Crackdown on Crypto in Russia is Сoming as a Proposal to Tighten Regulations for Private Miners
In Brief
Russia is preparing to clamp down on private cryptocurrency miners due to increased power consumption and concerns about electricity grid pressure and blackouts.
Russia is preparing to tighten down on private cryptocurrency miners as the country deals with the surge in power consumption brought on by cryptocurrency mining. According to reports, Russian energy companies are getting ready to take decisive action to find and punish those who are mining cryptocurrency without authorisation. This action is being taken in response to worries about the pressure on the country’s electrical grid and blackouts in electricity supplies.
Efforts for Crackdowns
The Russian Government Expert Council is expected to provide new regulations for the cryptocurrency mining sector, according to information published recently by the news outlet Izvestia. The goal of these plans is to restrict private cryptocurrency mining operations. They are slated to be submitted to the Cabinet on May 16. One of the suggested actions is using technology from power meters to detect possible miners by applying remote monitoring solutions to compare declared numbers with actual consumption of energy.
Additionally, the papers propose giving electricity providers the authority to charge residential offenders higher rates, similar to those set aside for commercial entities. The purpose of this action is to lessen the burden on the electrical system and discourage people from participating in illicit mining.
The Federal Antimonopoly Service of Russia’s Dmitry Tortev stressed that speeding up the procedure by which electricity companies might punish those who mine cryptocurrency would accelerate the crackdown. Currently, enforcement attempts are complicated by the unclear legal framework around cryptocurrency mining in Russia. Nonetheless, it is anticipated that the campaign against illicit mining activities would pick up steam if electricity providers were given the freedom to take action without going through the legal process.
Concerns about Russia’s overburdened energy grid are reflected in the planned measures, which might cause interruptions in the delivery of electricity to users. Local shortfalls have been made worse by the increase in electrical energy usage, especially in areas where cryptocurrency mining is prevalent. Due to mining pressures, localities such as the Trans-Baikal region, Irkutsk, Buryatia, and the southeast of Siberia have seen considerable demand for their power systems.
Attempts at Regulation and Legislation
Lawmakers in Russia are considering allowing commercial cryptocurrency mining while placing limitations on individual miners. It is anticipated that the State Duma will discuss new mining legislation along with proposed cryptocurrency restrictions that will outlaw domestic exchanges. Companies under Central Bank supervision, especially those engaged in international trade agreements, may be exempt from this rule.
The proposed mining bill seeks to regulate mining activities by requiring Russian firms and business operators to obtain permits. However, individuals within specified energy consumption limits may continue mining without permits. This nuanced approach reflects the government’s attempt to balance regulatory oversight with the promotion of legitimate mining activities.
Russian Businesses Using Decentralised Ledger
Although cryptocurrencies are still illegal in Russia, the nation’s biggest corporations are increasingly using ledger technology, the technology that powers cryptocurrencies.
The first-ever operation utilising a blockchain-based smart contract, which enables the execution of transactions automatically and eliminates the need for participants to have mutual confidence, was disclosed by Sber, the biggest bank in Russia. This is the first transaction in Russia where a client has acquired a bank guarantee using a blockchain-based smart contract as opposed to a conventional paper contract. Sber is a leading player in the Russian blockchain market. The CEO, German Gref, has stated that by 2030, digitalisation, tokenisation, and blockchain asset storage might contribute up to 10% of the world’s GDP.
In an effort to provide a framework for the sale and transfer of digital assets, Sber granted several developers access to its DeFi platform, ComUnity, in May 2023. Tokens and smart contracts may be created more simply on the platform, and users should be able to transfer between digital assets and Russian rubles with ease thanks to the connection with Sber offerings. Developers with connections can create their own projects or establish network nodes by utilising the software library that is available to them.
While using crypto for purchases or other activities is still prohibited in Russia, digital financial assets (DFAs) are allowed, and Russian businesses are starting to actively pursue this market. Goldex, a developer of gold equipment, issued a prototype batch of DFAs in early November, according to the Tokeon platform. The DFAs had a one-year maturity period and a total value of RUB3.5 million (€36,107).
GPB Factoring, a division of Gazprom Neft, issued its first DFAs on September 27, 2023, with assistance from the Moscow Stock Exchange. DFAs have a chance to grow in popularity as a financial instrument in Russia, and the Central Bank of Russia (CBR) doesn’t appear to be opposed to their broader application.
Proposals of the Bank of Russia on Limiting Cryptocurrency Transactions in Russia
Cryptocurrencies pose significant systemic threats due to growing interest and substantial investment in the Russian market. As the Russian ruble is not a reserve currency, Russia must take additional measures to address these risks. These include imposing liability for violating the ban on cryptocurrency use as payment for goods, works, and services, prohibiting the organisation of cryptocurrency circulation and exchange, and introducing a statutory ban on financial institutions’ investment in cryptocurrencies and related financial instruments.
Additionally, there is a risk of regulatory arbitrage due to global cryptocurrencies and differences in regulation in various countries. To address this, efforts should be made to improve communication with national regulators and international organisations. A coordinated opinion towards cryptocurrency regulation in the EAEU is crucial to eliminate regulatory arbitration risks in the region. The Bank of Russia will continue to raise public awareness of risks associated with cryptocurrency investment and the differences between cryptocurrencies and central bank digital currencies.
Future Outlook
Despite the government’s efforts to regulate crypto mining, legal experts remain sceptical about the proposed bill’s efficacy. Past attempts to regulate mining have faced challenges, and the current draft law requires substantial revisions before implementation. Moreover, the industrial mining sector’s lobbying efforts have influenced the regulatory landscape, highlighting the complexities surrounding crypto mining regulation in Russia.
As Russia grapples with the energy crisis exacerbated by crypto mining, the government’s proposed measures underscore the need for regulatory oversight in the burgeoning industry. Balancing the interests of industrial miners, energy providers, and regulatory authorities presents formidable challenges. However, concerted efforts to streamline regulations and enforce penalties on unauthorised mining activities are essential to safeguarding the stability of Russia’s energy infrastructure and ensuring equitable access to electricity for consumers.
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About The Author
Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
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Victoria is a writer on a variety of technology topics including Web3.0, AI and cryptocurrencies. Her extensive experience allows her to write insightful articles for the wider audience.
