Prosecutor General’s Office Wants to See ‘Cryptocurrency’ in Russian Law

Prosecutor General’s Office Wants to See ‘Cryptocurrency’ in Russian Law

The Prosecutor General’s Office of the Russian Federation has insisted that the term “cryptocurrency” should be added to the country’s legislation. The move would allow authorities in Moscow to confiscate digital assets that have been involved in criminal activities.

Russian Prosecutor General’s Office Prepares Amendments Allowing Seizure of Cryptocurrency

With cryptocurrencies being only partially regulated through the law “On Digital Financial Assets,” work is underway in Russia to adopt legislation introducing comprehensive rules for the turnover of bitcoin and the like. The Russian Prosecutor General’s Office has joined these efforts as it wants the term “cryptocurrency” added to the legal texts.

“We have developed amendments to a number of regulatory legal acts so that cryptocurrencies in illegal circulation are not only recognized as а subject of a crime, but there’s also a legal possibility of their arrest and confiscation,” Russia’s Prosecutor General’s Igor Krasnov said in an interview with RIA Novosti news agency.

Russian lawmakers are mulling over other legislative changes to establish a proper legal framework for cryptocurrencies. A number of activities related to digital coins remain outside the scope of the current law, including taxation, mining, and payments, for example.

Calls have been mounting among officials in Moscow to recognize cryptocurrency mining as an entrepreneurial activity and tax it accordingly. At the same time, the Central Bank of Russia (CBR) remains opposed to the legalization of digital currencies as a means of payment. The regulator claims these represent “money surrogates” that are banned in Russia.

The monetary authority is currently developing a digital version of the national fiat, insisting that’s exactly what the Russians need. The digital ruble will provide а low cost and reliable payment solution that also protects personal data, the head of the CBR, Elvira Nabiullina, promised in November. Bank of Russia is planning to commence trials for the CBDC in January 2022.

Last month, the Russian Prosecutor General’s Office also proposed recognizing cryptocurrency and other virtual assets as property in the country’s Criminal Code. Igor Krasnov explained in the State Duma, the lower house of parliament, that the legal definition will be used in court proceedings.

Krasnov also revealed that his department has already drafted a bill that would regulate the matter and expressed hope that lawmakers would support it. Digital currencies such as bitcoin have been recognized as property under several other Russian acts like the laws on bankruptcy and enforcement proceedings, the anti-money laundering legislation, and the country’s anti-corruption law.

Do you expect Russia to add the term “cryptocurrency” to its legislation? Share your thoughts on the subject in the comments section below.

Russia prioritizes CBDC ruble as overall crypto outlook seems positive

What is the future of cryptocurrencies in Russia, and can a digital ruble really be introduced in the coming years?

After the Chinese authorities introduced a complete ban on cryptocurrency transactions in September by equating them to illegal financial activity, local cryptocurrency miners either dropped off the radar or moved to other countries in order to continue with their business.

The United States subsequently became the leader in terms of Bitcoin (BTC) mining volumes with a share of 35.4%. Modest Kazakhstan is currently in second place (18.1%), and the bronze spot was secured by Russia (11.23%).

It’s not surprising because Russia has several advantages, meaning that conducting crypto business in the country is extremely lucrative for almost any miner. There is cheap electricity and, at least for now, friendly legislative regulation. According to analysts in spring 2021, the price of electricity in Russia was $0.06 per kilowatt-hour for household use and $0.08 for business. To compare, in France, a kWh of electricity costs $0.2 for householders and $0.14 for business, which is four times more expensive than in Russia. Other estimates suggest that the difference in the cost of electricity when mining Bitcoin in Russia and Europe is actually closer to 7.5 times.

Many private crypto farms and mining companies have emerged in the country. Of course, as in the rest of the world, many Russian miners did not survive the “crypto winter” in 2018, when Bitcoin’s price dropped to almost $3,500, making crypto mining unprofitable. But COVID-19 has forced many to look for additional income and search for alternative ways to replenish their capital.

Favorable conditions for mining even contributed to the fact that state oil companies suggested crypto mining at their fields and using associated gas to generate electricity. By the way, Gazprom Neft, the largest gas supplier to European countries, launched a data center for mining at its facility in Siberia back in 2020.

Vitaliy Borshenko, co-founder of industrial mining operator BitCluster, is sure that even with high power consumption, mining in Russia will find support not only from private companies but also from the authorities:

“The Bitcoin mining industry is a unique purchaser of electricity. The uniqueness comes from the highly flexible nature of the sector in terms of payment method location indifference and electrical load distribution. Huge facilities are built in remote parts of the country, giving tax revenues to local budgets and jobs to local residents. And since there is no shortage in electricity, the authorities can only support this process.”

Is crypto legal in Russia?

Each state today regulates the crypto industry based on its own interests and in completely different ways. Some countries fully prohibit cryptocurrencies, while others have made steps to legalize them.

There are already rules and regulations governing the circulation of cryptocurrencies in the Russian market. But as is the case with many other countries, there are problems with regulating cryptocurrencies since the industry is very young and not all the regulators are familiar with it.

Like many countries, Russia followed the global trends, and in 2014, there were early signs of various proposals for bills to regulate the industry. The first distinct steps toward regulation began in 2018, and in 2019, the federal law “On Digital Rights” came into force, which provided the procedure and rules for using digital assets and tokens. A full-fledged law “On Digital Financial Assets” also began to be discussed. Finally, in January 2021, the still very “crude” and unfinished piece of legislation came into effect. This was the first law that aimed to specifically regulate cryptocurrencies and mining, as well as introduce taxation, but it still didn’t recognize cryptocurrencies as a means of payment. Russian banks and stock exchanges are able to conduct transactions of purchase, sale and exchange of assets if they are included in a special register of the central bank.

Nevertheless, the state doesn’t have a mechanism to track profits derived from cryptocurrencies. When applying this law to ordinary users, a person who wants to store Bitcoin and doesn’t tell anyone about it, they can safely do it thanks to the network’s anonymity. Deanonymization occurs when cryptocurrencies get exchanged for rubles, dollars or any other fiat currencies, making it possible for the state to intervene in these transactions and create obstacles.

In general, regulators in Russia cannot find a consensus, not only regarding the adoption of cryptocurrencies but how to even label and subsequently regulate them. Recently, the Russian Ministry of Economic Development proposed to understand mining as a business activity in accordance with the civil code. The proposal was supported by the Ministry of Finance, the Ministry of Energy and the lower house, the State Duma.

The Ministry of Energy specified that consumers must indicate the level of power consumption for business or for personal spending. The State Duma also proposed to increase the electricity tariff for miners since they do not pay any taxes. But the Central Bank of Russia did not support this initiative and called mining a “monetary surrogate.” In September, the Central Bank suggested banks slow down payments of Russian users in crypto exchanges to combat “emotional purchases” of cryptocurrencies.

For Valeriy Petrov, vice president of the Russian Association of Cryptoeconomics, Artificial Intelligence and Blockchain, this suggests that the Central Bank is stalling to make a decisive regulatory move despite the desire from the local industry to work with the regulators:

“Regulation of mining is required only in two issues: recognition of its entrepreneurial activity and the legalization of the sale of earned crypto assets outside the Russian Federation in order to organize an inflow of foreign exchange funds into the country and determine the procedure for paying taxes to the state treasury. The crypto community has developed all the questions for a long time.”

A digital ruble

What if the Russian Central Bank does want to get involved in the young and uncontrolled financial sphere but only to become a monopolist and create its own cryptocurrency?

Back in 2020, the Central Bank announced that it was studying the possibility of a digital ruble. The new currency would potentially be used both online and offline and would be stored in a special wallet. The regulator emphasized that its digital currency will be an equivalent form of the national currency. The digital ruble will become a project of a new payment infrastructure that will increase the availability and reduce the cost of payments and transfers for citizens and businesses. According to the Central Bank, in 10–30 years, the digital ruble should completely replace cash.

This summer, the bank clarified that the development of a prototype of the platform for the digital ruble is planned to be completed in December 2021. Testing of the currency is planned for January 2022, which will take place in several stages throughout the year. After this test, the regulator will define a plan for its implementation.

Related: Asian CBDC projects: What are they doing now?

In addition to the usual means of payment, in the future, the digital ruble can be used to pay taxes, which can only be paid in a non-cash form in Russia.

Since the Central Bank hasn’t yet disclosed all the details about the digital ruble, some financial organizations such as the Association of Banks of Russia have raised questions and suspicions. The critics cite the security of transactions. It isn’t yet clear how the regulator will ensure the safety of data in the digital ruble system and protect it from unauthorized access and data leaks.

The Central Bank reports that settlements using the digital ruble will be reasonably safe and stable. In particular, through a hybrid of systems based on the principles of centralization and decentralization, data protection of the system must be ensured. The regulator has outlined plans to introduce multi level protection against unauthorized transactions and appeals against disputed transactions. Perhaps, a digital citizen profile, biometric data and other tools will be used.

Security issues are not limited to questions about the digital ruble itself. Some see it as another instrument of monetary control over the population and business. The role of commercial banks in the digital ruble system is also questionable. With the growth of the circulation of the digital ruble, the volumes of their assets may decrease. Due to the fact that they will become intermediaries in the system, the role of their own products may be diminished. This can lead to a general drop in the stability of banks, which could harm the economy.

Is Russia a threat to crypto?

It is too early to speak about the consequences of the introduction of the digital ruble. The entral Bank has not yet disclosed all plans for a new payments instrument and details on its implementation. But if the system is launched successfully, then it could seriously change the financial sector, weakening the role of banks and making control of settlements more stringent.

The regulator hopes that the launch of the digital ruble will become another impetus for the development of financial technologies in the country and will help to ensure additional stability of the economy.

Related: Lines in the sand: US Congress is bringing partisan politics to crypto

However, some economists in Russia are afraid that the introduction of the digital ruble on the Russian market may turn into a ban on cryptocurrencies. The overall interest in cryptocurrencies is caused by a whole range of advantages that the technology brings, including the possibility of making cross-border payments.

The Russian government may be wary that the ban on cryptocurrencies could lead to an outflow of funds from the country and the departure of many miners and crypto activists to the black market. Borshenko believes that Russia will not prohibit cryptocurrencies when introducing the digital rouble:

“The authorities are currently showing a positive attitude. Vladimir Putin, in the middle of October, said that cryptocurrencies may exist as a means of payment.”

Central Banks of France, Switzerland and BIS Complete Cross-Border CBDC Trial

Central Banks of France, Switzerland and BIS Complete Cross-Border CBDC Trial

Bank of France, the Swiss National Bank (SNB), and the Bank for International Settlements have successfully tested the application of wholesale central bank digital currency in cross-border payments. The project used distributed ledger technology and was realized with help from private firms.

France and Switzerland Explore Direct Transfer of Euro, Swiss Franc Wholesale Digital Currencies

An experiment carried out by the monetary authorities of France, Switzerland and the Bank for International Settlements (BIS) has indicated that central bank digital currencies (CBDCs) can be used effectively for international settlements between financial institutions, the participants in the trial announced.

Project Jura, which has been completed recently, focused on settling foreign exchange transactions in euro and Swiss franc wholesale CBDCs as well as issuing, transferring, and redeeming a tokenized euro-denominated French commercial paper between French and Swiss financial institutions, the banks explained.

