Is there a future for the cryptocurrency business in Russia

CONTENT

  • New bill forces crypto business to leave Russia

  • Crypto exchange management hopes to revise the text of the bill

  • Restrictions on the turnover of stablecoins

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The topic of the new bill “On digital payment assets” still causes controversy and discussion in the crypto community. And while Russian politicians are lobbying for the adoption of the document in the form in which it was presented, representatives of the cryptocurrency business assure that if the bill is approved, exchanges and exchangers will not be able to work in the country. Is there a future for cryptocurrencies in Russia, BeInCrypto discussed with the founder of the Garantex cryptocurrency exchange Sergey Mendeleev.

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– Sergei, we would like to discuss with you the draft law that the State Duma submitted for consideration to the Ministry of Economic Development in May. What will its adoption mean for the Russian crypto industry? As an industry representative, what do you think of the new bill??

S.M.: In the form in which the bill appears now, it actually prohibits cryptocurrency trading in the Russian Federation. Everything related to cryptocurrencies is placed outside the legal framework, a direct prohibition is introduced, including criminal liability for organizing trade in cryptocurrencies.

In fact, this means the end of the anarchy that reigned in the Russian crypto industry until now. How should the crypto community respond to this situation? It is clear that the expert community reacted extremely negatively to the bill. Moreover, even a number of ministries, in particular, the Ministry of Economic Development and the Ministry of Justice, also sent negative opinions on the proposed draft law, since very important things are not spelled out in it and, generally speaking, it is not entirely clear what exactly is prohibited and allowed.

– The law states that it will not be possible to trade the largest cryptocurrencies within the Russian information infrastructure. