Author: Chloe, PANews
Russian President Vladimir Putin has signed a bill aimed at legalizing cryptocurrency mining in Russia, marking a historic shift in Russia's stance on digital currencies, according to the TASS news agency.
At an economic meeting, Putin discussed with the cabinet the introduction and use of digital currencies. He pointed out that this is the direction in which the modern economy is heading, and it is important for Russia to "not miss the opportunity" to adjust the legal basis and regulatory guidelines in a timely manner, develop infrastructure, and create conditions for the circulation of digital assets.
Mining is redefined as an economic activity in Russia
The law signed by Putin introduced new concepts to Russia: digital currency mining, mining pools, mining infrastructure operators and people who organize mining pool activities.
In particular, mining is considered a component of circulation in the law, rather than the issuance of digital currency. Traditionally, cryptocurrency mining is usually considered to be the "issuance" of new digital currency, because the mining process generates new cryptocurrency units, but the new Russian law defines mining as "part of circulation" rather than "issuance". This definition means that mining is considered an economic activity rather than the act of minting currency.
In addition, only Russian legal entities and individual entrepreneurs included in the corresponding register will have the right to engage in mining, and natural persons who do not exceed the energy consumption limits set by the Russian government will have the right to mine digital currencies without being included in the register. In the future, the Cabinet of Ministers will set specific requirements for individuals and enterprises in this industry.
A month ago, Putin believed that the annual electricity consumption of cryptocurrency mining activities in Russia has reached an alarming level. Mining activities as a whole account for 1.5% of the country's total electricity consumption. This trend is bound to continue to rise due to Russia's low electricity prices and the ease of use and acquisition of mining equipment.
At the time, Putin said that the uncontrolled power consumption of Bitcoin and other crypto mining facilities has caused power shortages in the Republic of Buryatia, Irkutsk Region and Baikal Territory. "This problem is very serious and will bring unimaginable consequences to businesses and residents, and may even stagnate national investment and infrastructure projects."
However, this does not mean that Putin is not optimistic about digital currency. Putin has previously emphasized that Russia must implement its central bank digital currency (CBDC), the digital ruble, more widely and comprehensively. At that time, Russian legislators continued to draft legislation for cryptocurrency mining, until August 8, when Putin signed a legal provision to legalize cryptocurrency mining, which will take effect ten days after the official announcement.
How can digital assets issued abroad be legally circulated in Russia?
In addition, the law signed by Putin also prohibits the use of digital currencies for money laundering and other illegal activities. Therefore, miners will now be required to report their methods of obtaining digital currencies and provide necessary identification to government agencies, and Russia's financial regulator Rosfinmonitoring will keep a record of users suspected of being involved in money laundering or terrorist financing.
It is worth mentioning that the bill was originally proposed to prohibit the circulation of mined currencies in Russia. However, after the second legislative discussion, this provision was amended to allow the trading of digital financial assets (DFA) on Russia's blockchain platform, that is, the Central Bank of Russia still retains the power to prohibit units other than the government from issuing currencies if they pose a risk to the country's financial stability.
In addition, according to the new law, digital assets issued abroad (such as digital tokens or crypto assets) can be legally circulated in Russia, but the following conditions must be met: first, these foreign digital assets must be evaluated and classified by Russian authorized information system operators; second, information system operators need to confirm that these foreign digital assets comply with Russia's definition and regulatory requirements for digital rights; third, if foreign digital assets pass the evaluation and classification process, they will be deemed equivalent to digital rights issued in Russia.
Once recognized, these foreign digital assets can be legally traded and used in Russia and enjoy the same legal status as local digital assets.
Finally, individuals with a criminal record for economic crimes, crimes committed by public officials, or serious intentional crimes are prohibited from engaging in mining activities. This restriction also applies to people who have been involved in extremist activities or whose assets have been frozen or blocked. The founders of companies are also prohibited from participating in mining if they do not meet the required standards of business integrity.
During the economic meeting with the Cabinet, Putin also highlighted concerns about rising electricity consumption associated with mining operations in certain regions, so to address these issues, the legislation gives the government the power to restrict mining activities in specific regions and prohibits the integration of mining with the electricity industry.
Russia may use cryptocurrency to circumvent Western secondary sanctions
Due to the strong US economy, tightening monetary policy, and increased geopolitical risks, the dominance of the US dollar has not been weakened by the emergence of virtual currencies. According to the latest research released by the Atlantic Council's GeoEconomics Center, the US dollar now accounts for about 90% of all currency transactions. Not only that, almost all oil transactions in recent years are conducted in US dollars. The US dollar's position as the world's most important reserve currency remains unshakable. Although economic differentiation has strengthened the motivation of BRICS countries to turn to other reserve currencies, it still cannot reduce the world's dependence on the US dollar.
The expanding group of emerging economies, known as the BRICS (Brazil, Russia, India, China and South Africa), has been working to reduce their reliance on the U.S. dollar in international trade, which has also prompted these countries to turn to other international currencies and deepen their reserve currencies.
Previously, U.S. Treasury Secretary Janet Yellen expressed concerns about Russia’s use of cryptocurrency to evade sanctions. Yellen pointed out on the House floor that while this may not be a significant issue now, as sanctions tighten, Russia's use of cryptocurrencies to circumvent Western sanctions will become more serious. Yellen added: “There is no particular advantage to a stablecoin because you cannot make money by holding it because it is stable, and it usually does not carry interest. Its only advantage is that it evades U.S. sanctions and other laws, including tax laws.
The Russian central bank has previously recommended that companies use cryptocurrencies and digital assets to mitigate the impact of Western sanctions following the Ukraine conflict. Elvira Nabiullina, the governor of the Russian Central Bank, acknowledged that payment issues are very important to the Russian economy and emphasized that new financial technologies have great potential. “New financial technologies create opportunities for these problems, which is why our country has relaxed its stance on the use of cryptocurrencies in international payments, allowing the use of digital assets in such payments,” Nabiullina said.
El Salvador proposes using cryptocurrencies for payments in trade with Russia
In addition, just last month, El Salvador proposed to Russia to use digital currency as a medium of trade between the two countries. "It is very challenging for Russia to trade internationally at the moment, because the official currency of El Salvador is the US dollar. As an alternative, El Salvador proposes to use cryptocurrencies for trade transactions," said Alexander Ilyukhin, head of the Russian office in El Salvador.
Not only that, El Salvador is considering applying to join the ranks of BRICS countries to further promote overall economic development. Ilyukhin also worried that the implementation of the plan might be challenging because Bitcoin is not as widely used in Russia as in Latin America.
But the two countries are still looking for other ways to strengthen trade as both want to continue their economic alliance, and one option Russia and El Salvador are considering is setting up a bank in El Salvador that would support transactions in different currencies such as the Indian rupee, Russian ruble and Chinese yuan.
In order to circumvent Western sanctions faced after the invasion of Ukraine, the Russian Parliament passed legislation on July 30 allowing companies to use cryptocurrencies in international trade. The law will take effect in September to address international payment delays, especially payment delays with major trading partners such as China, India and the United Arab Emirates. Payment delays caused Russia's imports to fall 8% in the second quarter of this year. As the risk of Western secondary sanctions increases, the payment system for Russia's imported goods has become extremely difficult.
Today, Russia is gradually paving the way for cryptocurrency trading to ease the economic challenges brought about by Western sanctions and ensure smoother international trade. Anatoly Aksakov, speaker of the Russian lower house, said that Russia has made a historic decision in the financial field.
