A few days ago, Russia’s parliament rejected a new bill on the mining of Bitcoin and other cryptocurrencies.
This was reported by local news agency Interfax, which reveals that on 19 October in Moscow the State Duma voted against the bill on cryptocurrency mining proposed by deputies of the “Novye ljudi” party, known in the West as “New People.”
Russia’s parliament rejects bill on Bitcoin mining
New People is a party ostensibly of liberal and progressive orientation, but it is believed to be sponsored by the regime to take votes away from the real liberal opposition.
Thus, while theoretically a centrist party, it actually supports the regime and the government.
This suggests that there may also be a political motivation behind the Russian parliament’s choice to reject this bill.
While New People supports the current regime and is thus part of the majority that supports the government of Russia, it is opposed by the dominant party, Yedinaya Rossiya (United Russia).
Thus, the rejection of the cryptocurrency mining bill submitted by New People could also be an attempt by United Russia to assert its preponderant strength due to pure internal force dynamics within the regime.
United Russia has almost 50% of the parliamentarians, while New People has only 5%. The current Russian government consists only of United Russia or independent members.
Bill No. 127303-8 is called “On Mining in the Russian Federation” (“О майнинге в РФ”), and would lay the regulatory groundwork for regulating cryptocurrency mining nationwide. However, it does not specify how fees should be calculated and applied, nor does it specify the requirements that data centers and mining operators should have.
Therefore, it is also possible that the rejection was due to its incompleteness, such that the official reason was that the bill was fragmented and patently insufficient, and that it did not meet the requirements of completeness, certainty and unambiguity of the proposed regulations.
On the other hand, the Financial Market Committee had also previously expressed a negative opinion on the text of the bill, because it did include the de facto use of cryptocurrencies as a means of payment in the Russian Federation, which is actually prohibited by the Constitution. In fact, the Constitution of Russia states that the only currency of the Russian Federation is the ruble, and that the introduction and issuance of other currencies are not allowed.
Russia: Bitcoin mining is unconstitutional
Russia’s relationship with cryptocurrencies is complicated, and has changed over time.
Initially, the country seemed likely to be in favor of their widespread use, but then the regime categorically opposed it. However, a couple of events have generated some more recent openings.
First was China’s mining ban in May 2021, when many Chinese miners were forced to migrate abroad in order to continue mining.
The biggest beneficiary was neighboring Kazakhstan, where the price of electricity is very low due to the wide availability of fossil sources. To date, Kazakhstan is reportedly the third largest Bitcoin hashrate country in the world.
In the months that followed, to tell the truth, many Chinese miners turned their machines back on, to the point where China is now back to being the second largest hashrate country in the world. However, the 2021 ban has caused it to be overtaken by the US in this particular ranking.
Some miners have moved to neighboring Russia, again thanks to reduced electricity costs. However, there is a de facto ban on cryptocurrencies in Russia, so mining is not easy. Indeed, despite the fact that Russia is much larger than Kazakhstan, and has many more low-cost energy resources, its hashrate is about one-third that of the central Asian country.
Presumably, the intention of the New People’s bill was precisely to encourage the installation of more hashrate in Russia, perhaps competing with China and Kazakhstan of all places.
But the submitted text was deemed to lack a systematic approach to the regulation of mining and digital currencies.
In other words, it was deemed technically inadequate, and therefore not approvable.
Russia opens up to the crypto world after the conflict in Ukraine
The second event that has generated an opening of Russia to cryptocurrencies is the war in Ukraine.
Indeed, due to international sanctions, it has become difficult for Russian citizens and companies to conduct financial transactions with foreign countries.
This has prompted the regime to make the use of cryptocurrencies legal for foreign transactions while maintaining the ban on domestic ones.
This would not violate the article of the Constitution that prohibits the circulation in Russia of currencies other than the ruble, instead allowing their use to and from abroad.
Even the Russian government’s own Ministry of Finance, headed by United Russia’s Anton Siluanov, is in fact preparing its own version of amendments to legislation to regulate cryptocurrency mining.
Thus it is precisely the government that is working to regulate cryptocurrencies in the country, so it is more than logical that New People’s external proposal was rejected.
In such a framework, it also makes sense that the rejected bill was deemed to lack a systematic approach to the problem, since it only covered mining, whereas the government is working on systematic regulation of cryptocurrencies in the country.
Bitcoin mining in Russia: sanctions and favorable territory
It is worth mentioning that over the past two years the confusion that seemed to reign supreme in Russia regarding cryptocurrencies has been thinning out somewhat.
On the one hand, it was certainly reduced when a clear decision was made to ban its domestic use. On the other, it was further reduced when it was decided to accept their use for transactions to and from abroad.
In contrast, the attitude toward mining still seems confused, but even here a possible solution is beginning to appear.
It seems very difficult for Russia to opt for a ban on mining, all the more so because it has large amounts of cheap energy and could make attractive profits from mining.
On the other hand, it also seems likely that it might follow the example of Iran, where mined cryptocurrencies can only be used to raise capital from abroad. In other words, since cryptocurrencies cannot be used within Russia, but can be used for transactions abroad, miners could somehow be forced to surrender the tokens obtained through mining to the state in exchange for a payment in rubles, and so the state could buy cryptocurrencies at reduced prices in order to use them for transactions abroad.
Since cryptocurrencies are uncensored, this use could allow the Russian state to circumvent sanctions.
For now, the government has not yet deliberated on this, but if the current situation continues, it is possible that it will do so soon.