Prospects for regulating mining in Russia

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Ultramining.com

12:00 Nov 10, 2022

149
Prospects for regulating mining in Russia

Crypto mining is the process of mining virtual coins. In some sources, this term also implies the enforcement of order, security in the blockchain (they started using it to pharma crypto-assets more than ten years ago). Compared to other virtual spheres of activity, mining is a relatively young process. But it has already had its followers and... an «army» of detractors.

Some public figures, environmental activists, politicians meet virtual coin mining with a hostility. We will not understand psychological aspects of such non-acceptance. Let us only note that the governments of many developed countries want to make mining comfortable, and most importantly – profitable for their country.

Russia is also trying to move in this direction. But it turns out somewhat ambiguous. Yes, there is no official ban on crypto pharma. However, there are no legal acts regulating or simplifying this activity.

In the article dedicated to legal aspects of mining in different countries («Data Center or a home socket? We understand the aspects of the legislation»), we have already touched upon the issue of virtual coin mining in the Russian Federation. Now we will dwell on it in more detail.

What is crypto pharma in Russia

The topic of legal regulation of mining in Russia is still one of the most pressing and challenging. On the one hand, crypto is difficult to control, and it triggers some local politicians. On the other hand, other officials have figured out that cryptoassets can be used to circumvent Western sanctions, and, in general, it is a convenient way to store savings. No one can control how many cherished bitcoins are in your virtual wallet. All this became especially relevant after February 24, 2022.

Nevertheless, «ordinary» Russian citizens have been using crypto for a long time as well. According to information provided by the Bank of Russia, users from this country have a significant share of assets on various exchanges. This number can range from seven to fourteen and a half percent. Yes, this is not the level of the United States or China, but still not a bad figure for a country where cryptocurrencies (and their mining) do not have a clear legal status.

By the way, last August, Russia ranked third in terms of BTC mining (with more than eleven percent). Now, according to data that can be seen on the official website of the Cambridge Center for Alternative Finance, the «bronze medal» goes to Kazakhstan. This country has an average monthly share of hashrate exceeding thirteen percent.

Russia, on the other hand, is far away from the podium. At the moment, its share of hashrate in bitcoin mining is just over four percent.


Assessing the legal status of virtual coin mining

The Bank of Russia gives its definition of mining in Russia. It was outlined in the report for public consultations «Cryptocurrencies: Trends, Risks, Measures».

Under this process, experts mean the activity aimed at issuing virtual coins, receiving it as a reward for staking, using technical equipment that allows making the calculations necessary for the correct operation of the blockchain.

That is, in Russia this definition falls under:

  • extraction of crypto;
  • its use;
  • control of transactions carried out with it.

At the same time, as one can easily guess, representatives of an important regulator, the Bank of Russia, are negatively disposed to the legalization of mining, as well as the circulation of virtual coins. There have been proposals to completely ban crypto in the Russian Federation.

In January of this year, the specialists of this state financial organization recommended introducing penalties for payments through virtual coins. This can be found in the above-mentioned report. Other restrictions were implied there. Which also affected mining.

As a justification for such harsh measures, the regulators formulated the idea that the use of crypto «poses potential systemic threats» to Russian residents.

«Potential threats» according to regulators

Now the point of view presented in the report «Cryptocurrencies: Trends, Risks, Measures» will be indicated. 

The threat to the financial stability of the state

  • Specialists of the Bank of Russia believe that virtual coins pose significant risks to the economic development of the Russian Federation. According to the authors of the report, crypto contributes to the loss of sovereignty of the national currency and a negative impact on monetary circulation. However, real problems, such as inflation, the depreciation of the Russian ruble and others, are somehow forgotten. Which, by the way, have nothing to do with crypto.
  • The volume of financing of the real public sector of the economy is predicted to fall. The speakers are worried about the outflow of funds that could be used for this purpose. But private companies and investors are not obliged to finance national enterprises and projects if they seem to be obviously unprofitable.
  • The possibility of the weakening of the Russian ruble and the withdrawal of capital from the state is emphasized. Moreover, these processes have been taking place for many years. And the reason is clearly not in the virtual coins.
  • Withdrawal of money from bank deposits is equated to the number of threats. For some reason, the representatives of the Bank of Russia decided that after the legalization of crypto everyone will rush to mine it or buy it. Actually, Russian citizens are not prevented from doing it even now.
  • Decrease in financial stability of banks. But if you take the experience of developed Western countries, such as the United States, the use of cryptocurrency did not lead U.S. banks to collapse. On the contrary. Mining contributes to the financial development of regions. And the inflow of money into the budget of the country.

Illegal Activities

The report reasonably points out that virtual coins can be used to pay for illegal activities. And this is a big problem that concerns not only Russia.

For example, Elliptic specialists recorded millions of dollars worth of crime-related transactions. Dogecoin was the «bargaining chip».

Negative impact on the welfare of Russians

Let us focus on some of the theses presented in the report.

  • The possibility of total loss of crypto. Yes, there is such a risk. But it also applies to the business you may want to run or other tangible investments. You can't guarantee that your investment in any other area will make a profit or not be lost forever.
  • Volatility. The virtual coin market is volatile. The same can be said about exchanges of precious metals, real estate. But if you understand what's going on in the crypto world, you will be able to minimize your losses when the prices of BTC and its «colleagues» change.
  • Hacking attacks.
  • Legal insecurity for investors when losing their investments.

Other negative aspects of mining and the use of cryptocurrencies were also mentioned. Among others, environmental damage, problems in related markets, and other points were mentioned.

Yes, many of the issues mentioned in the report, which referred to «potential threats», are worthy of attention and should not be taken lightly. But it is important not to take all of the information one-sidedly. And understand how real this or that «risk» is.

In addition, the report of the Bank of Russia, which is discussed in this article, can hardly be called objective. It practically did not touch the positive aspects of using and mining cryptocurrencies. And the profit from them is much more significant than their disadvantages. And, in our opinion, with proper legal regulation and approach to the use of virtual coins, crypto can do more good than harm.

Who «sinks» for mining among Russian politicians (spoiler: there are not many of them)

In March this year, Mikhail Mishustin – Chairman of the Government of the Russian Federation – stated his readiness to talk about the possibilities of legal regulation of virtual coin mining. According to the politician, it is quite possible and feasible. Only these points should be agreed with the Bank of Russia. The readiness to have a dialogue on this topic is already an important step towards granting legal status to mining.

Also this year, Russian Deputy Prime Minister Alexander Novak said that crypto pharma should be legalized. Which may also be a good «wake-up call».

So what will be the legal status of mining in Russia

Although there are many miners left in Russia, their activity is still not legal. But it is not officially banned either. Hence the misunderstandings between the representatives of local authorities and people who are engaged in the farming of virtual coins.

The issue of the legal status of crypto mining is becoming more relevant than ever before. We want to believe that soon the situation will be clarified. And the specialists of Ultramining.com will follow the developments in this direction.

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