Putin signs law legalizing cryptocurrency mining, will Russia redefine the mining industry?

Author: Chloe, PANews

According to the TASS report, Russian President Putin has signed a bill aimed at legalizing Cryptocurrency Mining in Russia, marking a historic shift in Russia’s stance on Digital Money.

During an economic conference, Putin discussed with the cabinet the introduction and use of Digital Money. He pointed out that this is the direction of the modern economy’s prospects, and it is important for Russia to “not miss the opportunity”. It is necessary to timely adjust the legal framework and regulatory policies, develop infrastructure, and create conditions for the circulation of digital assets.

Mining in Russia is being redefined as an economic activity

And this law signed by Putin introduces a new concept to Russia: Digital MoneyMining, Mining Pool, Mining infrastructure operators, and people organizing Mining Pool activities.

In particular, Mining is considered as a part of circulation in this law, rather than the issuance of Digital Money. Traditionally, Cryptocurrency Mining is often seen as the issuance of new Digital Money because the Mining process generates new units of Cryptocurrency. However, the new Russian law defines Mining as a part of circulation rather than issuance. This definition implies that Mining is an economic activity rather than the act of minting currency.

In addition, only Russian legal entities and individual entrepreneurs listed in the corresponding register have the right to engage in Mining, and natural persons who do not exceed the energy consumption limit prescribed by the Russian government will have the right to engage in Digital Money Mining without being included in the register. In the future, the Minister of the Cabinet will set specific requirements for individuals and enterprises in this industry.

Going back a month ago, Putin believed that Cryptocurrency Mining activities in Russia consumed electricity at an alarming rate, with Mining activities accounting for 1.5% of the country’s overall electricity consumption, and this trend is expected to continue to rise due to Russia’s low electricity prices and the ease of obtaining and using Mining equipment.

At the time, Putin claimed that the uncontrolled electricity consumption of BTC and other encryption mining facilities has led to power shortages in regions such as Buryatia, Irkutsk, and the Baikal border region. “This problem is very serious and will bring unimaginable consequences to enterprises and residents, and may even cause national investment and infrastructure projects to stagnate.”

However, this does not mean that Putin is not optimistic about Digital Money. Previously, Putin also emphasized that Russia must implement its Central Bank digital currency (CBDC), which is the digital ruble, more extensively and comprehensively. At that time, legislation was also being drafted by Russian legislators for the Cryptocurrency Mining business. On August 8th, Putin signed the law legalizing Cryptocurrency Mining, and the document will take effect ten days after its official announcement.

How can foreign issuances of digital assets circulate legally within the territory of Russia?

In addition, the law signed by Putin also prohibits illegal activities such as money laundering using Digital Money. Therefore, Miners will now be required to report their methods of obtaining Digital Money, provide necessary identity identification to government agencies, and Russia’s financial regulatory agency, Rosfinmonitoring, will retain a record of users suspected of participating in money laundering or financing terrorism.

It is worth mentioning that the original proposal of this bill was to prohibit the circulation of mined currencies within Russia. However, after the second round of legislative debate, this provision was amended to allow the trading of digital financial assets (DFA) on the Russian blockchain platform. The Central Bank of Russia still retains the power to prohibit the issuance of currency by entities outside the government if they pose a risk to the country’s financial stability.

In addition, according to the new law, foreign issuances of digital assets (such as digital tokens or encryption assets) can circulate legally within Russia, but certain conditions must be met: firstly, these foreign digital assets must undergo evaluation and classification by Russian authorized information system operators; secondly, the information system operators need to confirm that these foreign digital assets comply with Russia’s definition and regulatory requirements for digital rights; thirdly, if the foreign digital assets pass the evaluation and classification process, they will be recognized as equivalent to domestically issued digital rights in Russia.

Once approved, these foreign digital assets can be legally traded and used within Russia, enjoying the same legal status as domestic digital assets.