The trial involved the direct transfer of euro and Swiss franc wholesale CBDCs between commercial banks in France and Switzerland on a single distributed ledger platform operated by a third party and with real-value transactions. It was conducted in collaboration with the private companies Accenture, Credit Suisse, Natixis, R3, SIX Digital Exchange, and UBS.

According to the partners, issuing wholesale CBDCs by providing regulated non-resident financial institutions with direct access to central bank money raises certain policy issues. To address these, they took a new approach, employing subnetworks and dual-notary signing which is expected to give central banks confidence to issue wholesale CBDCs on third-party platforms. Benoît Cœuré, who heads the BIS Innovation Hub, commented:

Project Jura confirms that a well-designed wholesale CBDC can play a critical role as a safe and neutral settlement asset for international financial transactions. It also demonstrates how central banks and the private sector can work together across borders to foster innovation.

“Jura demonstrates how wholesale CBDCs can optimise cross-currency and cross-border settlements, which are a key facet of international transactions,” added Sylvie Goulard, deputy governor of Banque de France.

The wholesale CBDC experiment is part of a series of trials launched by Bank of France last year and a continuation of the testing carried out under SNB’s Project Helvetia. It also contributes to the ongoing work on cross-border payments at G20, the central banks remarked while also noting that it should not be viewed as a plan on their part to issue wholesale CBDCs.

Do you think Bank of France and the Swiss National Bank will eventually issue wholesale CBDCs? Let us know in the comments section below.

Australian Reserve Bank’s ‘Project Atom’ CBDC research finds numerous benefits

Following Treasurer Josh Frydenberg’s “payments and crypto reform plan,” the RBA has published a report exploring DLT tech and wholesale CBDC issuance.

The Reserve Bank of Australia (RBA) published a report into its two-year research project into wholesale central bank digital currencies (CBDCs) that emphasized the benefits of digitizing and autonomizing manual, paper-based banking processes using distributed ledger technology (DLT).

The report marks the conclusion of the two-year project named “Project Atom” that was conducted in partnership with the Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Perpetual, and ConsenSys, along with additional input from King & Wood Mallesons.

Commenting on Project Atom, RBA’s assistant governor (Financial System) Michele Bullock noted that it “demonstrated the potential for a wholesale CBDC and asset tokenization to improve efficiency, risk management and innovation in wholesale financial market transactions.”

A wholesale CBDC refers to a central bank issued digital currency that is designed for the settlement of interbank transfers and transactions between financial institutions, as opposed to a retail CBDC that is intended for public use.

The CBDC research was published on Dec. 8, the same day Treasurer and Deputy Liberal leader Josh Frydenberg unveiled an ambitious “payments and crypto reform plan” for fintech and crypto regulation in Australia. The government has indicated it is in favor of at least six crypto reform proposals recommended by a Senate Committee, and is investigating others.

The project consisted of a proof-of-concept (POC) for the issuance of a “tokenized form of CBDC” that could be utilized in a digitized wholesale syndicated loan market. The testing took place on an Ethereum-based distributed ledger technology (DLT) platform.

The report found that a wholesale CBDC backed by DLT technology could significantly increase efficiency and reduce operational risk by “replacing highly manual and paper-based processes related to the origination and servicing” of data, transactions, loan payments and settlements to name a few.

Some issues that the RBA highlighted however, concerned “transaction privacy, finality, throughput and efficiency” of CBDC and DLT usage particularly related to blockchains that are not designed for wholesale purposes.

The POC experimented with a two-tier model for the issuance and distribution of a CBDC, wherein the RBA issued the digital currency to the commercial banks and then the banks opened up availability to “eligible wholesale market participants that they sponsor onto the platform.”

Related: Reserve Bank warns Aussies over punting on ‘fad driven’ cryptocurrencies

The RBA said that it has explored the concept of CBDCs since 2018 —despite playing down its importance on multiple occasions — but has gradually ramped up its focus on a digital currency since 2020 amid growing interest from governments across the globe, citing China in particular who has already rolled out numerous public trials of the digital yuan.

