Russia: Cryptocurrency mining will be conditionally legalized

On July 5, the Central Bank of Russia (CBR) said it would agree to the legalization of cryptocurrency mining, provided that the output of miners in Russia can only be converted into fiat currency outside of Russia. The key is to avoid creating incentives for the subsequent use of cryptocurrencies in domestic payments.

The Russian central bank has been a hard-liner in discussions about the future of cryptocurrency in Russia, proposing a blanket ban on most related activities, including mining operations, earlier this year. However, its stance has begun to change in the face of opposition from other government agencies and having to deal with financial restrictions imposed by the war in Ukraine.

Kirill Pronin, head of the Financial Technologies Department of the Central Bank of Russia (CBR), expressed his views on mining at the St. Petersburg International Legal Forum on Wednesday, June 29. During the session dedicated to cryptocurrencies, Pronin revealed that the CBR does not take as strong a stance on mining as it does on the legalization of cryptocurrencies in general: "Despite the fact that we have been vocal about banning cryptocurrency trading, discussions on the legalization of mining are possible." However, Pronin pointed out that only a few circumstances would make this discussion possible. He insisted that the assets obtained from mining should be strictly sold abroad in exchange for legal currency: "Ultimately, we must say that there should be an export for these mining services, and mining operations should not lead to the accumulation of cryptocurrencies in our country, so there would be no incentive for further use of internal payments."

Ivan Chebeskov, director of the Russian Finance Ministry’s Financial Policy Department, noted that some large cryptocurrency mining companies based in the Russian Federation have also been forced to deal with foreign restrictions when withdrawing funds. He suggested that Russia may have to build its own exchange infrastructure to provide liquidity to the industry.

In addition, crypto mining legislation is also underway. It is reported that on April 29, the draft of the new "Mining Law of the Russian Federation" was submitted to the Russian Duma. The bill aims to free the cryptocurrency-related industry from Russia's "gray" economy. The authors of the bill describe the minting of digital currency as an activity that uses information infrastructure and equipment located in the Russian Federation, resulting in digital currency. They also introduced legal definitions of digital currency circulation, mining pools and operator mining facilities. The law provides for the creation of a special register for cryptocurrency miners, which will be managed by authorized federal agencies. Individuals involved in Bitcoin mining will be able to register as individual entrepreneurs or self-employed individuals if their electricity consumption exceeds certain limits set by the government. Russian miners will be required to keep records of minted cryptocurrencies, their types, any contracts with other entities and coin buyers, exchange operators, payment systems and banks.

Andrey Lugovoy, a member of the Russian Duma's cryptocurrency legislation and regulation working group, said that Russia has the potential to become the world's largest cryptocurrency mining country due to climatic conditions, excess electricity and low costs. According to the Cambridge Center for Alternative Finance (CCAF), as of January 2022, Russia ranked fifth with a market share of 4.7% of the total Bitcoin network computing power.

So far, cryptocurrencies have been accepted to a great extent in Russia. In June, the Governor of the Central Bank of Russia, Elvira Nabiullina, stated that cryptocurrencies can be used for cross-border or international payments, but not domestic payments. The Central Bank Governor believes that digital assets must comply with all requirements and policies established to protect investors. Therefore, all assets listed on exchanges must comply with information disclosure requirements.