Russia will follow the Ministry of Finance’s suggestion to regulate bitcoin and cryptocurrencies instead of banning them as previously recommended by its central bank.
The Russian government published a document on its official website on Tuesday night that outlines the rationale behind the decision and what plans for the legislation could look like, marking a consensus reached with a Bank of Russia that for weeks vouched to outlaw trading and mining completely.
The Russian government wants to remove cryptocurrencies from the regulatory “gray” area they are currently in and integrate them into the financial system while “protecting the rights and interests of the investors” while dividing them between “qualified” and “non-qualified” investors, the document said.
On January 20, the Bank of Russia proposed a blanket ban on the mining and usage of bitcoin and cryptocurrencies, citing concerns that the activities could pose risks to the country’s financial stability. The Ministry of Finance opposed the central bank’s suggestion on January 25, warning that prohibiting bitcoin mining and trading entirely could lead to Russia lagging in innovating in the technology industry.
On January 26, Russian President Vladimir Putin said in a meeting with government officials that despite the risks warned by the central bank, the country had some competitive advantages in bitcoin mining due to its power surplus and trained workforce. Putin also asked the two entities to reach an agreement regarding the direction of Bitcoin regulation in Russia.
In the two days following Putin’s comments, the Russian government drafted a roadmap for cryptocurrency legislation that would encourage developments in the industry while ensuring regulators could enforce restrictions and collect due taxes on transactions.
The new document published yesterday reflects that intention as it realizes that Bitcoin cannot be stopped and instead seeks to put laws and restrictions in place to empower watchdogs and ensure the government gets the taxes owed by citizens and businesses.
State efforts will also include licensing exchanges and banks interested in providing Bitcoin services to ensure they have “liquidity cushions,” the document said. Only financial institutions that get a license will have the right to open cryptocurrency-related accounts for individuals.
The document also provisions the usage of a “Transparent Blockchain” monitoring system, which will identify and classify people, organizations, and wallets that use, sell or deal with cryptocurrencies in Russia. Transparent Blockchain can create models between different transactions and scan the internet and the darknet to reveal wallets connected to suspicious activities, including money laundering, terrorism financing, and weapon distribution in the country. It appears individuals will be able to use self-custody wallets but would need to register it with the Transparent Blockchain beforehand to connect the wallet to the person using it.
Foreign exchanges interested in providing cryptocurrency services in Russia would also need to abide by local regulations, which include the need to have a representative in Russia and implement a system to prevent customers from withdrawing funds into wallets not registered with the Transparent Blockchain system.
The new Russian regulation would treat Bitcoin similar to a foreign currency, according to a report by local newspaper Kommersant. At least part of the new legislation is expected to come into effect in the second half of 2022 or by next year, the report said.
– With assistance by Andrew Fischer.