Bullock outlined that the RBA “will continue its research on CBDCs as part of its strategic focus area on supporting the evolution of payments.”

Speaking with the Australian Financial Review on Dec. 8, Sophie Gilder, the CBA’s head of blockchain and digital assets emphasized the “high-level benefits” of using a CBDC, noting that an interoperable register and payments system could provide greater transparency for payments, data and auditing:

“I think of it as ‘operational alpha’: greater efficiency and greater transparency, which means you don’t have to separately audit and report on activities, and you can have better AML [anti money laundering] procedures because you have a real-time check.”

“That would be beneficial for the economy and make it easier for regulators to do their job, while the programmability would be a giant leap forward and highly beneficial,” she added.

Central Banks of France and Switzerland announce successful trial of digital Euro, Swiss Franc

Although the project was a success, the central banks warned that significant rulebooks, contingency procedures and monitoring capabilities were needed to ensure the success of a CBDC.

On Wednesday, the Banque de France (BdF), the BIS Innovation Hub (BISIH) and the Swiss National Bank (SNB) announced the success of a pilot run of a wholesale central bank digital currency (wCBDC), titled Project Jura. The project, which aimed to investigate cross‑border settlement with euro and Swiss franc wCBDCs, was launched on a third‑party distributed ledger technology platform.

The experimental technology explored in Project Jura consisted of a decentralized peer‑to‑peer network of computer nodes (Corda) to validate transactions while simultaneously ensuring that all legal, regulatory and business rules of governing nations are satisfied. Then, there was the tokenization of the aforementioned fiat currencies and the Negotiable European Commercial Paper, a short-term maturity (one year or less) debt instrument denominated in euros. Finally, Project Jura looked into infrastructure networks that enable real‑time gross settlement of transactions, bond digitization and a digital assets registry.

Although the trial was successful, it does not guarantee the issuance of a wCBDC by Swiss, French or European Union authorities. The report concluded that “wCBDCs could be incorporated into novel settlement arrangements that could change the structure and functioning of capital markets, money markets and foreign exchange markets,” saying that:

“Broadening the use of central bank money through wider access or increased cross‑border settlement could catalyse these changes, as could deeper integration of currencies with other digital assets and securities.”

Experimental Architecture of Digital EUR/CHF | Source: BISIH

Australian government gives nod to 6 world leading crypto reforms

“What is clear is that if we embrace these developments, Australia has an enormous opportunity to capitalize on the convergence between finance and technology,” Treasurer Josh Frydenberg said.

The Australian government is seriously consider the rollout of central bank digital currency (CBDC) and has backed numerous forward-looking regulatory crypto-proposals as part of a new “payments and crypto reform plan.”

Treasurer Josh Frydenberg says the reforms “will firmly place Australia among a handful of lead countries in the world.”

The reform plan is said to be the biggest shake-up of the Australian payments system since the 1990s, with part of the crypto-related groundwork set by the innovative proposals put forward by an Australian Senate Committee in September.

According to the Australian Financial Review, the government is in favor of six out of nine reforms proposed by the Senate Committee, including a licensing regime for crypto exchanges, laws to govern decentralized autonomous organizations and a common access regime for new payments platforms.

Two proposals relating to tax and financial compliance have been referred to their respective government bodies for consideration, while the government has knocked back another proposal related to renewable energy Bitcoin mining tax discounts.

Treasurer and deputy leader of the Liberal Party Josh Frydenberg outlined the government’s plans for crypto regulation, taxation and CBDCs in a speech today at the Australia-Israel Chamber of Commerce (AICC).

“What is clear is that if we embrace these developments, Australia has an enormous opportunity to capitalize on the convergence between finance and technology,” he said.

Concerning CBDCs, an unnamed senior government source told The Australian on Dec. 7 that a retail scale “RBA [Reserve Bank of Australia] backed Bitcoin or cryptocurrency” is currently being considered, and will be a key element of the government’s regulatory reform on digital payments.

