investments become officially legal, the chance of being allowed to, say, pay a fraction of an Ethereum coin to pay their taxes or buy pizzas, is almost zero.
Simply put, cryptocurrencies will likely be treated as a foreign currency.
Transactions and payments — what’s the difference?
draft prepared by the government, envisions regulation of “cryptocurrency providers” to protect investors. They would need to apply for licences, have adequate capital and liquidity, while operating under full client identification and anti money-laundering laws.
Unanswered questions around Russia’s new crypto laws
Any country that’s looking to regulate cryptocurrencies wants to put in measures to protect investors. Russia seeks to decrease activity in the ‘shadow economy’ and reduce ‘fraud cases’ — rug pulls, pump and dumps, and the proliferation of get rich quick scams.
However, the draft is silent about how existing entities and transactions will be treated in the new regime. The draft, which discusses “mechanisms for organising the circulation of digital currencies” also does not define cryptocurrency, but calls it a “high-risk financial instrument.”
Nationalised blockchain monitoring service
Amid all the conversation of whether cryptocurrencies should be banned altogether or not, Russia seems to be particularly concerned with the privacy of its citizens when it comes to overseas-based blockchain monitoring tools. For the purpose of monitoring cryptocurrency transactions, licensed entities have been instructed to use ‘Transparent Blockchain’, an AI tool to track transactions and link them to users,
developed domestically by the Lebedev Physical Institute for Science Research — and only that, no other software.
That means tools like Chainalysis or Crystal Blockchain, which are used to track trends and trace hacker trails will be out of bounds for Russian banks and crypto exchanges. The brief reason noted in the draft by the finance ministry is that, foreign services “store requests generated by users.”
Size of Russia’s crypto economy, and tax potential
Even if cryptocurrency cannot be circulated as ‘real’ money just yet, the government stands to gain real money with taxes. As things stand, only large crypto transactions of over 600,000 rubles (₹6 lakh) will need to be formally reported to tax authorities. So, it’s possible that most small-time traders will be spared the bureaucracy.
The Russian government is, however, aware of how large their golden goose is. The draft prepared by its Finance Ministry says Russia ranks third in crypto-mining, and has over 12 million crypto wallets, with an estimated holding of two trillion rubles ($26.7 billion).
Estimates by Bloomberg in January indicated that
Russians hold 12% of the world’s crypto assets, with
Google Trends indicating a high degree of interest in NFTs in Russia.
Ancillary industries are a draw as well. An encouraged crypto industry is likely to generate high-paying jobs and attract talent, to further
Russia’s high-tech ambitions. A domestic crypto industry could also accelerate the country’s
domestic computing attempts, and prevent centralisation of computing infrastructure production.
The icing on the cake would be a highly profitable cryptocurrency mining sector, which draws enormous amounts of electricity, and has the money to pay for it – thus enabling public utilities
to stay afloat and even generate a power surplus for use by other industries.
Acknowledging crypto already holds two benefits for Russia — bringing it into the open with regulations and a multi-billion dollar tax potential. An internal governmental
policy brief offered more recent data, valuing the Russian crypto market at $214 billion. In an analysis
by TheBell, a Russian publication, even a simplified tax rate of six percent would yield estimated tax revenues of $12 billion a year from crypto trades – without accounting for the value generated by crypto mining.