The report of the Central Bank of Russian Federation (CB) expressing the offer to impose a ban on operations with cryptocurrencies and mining, as one would expect, caused the most rough discussions in the press and expert community. There were not so many votes supporting the position of the regulator, although the position of the Central Bank undoubtedly has its own reasons.
Corrupted reputation of the cryptosphere
First of all, the Central Bank takes care of the welfare of citizens, especially those who are considered unskilled investors: filters that can keep them from investing in cryptocurrencies do not exist, and cryptocurrencies are extremely volatile, and investments in them are extremely risky.
Another reason is because cryptocurrencies, in fact, are money that are in circulation notwithstanding the will of the regulator: the latter cannot affect their quantity, and this may cause a decrease in the effectiveness of monetary policy
That is why the head of the Center for Political Economic Research of the Institute of the New Society, Vasily Koltashov, supported the position of the Central Bank, emphasizing that cryptocurrency should be banned to protect the national currency and the state monetary monopoly.
Of course, the reputation of cryptocurrencies is negatively affected by the opinion that they are a convenient tool for settlements in the criminal sphere; however, do not forget that against the background of increasing Western sanctions against Russia, cryptocurrency technologies may be useful for building an alternative infrastructure for international settlements. As business ombudsman Boris Titov said, with the help of a crypto ruble or some other units, “it is possible to solve the problems of the same dollar restrictions that the West threatens us (to impose) today.”
The
tough position of the Central Bank could also be influenced by the attitude
towards the cryptocurrency industry as a “false benchmark” for
investments, which diverts capital to projects that require high electricity
costs, put pressure on the environmental environment, but do not add
“public goods.”
Mining really became the object of a rather
large-scale investment — according to Roman Zabuga, co-owner of BWC UG,
the Central Bank report stopped the project to create a data center network
with an investment of up to $150 million.
Doctor of Economics, Professor Artem Genkin, a specialist in money theory, believes that in this case the ideological approach has prevailed over the pragmatic one. Meanwhile, the expert is sure that the voluntary refusal to fiscalize this industry — foreseeing the results of its complete criminalization and displacement abroad — may be a suboptimal decision, especially in the current situation, when the creation of a full-fledged infrastructure for the introduction of the alternative to the crypt lobbied by the Bank of Russia — the digital ruble — is still only “to come.”
Who will pay for electricity
In general, the question of the impact of the cryptocurrency ban on the investment sphere causes directly opposite opinions. For example, the former deputy chairman of the Central Bank, general director of the ACRA rating agency Mikhail Sukhov, according to RIA Novosti, said that the measures proposed by the regulator would not cause capital outflow, but its “whitewashing,” and that now there is still a chance to avoid “large-scale” cryptization”” of the economy.
On the other hand, representatives of the crypto industry call for mining as an ordinary enterprise that can be taxed and used to develop depressed territories. Relevant proposals for the Russian Central Bank are currently being prepared in the EMCD mining pool. In November 2021, Izvestia reported that the Ministry of Economy and the Ministry of Energy support
Another
argument from the industry is that the number of miners will not decrease: they
will simply leave Russia for abroad or enter the shadow economy — as Roman
Nekrasov, co-founder of the blockchain company ENCRY Foundation, said,
“those miners who were ready to pay taxes yesterday” to be
legal-compliant “will now hide.”
Well, the chairman of the Duma Committee of
the State Duma on Industry and Trade, Vladimir Gutenev, expressing an
“intermediate” position, said that mining farms should be preserved,
but put under strict control of regulatory bodies.
For obvious reasons, the topic of electricity is closely related to the topic of investment in mining: as you know, miners are relocated to countries and regions where electricity is cheaper for some reason, but in Russia the problem of either non-payment for energy or lack of energy for large-scale industrial projects regularly arises. According to the head of the State Duma Committee on the Financial Market Anatoly Aksakov:
“Mining is creating problems for power consumers, for local authorities.”
