The Russian Finance Ministry and the Central Bank are urgently developing a law on the circulation of digital currencies. Is Russia falling behind the leading economies in this regard? What is the practical value of a cryptocurrency for the Russian economy?
Cryptocurrency market regulation is one of the top issues for legislators all over the world. The December hearings at the US Congress that brought together chief executives of major private cryptocurrency companies showed that there are no clear rules in the industry even in the most liberal economies yet. The US is still deciding on how to act and not ruin the market and at the same time to protect investors. On the one hand, the US is striving to retain its position as a leader in tech innovation; on the other hand, it wants to protect ordinary people from scammers and the tax system from losses.
In the US, generally, much is allowed but only until a certain precedent is set. As a result, all crypto activity in the US still lives in a legal vacuum. A business can obtain New York’s BitLicense but it establishes rules of the game only in one state. American entrepreneurs are waiting for a unified and understandable legal system and even threaten the Congress to move to other jurisdictions in Europe and Asia where they will not be facing prosecution by the tax office and regulators.
When will Russia be able to ease off?
In Russia, it is customary to first draft a law and then use it for legal actions. The basic law On Digital Financial Assets and articles in the Russian Civil Code on digital rights have been in force for the past 2.5 years. However, businesses in Russia are still afraid of doing something wrong and facing prosecution. Figuratively speaking, when Channel One hosts say that crypto activity is OK, then everyone will sigh with relief and bring themselves to get involved in it. In the meanwhile, only one company, Atomize, which is affiliated to a prominent oligarch, has received the license to open a crypto exchange (or, in the official language, “operator for exchanging digital assets”). In the US, dozens of exchanges were opened by private entrepreneurs during this time.
Due to particular properties of the Russian market, one should expect crypto-related activity from financial heavyweights such as Sber, VTB, Tinkoff and the largest IT corporations and commodity giants. Yet, senior executives of certain domestic ecosystems quite recently expressed their skepticism about the newly emerged sector – for instance, JP Morgan’s Jamie Dimon called bitcoin a ‘fraud’ a year ago, but now he has completely changed his stance.
Regular banks will actually gladly embrace the new way to earn commission fees. In the long term, the profit from buying or selling cryptocurrency can be compared to the present currency exchange and brokerage services margins. This is not fiction but a future perspective as the use of cryptocurrency can reduce the cost of all types of financial transactions, make them easier and accelerate them hundred-fold, and create new financial markets.
Easier, faster and cheaper
Another issue is that any talk about cryptocurrency in Russia is mostly about its prospects. Who needs bitcoin or ethereum in our country today? Realistically, firstly, the interest in cryptocurrencies comes from high-tech speculators, as well as people who have a stock market addiction similar to those who engage in gambling at a legal casino, and secondly, from fashionists and hipsters, who are simply inclined to show interest in ethereum or bitcoin. Such an ‘investor base’ could make one largely skeptical about cryptocurrency, which is seen as a non-serious thing. Yet, the actual prospects for cryptocurrencies are much more impressive.
Introduction of cryptocurrency has a massive practical value. For instance, it can serve as a convenient substitute for electronic digital signature (EDS) to be used for fast transfer of assets from one jurisdiction to another. If you have a stock and security portfolio on a broker’s account, transferring assets to another Russian broker – let along a US one – requires a lot of time and effort. Tokenizing securities allows for instantly transferring them to another address, with any international payments in cryptocurrency becoming more convenient, easier and more profitable.
Cryptocurrency can revolutionize the financial system. Currently, loans are provided by banks, and using them is rather expensive and difficult. With cryptocurrencies, one can become a ‘provider’ to collect a pool for anyone to take a loan on much more favorable terms. Such type of loan, although secured, is already obtainable at the moment – yet, unsecured loans will be available soon as well. The transformation of the financial system will take place eventually and inevitably.
Real estate is essentially a NFT
The real estate industry is already benefiting from cryptocurrency technologies. Any real estate property is inherently a non-fungible token (NFT); the developing legal landscape of NFTs will significantly reduce the cost of buying and selling real estate and make this process easier; it will also simplify joint possession, receiving a mortgage or a secured loan, and others. Russia’s first blockchain platform, Atomize, plans to issue tokens to represent real estate property.
Evita, a startup involved in legal tokenization of property development in the United States, has recently received $500,000 as investments from Russia’s Sinteza Venture Studio. The startup, which focuses on the US multifamily housing renovation market, intends to make it accessible to a wide audience with the use of cryptocurrency.
More crypto startups are getting involved in the real estate industry due to unique properties of real estate assets: they combine advantages of stocks and bonds as they allow for making profit both through cost increase and through a coupon yield alternative. In addition, real estate serves as an excellent defensive asset amidst the crisis, preventing sharp declines as opposed to the stock market drops.
Build a career
In the years to come, legalization and implementation of cryptocurrencies will be a hot topic for both states and private corporations. Russia can confidently predict a demand for skilled professionals in this domestic sector soon. Given the immense potential of IT specialists, a labor shortage should not be expected. And it should be noted that Russian crypto entrepreneurs will most possibly find their top prospects in building a career in existing large corporations or their subsidiaries rather than in setting up their own startups.
By Yury Gugnin, founder, Karma and Evita blockchain projects