Finally, individuals with a criminal record of economic crimes, crimes committed by public officials, or serious intentional crimes are prohibited from engaging in Mining activities. This restriction also applies to individuals involved in extremist activities or whose assets have been frozen or blocked. If the founders of a company do not meet the required standards of business integrity, they will also be prohibited from participating in Mining.

In this economic meeting with the cabinet, Putin also emphasized concerns about the power consumption rise associated with Mining operations in certain regions, so to address these issues, the legislation grants the government the power to restrict Mining activities in specific areas and prohibits the integration of Mining with the power industry.

Russia may use cryptocurrency to bypass Western secondary sanctions

Due to the strong US economy and the tightening of monetary policy, coupled with the escalation of geopolitical risks, the dominance of the US dollar has not been weakened by the emergence of Virtual Money. According to the latest research published by the Atlantic Council’s GeoEconomics Center, the dollar now accounts for about 90% of all currency transactions. Furthermore, in recent years, almost all oil transactions have been conducted in dollars. The dollar’s position as the world’s primary reserve currency remains unshakable. Although the strengthening of economic differentiation has increased the incentive for BRICS countries to turn to other reserve currencies, it still cannot reduce the global dependence on the dollar.

The emerging economies formed by the BRICS countries (Brazil, Russia, India, China, and South Africa, etc.) are expanding continuously. They have been committed to reducing their reliance on the US dollar in international trade, while also driving these countries to shift towards other international currencies and deepen their reserve currencies.

Former US Treasury Secretary Janet Yellen has expressed concerns about Russia’s use of Cryptocurrency to evade sanctions. Yellen pointed out in the House of Representatives that while this may not be a major issue now, as sanctions strengthen, Russia’s use of Cryptocurrency to bypass Western sanctions will become more serious. Yellen also added, “Stablecoins have no particular advantage, because they are stable, so they cannot make money by holding them, and they usually do not come with Interest. Their only advantage is to evade US sanctions and other laws, including tax laws.”

The Central Bank of Russia previously suggested that companies use cryptocurrency and digital assets to mitigate the impact of Western sanctions after the conflict in Ukraine. Elvira Nabiullina, the Governor of the Central Bank of Russia, admitted that payment issues are very important to the Russian economy and emphasized the potential role of new financial technologies. ‘New financial technologies create opportunities for these issues, which is why our country has relaxed its stance on the use of cryptocurrency in international payments and allows the use of digital assets in such payments,’ Nabiullina said.

El Salvador proposes to use Cryptocurrency for payment in trade with Russia

In addition, just last month, El Salvador proposed to Russia the use of Digital Money as a medium of trade between the two countries. ‘Currently, international transactions in Russia are very challenging because the official currency of El Salvador is the US dollar. As an alternative, El Salvador proposes to use Cryptocurrency for trade,’ said Alexander Ilyukhin, head of the Russian Embassy in El Salvador.

Moreover, El Salvador is considering applying to join the ranks of BRICS countries to further promote overall economic development. Ilyukhin is also concerned that the implementation of this plan may be challenging, as the use of BTC in Russia is not as widespread as in Latin America.

But the two countries are still looking for other ways to strengthen trade, as both countries want to continue their economic alliance. One option being considered by Russia and El Salvador is to establish a bank in El Salvador to support transactions in different currencies such as Indian Rupees, Russian Rubles, and Chinese Renminbi.

To evade Western sanctions after the invasion of Ukraine, the Russian parliament passed a law on July 30th allowing companies to use cryptocurrency in international trade, which will take effect in September to address the issue of international payment latency, especially with major trading partners such as China, India, and the United Arab Emirates. Payment latency has caused an 8% decline in Russia’s imports in the second quarter, and the increasing risk of Western secondary sanctions has made the payment system for Russian imported goods extremely difficult.

Today, Russia is gradually paving the way for cryptocurrency trading to alleviate the economic challenges brought by Western sanctions and ensure smoother international trade. Anatoly Aksakov, the Speaker of the Russian State Duma, said that Russia has made a historic decision in the financial sector.