Well, the chairman of the State Duma Committee on Energy Pavel Zavalny said that miners should not receive electricity at tariffs for the population, that is, in fact at subsidized prices. According to the deputy, if a ban on mining is not introduced, then mining needs to be “transplanted” to tariffs for industrial enterprises. Artem Genkin agrees:
“The level of regulation must match the scale of the problem being solved. Working out tariffs for this type of activity is the competence of local power providers and regional authorities, they know more about the specifics. In energy-surplus regions, mining will not enter into competition with general civil energy utilities — regardless of tariffs. “
Cryptotechnologies
The most important argument against the tough position of the regulator is the statement that the ban on cryptocurrency operations will slow down the development of blockchain technologies, which are very important for a variety of business and government sectors. It is on this argument that the founder of VKontakte and Telegram Pavel Durov insists, drawing attention to the fact that almost no developed state has introduced a ban on cryptocurrencies, and many countries, including Ukraine, are trying to stimulate the development of the industry.
The position of Pavel Durov was supported by the deputy chairman of the State Duma committee on information policy, information technology and communications, Anton Gorelkin. But professor of the Department of Corporate Finance and Corporate Management of the Financial University under the Government of the Russian Federation Igor Lukasevich, made sharp objections; he insists that it is necessary to distinguish between the areas of blockchain and cryptocurrency, that blockchain has gone far beyond cryptocurrency transactions and blockchain technologies are of interest to society — but not cryptocurrencies as such. Artem Genkin adds:
“Not only blockchain is not solely cryptocurrencies: you still need to understand that cryptocurrencies themselves are also heterogeneous. Pseudonymous coins, such as Bitcoin, and completely anonymous cryptocurrencies should be qualified by the regulator in very different ways — and the attitude to the first type may be calmer, while for the second type – let there be zero tolerance.”
Can’t be banned?
But can mining and cryptocurrencies be technically prohibited? The President of the Russian Association of Cryptoeconomics, Artificial Intelligence and Blockchain (RAKIB) Yuri Pripachkin considers the proposals of the Central Bank unrealizable: according to him, the Central Bank did not allow the release of cryptocurrency, therefore it will not be able to ban it.
“The cryptocurrency market has already formed, and regardless of the decision of the Central Bank, it will develop. And the owners of cryptocurrency, I think, will figure it out themselves,” agrees Vasily Solodkov, director of the HSE Banking Institute.
We must add that, as representatives of the Central Bank admit, possible bans will not concern the operations of Russians with cryptocurrencies on foreign sites. Difficulties, however, may arise when converting the “crypt” into fiat money.
As for mining, the identification of mining farms remains problematic. According to Dmitry Bederdinov, general director of the Coordinating Council for Data Centers and Cloud Technologies, it is impossible to remotely distinguish a private mining farm from, say, a greenhouse: both consume electricity evenly and 24×7. Unless the district police officers have to do bypasses of the objects, but the reasons for their penetration into the objects are unclear, not to mention whether the policeman can distinguish the mining computer from the usual one.
The beginning of the discussion?
Deputy Anton Gorelkin wrote in his Telegram channel that the report of the Central Bank is only the starting point of the discussion, and called for developing rules for regulating the crypto market as soon as possible.
It is worth emphasizing that this is a large-scale problem affecting millions of people. According to Bloomberg analysts, the Russians own about 17 million crypto wallets, and about 300 thousand individuals and legal entities are engaged in mining. According to the Cambridge Center for Alternative Finance, 11.3% of computing capacity in Russia is used for mining, according to this indicator, the country ranks third after the United States (more than 35%) and Kazakhstan (more than 18%).
Meanwhile, the administration of US President Joe Biden announced the release of the first national strategy in US history regarding digital assets, including cryptocurrencies. According to Bloomberg, the corresponding presidential decree may appear in February.
Author: Konstantin Frumkin