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The legalization of cryptocurrencies in Russia.

Crypto

August 3, 2020 | 

JOHN K MWANIKI |  0 Comments| 

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The first cryptocurrency ever invented was Bitcoin in 2009. A cryptocurrency is an online form of currency that is not regulated by a bank or a government. Instead, it is a peer to peer payment system. Bitcoin is the most popular cryptocurrency, and its success has led to the invention of many more.

Cryptocurrencies users record the transactions on a ledger known as a blockchain. Everyone on the network has access to a copy of the ledger. The use of cryptocurrencies leads to lower transactional charges and fewer limits. For this reason, they are gaining popularity among many people. 

Different countries have different views on cryptocurrencies. One problem is that you exclude banks that serve as regulators. The other issue is that criminals use them. Users of cryptocurrencies can perform transactions under pseudonyms.

For this reason, criminals can finance illegal operations like terrorism and money laundering. Russia is one of the countries that are hesitant to allow the use of cryptocurrencies. Yet, on July 22, 2020, the state Duma passed a bill 'On digital financial assets.' The Duma is the lower house of parliament in Russia. The bill was on its third and final reading. 

The introduction of the Digital Financial Assets bill

It was first introduced in parliament in 2018. It has faced many delays because of disagreements between local authorities. President Vladimir Putin directed the lawmakers to adopt laws on cryptocurrencies. He wanted this done by July 1, 2018.

One organization that was opposing the bill was the Bank of Russia. Its officials referred to cryptocurrencies as surrogate currencies. They said following their legalization; people would invest without considering the risks. 

In May of this year, some lawmakers introduced a draft bill in parliament. The aim was to enact laws barring people from transacting or purchasing cryptocurrencies. They proposed fines of up to $30,000 and jail time of up to 7 years for individuals and companies. 

Content of the DFA bill

One of the sponsors of the DFA bill was Anatoly Aksakov. He is the chairman of the State Duma Committee on the Financial Market. He is also the head of the Russian Banking Association. According to Aksakov, the Digital Financial Assets (DFA) bill defines digital assets. It defines digital currency as a set of electronic data one can use as a non-monetary mode of payment. 

It also states that one can consider it an investment. This means that the country has given digital assets a legal status. The bill only provides a foundation for the regulation of cryptocurrencies. 

Another bill, 'On Digital Currencies,' will be set out in the Duma later on in the year. It will come up with actual regulations. If all goes well, the Duma will pass this bill in autumn. Currently, thanks to the DFA bill, ownership of cryptocurrencies in Russia is legal.

But, you cannot use them as a mode of payment. The Ruble is the only accepted form of payment. In fact, it considers Cryptocurrencies as a type of property. According to Aksakov, local companies in Russia can issue 'stablecoins.' You can then exchange these coins for other assets in the country. You can also exchange them for digital assets issued abroad. 

A 'stable' coin is a decentralized form of currency like a cryptocurrency. The difference is that you fix it to fiat currency. You can peg it to the USD, other cryptocurrencies, or even precious metals. They are stable because they are not as volatile as the other cryptocurrencies in the market. 

Russian citizens have two alternatives when it comes to purchasing cryptocurrencies. They can buy them, as digital financial assets, from credit institutions. In this case, the institutions issue the assets per the Russian legal framework. Otherwise, they can buy these digital assets from foreign sites.

The role of the Bank of Russia

The DFA bill sets out is that the Bank of Russia will be a key regulator in the cryptocurrency business. An accredited operator will compile a register. It contains the details of issuance, buy, and sale and the accounting for digital assets.

These transactions must follow the Russian legal framework for information systems. The bank of Russia will maintain a similar register of said asset transactions. Additionally, the central bank will also be responsible for:

•    Determining which Digital Financial Assets will be available to qualified investors
•    Defining the characteristics of the digital assets
•    And deciding which digital assets an unqualified investor can get. 

The bank is also allowed to come up with extra requirements. These new requirements are for information systems operators who exchange digital assets. They include:

•    Guidelines for the management and distribution of digital assets, 
•    Instructions on operational dependability and 
•    Directions on asset exchange reporting. 
The passing of this bill is a huge step forward for those in the crypto community in Russia. After all, a few months back, they wanted to make the acquisition or use of bitcoins illegal. 

Conclusion

Cryptocurrency fans all over Russia were no doubt happy with the passing of the DFA bill. Yet, some groups were not pleased with the news. For example, the Bank of Russia was not happy. This was evident from statements from the first deputy governor of the Bank of Russia.

Mr Sergei Shvetsov was in a live YouTube discussion on the new bill. He elaborated on the bank's position on it. He likened crypto transactions to Russian roulette games and financial pyramid schemes. He stated that, according to the bank, crypto purchases are not investments.

He reiterated their previous beliefs. That the use of cryptocurrencies is subject to use by criminals. He backed up his point by mentioning bitcoins as an example. 

The bank's concerns are valid, but it doesn’t have to worry yet. The use of cryptocurrencies still has some hurdles to jump. This bill will become operational in January of 2021. Before this time, the bill 'On digital Currencies' has to pass first. This bill will set out a legal framework for the cryptocurrency industry in Russia. 

What regulations will the Duma put in place to control the use of digital assets in Russia? Will the banks ever accept digital currencies? Only time will tell. Right now, all the crypto industry in Russia can do is celebrate their win in this battle as they wait for the next step.

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