Local cryptocurrency miners moved to other countries or dropped off the radar after the Chinese authorities in September banned cryptocurrency transactions.
With a 35.4% share, the United States became the world’s leader in Bitcoin (BTC), mining volumes. The bronze spot is held by Russia (11.23%), while Modest Kazakhstan currently occupies second (18.1%).
This is not surprising, as Russia has many advantages that make it extremely profitable for any crypto miner to do business there. The country has cheap electricity and, at the moment, friendly legislation. Analysts estimated that electricity prices in Russia were $0.06 per kilowatt hour for household use, and $0.08 per kWh for business. Comparatively, a kWh in France costs $0.2 per household and $0.14 per kilowatt-hour for business. This is four times higher than Russia’s. According to other estimates, the difference in electricity costs when mining Bitcoin in Russia or Europe may be closer to 7.5.
There are many private crypto farms and mining firms in the country. As in other parts of the world, Russian miners didn’t survive the 2018 “crypto winter”, when Bitcoin’s value dropped to $3,500. This made crypto mining less profitable. COVID-19, however, has made many look for extra income and other ways to replenish their capital.
The favorable conditions for mining were even a factor in state oil companies suggesting crypto mining at their fields and using associated natural gas to generate electricity. Gazprom Neft was the largest European gas supplier and launched a data centre for mining at its Siberia facility back in 2020.
Vitaliy Borshenko is the co-founder and CEO of BitCluster, an industrial mining operator. He believes that even with high energy consumption, Russia’s mining industry will still find support from both private companies and the authorities.
The Bitcoin mining industry is an exceptional purchaser of electricity. This sector is unique because it offers a wide range of flexible payment methods and distribution of electricity. Large facilities are constructed in remote areas of the country to generate tax revenue for local budgets as well as jobs for local residents. The authorities are able to support this because there is always electricity.
Is crypto legal in Russia
Today, each state regulates the cryptocurrency industry according to its own interests in entirely different ways. While some countries ban cryptocurrencies completely, others have taken steps to legalize them.
The Russian market already has rules and regulations that regulate the circulation of cryptocurrency. As with many other countries, regulation of cryptocurrencies is difficult because the industry is still young and not all regulators are well-versed in it.
Russia, like many other countries, followed global trends. In 2014, there was evidence of several proposals for legislation to regulate the sector. In 2018, the first steps towards regulation were made. The federal law “On Digital Rights”, which established the rules and procedures for the use of digital assets and tokens, was passed in 2019. The first steps towards regulation were made in 2018, when the federal law “On Digital Rights” was passed. This provided guidelines and rules for using digital assets and tokens. The final piece of legislation, still incomplete and very “crude”, was finally passed in January 2021. Although this was the first law to regulate cryptocurrency and mining as well as introduce taxes, it didn’t recognize cryptocurrency as a payment method. Russian stock exchanges and banks can conduct transactions for the purchase, sale, and exchange of assets as long as they are listed in a central bank’s special register.
The state does not have the ability to track profits from cryptocurrency. Ordinary users can store Bitcoin safely and not tell anyone. This law is applicable to all users. When cryptocurrencies are exchanged for dollars, rubles or other fiat currencies it is called deanonymization. This allows the state to intervene and create obstacles.
Russian regulators are unable to reach a consensus on how to regulate cryptocurrencies and label them. The Russian Ministry of Economic Development recently proposed that mining be considered a business activity under the civil code. The Ministry of Finance, Ministry of Energy, and the lower house, State Duma, supported the proposal.
According to the Ministry of Energy, consumers are required to indicate their power consumption for business and personal purposes. State Duma proposed increasing the electricity tariff for miners, since they don’t pay taxes. The Central Bank of Russia opposed this proposal and called mining “monetary surrogate.” It suggested that banks reduce payments to Russian crypto-exchange users to counter “emotional purchase” of cryptocurrency.
Valeriy Petrov (vice president of the Russian Association of Cryptoeconomics and Artificial Intelligence and Blockchain) believes that the Central Bank is holding back from making a major regulatory move, despite the desire of the local industry to cooperate with them.
“Regulation of mining is only required in two areas: the recognition of its entrepreneurial activities and the legalization for the sale of earned cryptocurrency assets outside of the Russian Federation to facilitate an inflow foreign exchange funds into the country as well as to determine the process for paying taxes to state treasury. “The crypto community has been asking all the right questions for a while.”
What happens if the Russian Central Bank wants to be involved in the uncontrolled and young financial sphere, but only to create its own cryptocurrency and become a monopolist?
In 2020, the Central Bank stated that it was looking into the possibility of a digital ruble. The new currency could be used online as well as offline, and stored in a separate wallet. It will be an equal form of the national currency, according to the regulator. The digital ruble is a project for a new payment infrastructure. It will make payments easier and lower-cost for businesses and citizens. The Central Bank predicts that the digital ruble will replace cash in 10-30 years.
The bank stated this summer that the prototype platform for the digital ruble was being developed and will be finished in December 2021. The currency will be tested in several stages over the course of the year. The regulator will then create a plan to implement it.
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The digital ruble will be able to be used in the future to pay taxes. These taxes cannot be paid in cash in Russia.
Some financial institutions, such as the Association of Banks of Russia, have raised suspicions and questions about the Central Bank’s digital ruble. Critics point to the security of transactions. It’s not clear yet how the regulator will protect the digital ruble system’s data from unauthorized access or data leaks.
According to the Central Bank, settlements made with the digital ruble are reasonably secure and stable. Data protection must be guaranteed, especially through a combination of systems that are based on centralization and decentralization. The regulator plans to establish multi-level protection against unauthorised transactions and appeals against disputed transactions. Maybe a digital citizen profile and biometric data will be used.
Questions about the digital ruble aren’t the only security concerns. Some view it as another tool for monetary control over the economy and population. It is also unclear what the role of commercial banks within the digital ruble system looks like. Their assets could shrink as a result of the increased circulation of digital rubles. Their role as intermediaries in the system may mean that their products will be less important. This could lead to instability in banks which could cause economic harm.
Are Russia and crypto at risk?
It is still too early to speculate on the potential consequences of the digital ruble’s introduction. The plans for a new payment instrument have not been disclosed by the entral Bank. If the system is successful, it will likely have a significant impact on the financial sector. It could weaken the banks’ role and make settlement control more strict.
The regulator hopes the launch of the digital ruble, which will be a boost for financial technology development in the country, will contribute to the stability of the economy.
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Some Russian economists fear that the introduction the digital ruble to the Russian market could lead to a ban on cryptocurrency. There are many benefits to cryptocurrency, including cross-border payments. This is why there has been a lot of interest in them.
Russian officials may be concerned that a ban on cryptocurrency could result in a decrease in funds flowing to Russia and the exodus of many crypto activists and miners to the black market. Borshenko believes Russia will not ban cryptocurrencies when it introduces the digital rouble.
“The authorities currently show a positive attitude. Vladimir Putin said in October that cryptocurrencies could be used as a payment method.