September 09, 2020

Russian bitcoin miners could face seven years in jail

topic:	Economic Opportunity
located:	Russia
editor:	Igor Serebryany

Possession of a farm to mine cryptocurrencies as well as conducting operations with bitcoin and other cryptocurrencies could result in a prison term if a proposal drafted by the Russian Finance ministry passes into law.

The Finance ministry in late August offered to amend the law 'On digital financial assets' passed a month prior, as well as to change the Criminal Code, which would mean banning any operations with cryptocurrencies, including mining and using them as a legal tender. Those who already have bitcoins in their electronic wallets will have to freeze them indefinitely because they will be unable to sell, transfer, exchange or otherwise get rid of these "dangerous" assets. 

Anti-bitcoin obsessed today, the Russian authorities remarked that president Vladimir Putin "became a fan of the digital economy" just three years after then-first deputy prime minister Igor Shuvalov. In 2017, at the St Petersburg international economic forum, Putin met with the young Russian founder of Ethereum cryptocurrency Vitalik Buterin and vowed that the government sees digitalisation as a major thoroughfare to the country's economic success. Igor Shuvalov and Central Bank Deputy Governor Olga Skorobogatova were also panelists in the same session.

Recent proposals by the Finance ministry may manifest a sharp U-turn in the Kremlin's good intentions, head of Russia's Association of cryptocurrency & blockchain (RACIB) Alexander Brazhnikov fears. "If the amendments are passed, Russia will withdraw itself from the global technological race. It will fence itself from the rest of the world, making it impossible to participate in a big number of global projects," he said. "Russia will join the club of countries such as Algeria, Afghanistan and Bangladesh."

The law 'On Digital Financial Assets' legalises cryptocurrency trading in Russia. Now the Financial ministry is in a hurry to tighten the law before it comes to effect in 2021, because the Russian monetary authorities see cryptocurrencies as a threat to the ruble's stability and a tool for money laundering. The ministry suggested that issuance and possession of cryptocurrency should be penalised by a fine of $1,300 or up to seven years behind bars.

"The punishment proposed by the ministry looks disproportional compared to 'public danger' of operations with cryptocurrency. The proposals must be reconsidered," Brazhnikov stresses.

Russian Central Bank also fiercely opposes free circulation of cryptocurrencies in the country. Yet in 2017, CB's deputy head Olga Skorobogatova announced that the bank was developing its own digital currency and drafting a proposal to consider bitcoin a digital asset. Three years later, another high-ranking official of the bank warned that crypto mining bears "unjustified risks" for the national financial system and consumer rights.

"We oppose the institutions which issue cryptocurrency and facilitate its circulation," the CB's head of the legal department Alexei Guznov insisted in March. 

While the world's leading countries work on development of digital currencies, Russia considers the criminalisation of them, an expert in the Financial University Konstantin Ordov points out. "Russian developers will be made noncompetitive as a result," he warns.

Image by Miloslav Hamřík