Will Russia Legalize Cryptocurrencies In The Country?

Will Russia Legalize Cryptocurrencies In The Country?

 AAX November 29, 2021

When it comes to the technological industry, Russia has always been at the forefront of development and innovation, alongside powerhouses like the US and China. These countries are paving the way in the field of technological research and development across a wide variety of industries – military, computing, aerospace, medical, nuclear, and many other key sectors that underpin the progress of modern society.

Russia is at the cutting edge of some of the most advanced technological innovations, with indigenous companies like Shvabe Holding JSC providing unique medical and scientific instruments that are used globally. Russian nuclear power plants built by Rosatom and the associated technologies are dominating foreign energy markets, while the space industry is considered second to none with the Soyuz rockets ferrying anything from astronauts and the International Space Station to satellites orbiting near Earth on a regular basis.

The blockchain sector is just as progressive and advanced in Russia. Russia is also home to a lot of blockchain and crypto talents, namely Ethereum founder Vitalik Buterin, who is a Russian native. Furthermore, countless blockchain-based projects, exchanges, and applications are being developed in Russia by programmers who are regarded globally as experts and specialists in their respective fields.

But all that success in the blockchain industry is overshadowed by the lack of regulatory framework and recognition of decentralized assets within Russia. Unfortunately, proper legislation for cryptocurrencies is also lacking in many other countries around the world.

A Glimpse Into The History Book

The stance of Russian authorities regarding cryptocurrencies has always been unclear since the time blockchain and cryptocurrencies appeared on Russia’s radar. The volatility of cryptocurrencies shocked local financial authorities and took them by surprise, but the cumbersome regulator of the State Duma – the main legislative authority of the country – was slow to react to this nascent asset class.

Several attempts were made by the Duma to introduce some sort of regulatory clarity for the use and ownership of cryptocurrencies, but all of them were shoved in the back drawer. 

Fast Forward To 2021

The draft law on cryptocurrencies was discussed and deliberated several times until amendments were finally introduced in Russia’s anti-money laundering legislation in late 2020. The draft law on cryptocurrencies entered full force on January 1, 2021.

The new law on digital currencies obliges all subjects of the Russian Federation to comply with the requirements of the national financial monitoring authority – Rosfinmonitoring. All subjects need to provide a detailed analysis of all cryptocurrency transactions. Businesses are still unable to rely on this law to transact with digital assets since multiple legislative acts pertaining to it have not yet been passed.

In early February 2021, the State Duma of the Russian Federation submitted an additional law dubbed 259-FZ “On Digital Financial Assets,” which pertains to four bills aimed at regulating cryptocurrency transactions within the state.

The law also stipulates that repeated refusal of individuals to file a tax return on cryptocurrency transactions within three years may result in criminal liability. Systematic violation of the requirements of the law may be punishable by a fine, imprisonment of up to two years, or arrest lasting up to six months. The amount of the fine will depend on the amount that has been omitted from the financial report. Large fines are provided for transactions exceeding 15 million rubles, and for transactions in the amount of 45 million rubles over a period of three years. The law also forbids officials and law enforcement officers to purchase and sell cryptocurrencies.

The remaining half of 2021 was relatively quiet on the crypto front in Russia. But in July, the country’s Central Bank announced that it will begin researching the systemic risks associated with cryptocurrency investments by both private and legal entities. The research will encompass 15 of the country’s largest banks, some of which have long operated with crypto assets.

More news in favor of cryptocurrencies emerged later in October when Deputy Finance Minister Alexei Moiseev announced that he was not planning to restrict cryptocurrency transactions on foreign exchanges, as China and other crypto-negative countries have done. Head of the State Duma Committee on the Financial Market Anatoly Aksakov reiterated later on that the state is only considering some legislative restrictive measures for unqualified investors seeking to operate with crypto assets. The measures are aimed at reducing risks for inexperienced individuals and protecting them from the rampant volatility of digital currencies.

November 8 saw the release of more news when two deputies from the State Duma suddenly leaped onto the media stage with a proposal that would foresee the recognition of cryptocurrency mining as an entrepreneurial activity and taxed as such. The proposal was instantly met with fierce opposition from the Central Bank who is staunchly against even the slightest insinuation that cryptocurrencies are recognized in Russia. 

However, a reaction followed on November 11, when State Duma Chairman Vyacheslav Volodin ordered the establishment of a working group that will consider the possibility of legalizing cryptocurrency mining in the Russian Federation. No updates on the proposal have been released at the time of writing, but it is likely that the topic will be considered strongly, given that the immense political weight Chairman Vyacheslav Volodin holds in economic and financial circles in Russia.

Decentralization in Russia

Russia is an extremely progressive country in terms of technology, leading globally in terms of digital payments and resentment of physical cash. Russians are avid buyers online and the abundance of online marketplaces is being encouraged not only by the state, but also influenced by the presence of native retail platforms launched by local financial and IT giants like Sberbank, Yandex, and many others.

The decentralized environment is also highly developed in Russia, considering the innumerable blockchain-based projects emerging from it and the high level of education the younger generation has about cryptocurrencies and IT in general.

The only question is the willingness of the state to recognize and monetize the decentralized sector from a fiscal point of view. Recent signals are proving that such a turn of events is around the corner and a new age of legalized, regulated, and recognized decentralized market evolution and development in Russia is near.