During his AICC speech, Frydenberg spoke bullishly on the crypto asset reform:

“For businesses, these reforms will address the ambiguity that can exist about the regulatory and tax treatment of crypto assets and new payment methods. In doing so, it will drive even more consumer interest, facilitate even more new entrants and enable even more innovation to take place.”

“For consumers, these changes will establish a regulatory framework to underpin their growing use of crypto assets and clarify the treatment of new payment methods,” he added.

One Senate committee proposal the government looks set to ignore is the 10% tax discount for Bitcoin (BTC) miners who use renewable energy. Michael Harris the head of corporate development at local exchange Swyftx, told Cointelegraph:

“We think this was a political consideration. The reality is that it’s probably going to be difficult for any government to segregate out an industry like BTC mining from other energy consumers, however laudable the intention.”

However Harris said that overall the “noises coming out of government at the moment are promising” as the government seems to have recognized the need to introduce consumer protection laws without stifling innovation.

“The devil will be in the detail though and we are especially keen to avoid a system that reduces customer choice by stacking the decks in favor of big, traditional financial players.”

Related: Australian women owning crypto has doubled in 2021: Survey

Crypto-friendly senator Andrew Bragg, who drove the recent crypto proposals, told Cointegraph in a statement that Frydenberg’s crypto and fintech reform plan will put “Australia on the tech map”:

“Australia will be a world-leading crypto hub under the Treasurer’s plan. Australian consumers will also benefit from new consumer protection rules.”

“The world is watching Australia which is now setting the global standard for crypto, payments and digital wallet reform,” he added.

Caroline Bowler, the CEO of local crypto exchange BTC markets welcomed the reforms, calling them a “major step forward to upgrade Australia’s one-size-fits-all regulatory framework in real-time.”

“It’s great to see that the gaps in Australian regulation relating to digital financial products and the exchanges who support them are being finally addressed at the highest level of authority, and the Coalition Government is not shying away from the big issues surrounding crypto, payments and de-banking,” she said.

Zimbabwe Central Bank Chief: ‘We Don’t Believe in Cryptocurrencies’

The Reserve Bank of Zimbabwe remains opposed to cryptocurrencies but is interested in developing its own digital currency, its governor has said.

Central Bank Does Not Believe in Cryptos

The governor of the Reserve Bank of Zimbabwe (RBZ), John Mangudya, has said his institution is interested in creating a central bank digital currency (CBDC). The central bank, however, does not believe in cryptocurrencies, he added.

According to a Bloomberg report, Mangudya made these remarks during an interview with Trevor Ncube, a veteran Zimbabwean journalist. In remarks that appeared to be a reiteration of the government’s recently stated position on digital currencies, Mangudya shared the central bank’s thinking as to how it intends to follow in the footsteps of other countries that have rolled out CBDCs.

He explained:

As a central bank, we don’t believe in cryptocurrencies. We believe in central bank digital currency which is basically trying to say ‘how do we have an e-Zimbabwe dollar as opposed to cryptocurrency.’

As previously reported by News, a Zimbabwe government official confirmed in November that his administration is gathering views on CBDCs and cryptocurrencies. The remarks by the official led to speculation that Zimbabwe is planning to adopt cryptocurrencies. However, these claims were later refuted by the country’s information minister.

RBZ to Send Team to Nigeria

Rather than adopt cryptocurrencies, the report suggested that the RBZ is planning to send a team to Nigeria, the first African country to launch a CBDC. According to the report, the team will learn from the Central Bank of Nigeria (CBN)’s experiences relating to its launch of the e-naira.

Besides the planned visit to Nigeria, Mangudya said the RBZ already has its own fintech team which is he said is working very hard. According to the governor, the central bank’s plan is to ensure the RBZ is not left behind other central banks that are also working on their own CBDCs.

What’s your view on this story? Tell us what you think in the comments section below.