Putin Pledges Support for Mining Operations

【TR; DR】
Russia has been engulfed in debates in recent months about whether banning cryptocurrency mining should be legally enforced, with the Central Bank’s proposal of nationwide crypto mining banning looming over the heads of Russian miners. However, Putin has since dismissed the proposal suggested by the Central Bank, instead backing a government proposition to regulate and tax cryptocurrency mining.

Putin’s support of the proposal means that areas with a surplus of electricity, such as Irkutsk, Krasnoyarsk, and Karelisa, could potentially have electricity wastage mitigated, as exclusively reported by unidentified individuals familiar with the current situation in Russia, where this information is yet to be publicly revealed.

This information comes at a time where regulatory bodies across Asia and the United States question the lack of regulation of cryptocurrencies and its associated operations, due to the belief that the highly volatile and privately operated marketplace could undermine the control of government-operated financial institutions and systems.

However, Russia was no exception to this. For many years, Russia has taken an avid anti-cryptocurrency stance, referring to the use of cryptocurrencies as potentially enabling money laundering or financial terrorism. Further to this, Russia ultimately recognised the legal status of cryptocurrencies in 2020, but strictly banned their use as a payment system.


Why Was Banning On The Table?
Sharing the concerns previously outlined by Russia, the Central Bank proposed a ban on the entire ecosystem of cryptocurrency, with a particular focus on cryptocurrency mining. Suggesting that cryptocurrency use on Russian territory poses a threat to the wellbeing of their citizens, monetary policy sovereignty, and financial stability, the Central Bank aimed to persuade Putin to coincide with their belief.

This ban outlined by the Central Bank appeared to resemble that of a blanket ban across all cryptocurrency operations within Russia, even forbidding banking institutions from having any involvement with cryptocurrencies. The Central Bank also hypothesised a potential scenario in which bulk block transactions could occur to convert mass volumes of cryptocurrency into fiat currency, before entirely disabling and blocking any involvement with cryptocurrency.

The Central Bank stated that due to the ‘speculative demand’ for cryptocurrencies that rapid growth has occurred, ultimately leading cryptocurrency to resemble a ‘financial pyramid’, which could present a danger to Russian citizens and the integrity of finance within Russia. Surprisingly however, the Central Bank is yet to outline a plan to address the use or ownership of cryptocurrencies as a private citizen. Elizaveta Danilova, head of the Central Bank’s Financial Stability Department, said that an addressal to private citizens was not yet ‘envisaged’ - perhaps spelling a more positive note on the imposition of a nationwide cryptocurrency crackdown.

With Russian cryptocurrency investors producing an annual transaction volume of $5 billion per annum, the Central Bank is unlikely to propose restrictions on private ownership, provided cryptocurrencies are not used as payment within Russian territory. The Central Bank’s primary target is ultimately, financial institutions and businesses.

However, the Central Bank also avidly opposes cryptocurrency mining operations, believing that the environmental impact is too great for them to be continued within Russian territory. The Central Bank has referred to cryptocurrency mining operations as being able to bypass regulations through the generation of incentives. Yet, Russia currently stands as the world’s third largest mining superpower, following the temporary shutdown in Kazakhstan and the ultimate shutdown in China last year - meaning that halting of cryptocurrency mining operations could massively impede global mining and potentially impact the market at large.


Putin’s Stance
In more recent updates to this division, Putin rejected the proposal put forward by the Central Bank, instead opting for a more lenient government backed proposition. The proposal supported by Putin essentially aims to tax and regulate cryptocurrency mining and not impose restrictions as drastic as those desired by the Central Bank. Whilst Putin’s stance on the matter is yet to be publicly confirmed, with Kremlin spokesman, Dmitry Peskov, abstaining from providing any clarity, it has been revealed that the President has ordered both the government and the Central Bank to reconcile their differences.

As Putin pushes pressure on both the government and the Central Bank to reach a mutual agreement on cryptocurrency regulation, it can be ascertained that the approval and implementation of laws and regulations lie in the foreseeable future for Russia.

In a public briefing, Putin acknowledged the ‘competitive advantage’ Russia has within the cryptocurrency mining landscape - alluding to why the proposal encompasses taxing. With ‘a surplus of electricity’ and ‘trained personnel’, Putin’s support of the government proposal may act as a means of utilising electricity to reduce wastage and to capitalise off of an industry flourishing without government intervention.


How Could This Affect Russian Miners?
Little is yet known about the prospective future for Russian cryptocurrency miners, yet it can be ascertained that their livelihoods and contributions to blockchain are far from over. However, it is highly plausible that strict regulatory impositions will be enforced, likely limiting the number of miners across Russia or the volume in which they mine. Alongside this, the introduction of taxation on cryptocurrency mining operations could mean that many miners may be required to designate significant portions of their earnings to the government, thus financially incentivising the government for enabling cryptocurrency mining.

Following the Central Bank’s and Putin’s respective statements on the cryptocurrency mining debate, co-founder of the Russian mining firm BitCluster, Vitaliy Borschenko, revealed that a variety of miners across the nation were invited to join a government working group to support nationwide mining operations. This development could signal that the Russian government is warming to the idea of cryptocurrency mining and that it could create a wealth of career opportunities within Russia.



Author：Matthew W-D, Gate.io Researcher
*This article represents only the views of the researcher and does not constitute any investment suggestions.
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