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Legalization of Cryptocurrencies in Russia

Jul 28, 2020

On July 22 the Russian State Duma introduced new legal framework legalizing cryptocurrencies in Russia and also properly defining them. Draft law was approved by legislative branch in the third reading and the new law will come into effect on January 1, 2021.

According to new legislation any digital currency will now be recognized as a set of electronic data which can be used for payments purpose or even as an investment tool. It has been determined by local lawmaker that digital currencies do not have any centrally responsible party and are managed by the operators and nodes of the blockchain network. Also, new legal framework clarifies that digital currencies are recognized as a type of property and they cannot be used as a mode of payment. The law also touches the administrative liability for violation of rules involved in the crypto transactions.

Decision to legalize cryptocurrencies follows the non-consensual government's attitude towards crypto currencies. In May 2020 Russian government was moving to criminalize Bitcoin transactions by proposing new legislation controlling the digital currencies even proposing prohibition on their issuance and circulation within the Russian territory. For violating the payments norms, the individuals would be penalized with USD 282 to USD 2820 and for legal entities this fine would be from USD 1,412 to USD 14,120. In addition to the large fines, the authorities also intended to put the involved parties under imprisonment for up to 7 years, depending on the amount of involved digital currencies and the damage to the country’s financial system. This came when major cryptocurrency exchanges including Binance were entering the Russian market, calling a progressive stance of the country’s leaders towards crypto.

These suggestions were not supported by already operating crypto businesses and proposed law faced backlash from the industry participants. Therefore, Russia’s ministry of economy criticized the bill being considered in the State Duma, which seeks to ban the use of bitcoin and other cryptocurrencies in Russia by including requirements that would punish crypto dealers with prison terms and hefty fines. The authority believed that the adoption of previous law version would only create an “uncontrolled black market”. In contrast the Ministry of Economy proposed mechanisms like imposing new rules for crypto assets’ issuance and transactions, as well as to bring operators like exchanges and custodians under the government’s supervision.

Although the new laws that regulate cryptocurrencies will come into effect on January 1, 2021, many field experts believe that this will not change the existing crypto industry in the country as the bill only gives a legal definition to the digital currencies. One of the bills advocates and one of the members of the State Duma, Anatoly Aksakov, stated that the new regulations will allow local companies to issue stablecoins.

New law also highlighted that the Russian central bank will oversee any issuance of new digital currencies in the country, and will further decide on the features. In an effort to foster regulatory clarity in the Russian cryptos pace, the nation’s central bank has recently introduced new guidelines to govern market participants and shareholders. The regulator will decide on a framework of selling of the digital currencies to qualified investors.

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