August 8, 2024, marked a major legislative milestone with new acts giving the crypto industry a much stronger foothold in the Russian Federation – the country passed three federal laws regulating crypto mining and circulation:
- Law No 221-FZ On Amendments to Certain Legislative Acts of the Russian Federation (setting forth regulations for mining activities);
- Law No 222-FZ On Amendments to Certain Legislative Acts of the Russian Federation (setting forth anti-money laundering rules with regard to crypto mining);
- Law No 223-FZ On Amendments to Certain Legislative Acts of the Russian Federation (establishing an experimental legal regime for the circulation of digital currencies and the use of cryptocurrencies for international payments).
The new legislation stipulates the notions of “digital currency mining,” a “mining pool” and a “mining infrastructure operator,” as well as a number of others.
At the same time, there are a number of hands-on issues that need clarification in by-laws to create an effective and understandable regulatory framework for the industry’s operation.
Firstly, the new package of laws generally allows the circulation of foreign UDRs (utility digital rights) in the territory of the Russian Federation, subject to a number of important conditions and restrictions. However, it does not specify a trustworthy source to verify whether specific foreign digital rights are permitted as digital financial assets for circulation in Russia.
As one solution, the Bank of Russia could set up a designated registry to be accessed upon request by an organization – for example, a legal entity that wishes to purchase digital rights and wants to confirm the legitimacy of this transaction first.
Second, which mining taxation model to choose, is still under discussion. Based on what experts say, the priority option seems to be taxation upon selling rather than, for example, creating mined cryptocurrency.
But what if mined cryptocurrency remains unsold for a significant amount of time – say, five years? Under this taxation model, the cryptocurrency may remain in staking and even earn rewards while not being subject to tax.
A differentiated tax rate that gradually grows as mined cryptocurrency remains unsold (and for as long as the budget must wait for taxes on it) is a potential solution. Also, this wait term could be limited to three years and, if the cryptocurrency was not sold, its market value as of the end of the third year since its mining can be the taxable value.
The third pressing issue concerns the nuances of applying the advertising law. It is prohibited to advertise digital currencies, crypto stocks or crypto exchanges to the public at large. But what is advertising in this context? Could an active hyperlink or mentioning cryptocurrency be qualified as advertising? Intentionally exaggerating, I will define the problem as follows: one can write about the current situation in the world market of cocoa beans, but can one write about the market of a cryptocurrency and the situation on this market?
The “public at large” as a term should also be narrowed down. Is a post on a private Telegram channel or an offer made solely to qualified investors in the sense of this term in the Russian law on financial markets an offer that is not made to the public at large?
I believe we should wait for clarification from the Federal Service for Supervision of Communications, Information Technology and Mass Media (Roskomnadzor). It is also important to note which policy the leading Russian news aggregators will follow.
The industry’s biggest questions have been answered, thanks to legislators and the expert community. There are still quite a few questions unresolved.
By Artem Genkin, Doctor of Economics, Professor, President of the NPO Center for Protection of Bank Clients and Investors, member of the Bank of Russia’s Expert Council on Financial Services Consumer Rights Protection, member of the Council on Financial, Industrial and Investment Policy under the Russian Chamber of Commerce and Industry, founder of Invest Foresight