Everything You Wanted to Know About Current State of Bitcoin in Russia (But Were Afraid to Ask)

News and Analysis

Recent development of affairs in Russia may signify that Russian officials have divided into two camps.

While usually depicted as a monolith, Russian government en masse incorporates two opposing groups, usually dubbed securocrats and techlibs (an acronym for technology liberals). The former usually have something to do with various law enforcement or intelligence agencies, while the latter are mostly economists.

The issue of cryptocurrencies has highlighted those two groups once again.

The draft law as to administrative violations submitted to the parliament in late 2015, is evidently the work of techlibs, as it de-facto legalizes cryptocurrency operations and cryptocurrencies themselves. While making operations with so-called ‘money surrogates’ an administrative violation, it exempts digital currencies from the very definition of those.

Meanwhile, the securocratic wing of the government, now represented by law enforcement agencies and the ministry of finance, opposes the draft law and proposes to make cryptocurrecnies subject to criminal punishment.

Former deputy minister for finance, Alexei Savatyugin, said:

“I understand the banners’ logic very well. I should note that the Central Bank is way more constructive about it now. They don’t say it must be banned, they say let’s take a look. It is my former colleagues from the ministry of finance who propose criminal punishment for cryptocurrency issuance. It is they, not the Central Bank.”

The central bank has earlier recognized the usefulness of blockchain technology. Moreover, autumn 2015, when the fuss around QIWI’s BitRuble project was in climax, the regulator constidered the idea of national virtual currency quite positively.

“The Central Bank also takes a favorable view of our activity. Elvira Nabiullina told that the Central Bank wasnt going to ban cryptotechnologies. Moreover, according to her, now the regulator is researching the technology. The Central Bank just needs some time to understand how it could regulate that brand new domain,” said Bitruble project manager Alexei Arkhipov speaking to ForkLog back then.

The draft law legalizing bitcoin submitted to the Russian parliament, the State Duma, is now pending for the first reading. According to Vladimir Pligin, the chairman of the parliament’s committee for constitutional legislation and nation building, the first reading of the draft law may take place as early as this February.

“We believe that the new edition of the Code will be reviewed in the first reading as early as this February,” Pligin says as quoted by RIA Novosti.

However, the draft law’s adversaries at the ministry of finance prepare another draft law. Following several revisions thereof, which incorporated introduction of criminal responsibility for operations with cryptocurrency, the ministry’s project is about to be submitted to the government’s review once again.

“We revised [the draft law] in cooperation with law enforcement agencies. Currently we’re preparing it for submission to the govermnent,” Alexei Moiseev, deputy minister for finance, said.

Mr. Moiseev also pointed out that the “legalizer” draft law’s prospects in the Duma are quite doubtful:

“In general practice, it never goes any further than the first reading,” he said.

In regard of the ministry’s draft law, the minister for finance, Anton Siluanov, stated:

“We will continue protecting the consumers of financial services. We’re developing penalties for distribution of money surrogates, including bitcoins, and for establishment of Ponzi schemes. We will prepare the draft laws and submit them to the State Duma.”

Another securocrat, head of Russian Investigative Committee Alexander Bastrykin recently explained his views onto cryptocurrency.

“It would be better to suppress distribution of money surrogates at early stages of the market’s development,” he stated in an interview to Russian government publication Rossiyskaya Gazeta.

Notably, he actually cited virtual currency’s advantages over fiat currency as the reasons why it should be banned.

“According to experts, turnover amount of money surrogates in Russia has reached 1 per cent of GDP. Once the parameter exceeds 10 per cent, the tool will pose a real threat to the state’s financial stability. Uncontrolled expansion of money supply in the turnover at the expense of the surrogates will result in devaluation and gradual supersedure of ruble from currency market. Eventually the state could lose its money issuance monopoly and revenue from this kind of activity,” Bastrykin stated.

Russian currency, ruble, is currently in the state of almost literal freefall. It falls in price against USD in the wake of continuing oil cheapening and international sanctions imposed on Russia in the wake of the Ukrainian crisis.

Cryptocurrency is thus deemed by securocrats as a threat to the national stability. Moreover, some securocrats consider bitcoin and other digital currencies a tool for overthrowing the government. Andrei Svintsov, Liberal Democratic Party of Russia, stated in March 2015:

“All those cryptocurrencies were invented by American intelligence services to fund terrorism and revolutions.”

However, things are not as dim for bitcoin’s underlying technology, the blockchain. Even the most securocratic departments of Russian government and agencies believe it may be useful and consider its implementation.

“We see the convenience and usefulness of the blockchain technology for e-commerce, so we think the technology shall have a permission to develop. However, bitcoins as they are, and especially their inclusion in the real economy and real banking sector, may be extremely hazardous,” the Ministry’s press center stated to ForkLog.

Russian ministry of communications also sees some potential in the blockchain technology.

“Blockchain technology as a new kind of technology is very interesting as it is applicable in diverse areas, not only in cryptocurrency space. Generally we should study how we can use it to the benefit of the state in terms of protecting various issues,” Nikolai Nikiforov, minister for communications said in an interview to TASS.

Techliberal entities like the country’s biggest state-owned bank, Sberbank of Russia, also consider various opportunities in blockchain’s regard.

“The blockchain is applicable for internal settlements, and transactions between our subsidiaries and other banks. It has nothing to do with cryptocurrencies, it is just another method of settlement, which is simplier, faster, and more secure,” said Leo Khasis, the bank’s deputy chairman.

The chairman of Sberbank, German Gref, is one of the most prominent techlibs in Russia. Last year he admitted he owned bitcoins himself. According to Khasis, Sberbank even considered joining the renowned R3 consortium:

“We interact with the consortium very carefully and watch where the blockchain’s evolution is heading. Now we’re researching white papers and general reasonability [of the project]. We may join the consortium, though there is no final decision as yet,” he said.

However, the consortium stated that it would not take in any more banking entities.

Some experts believe that the bank’s interest in the blockchain technology has something to do with the international sanctions, even those not imposed yet.

“When the sanctions were only dawning, Russian banks were afraid of possible disconnection from SWIFT. Implementation of the blockchain technology increases a bank’s reliability and stability releasing it from political risks like that, as bloclchain is a distributed system without a sole manager who could disconnect a bank therefrom,” says Kirill Kibalko, former deputy executive for IT at Home Credit Bank.

In late December 2015, the so-called Interned Development Institute of Russia presented the president Vladimir Putin with a roadmap for internet development. Apart from other issues, it states that the blockchain technology is worth researching and adopting.

“Blockchain is not the same thing as Bitcoin. It is a disruptive technology of distrubuted databases, which banks and organizations working with securities will find useful,” the roadmap reads.

While there is some sort of consensus in regard of the blockchain technology, whether the techliberal view on cryptocurrency prevails, remais a question. However, the community has every reason to get the answer thereto pretty soon.

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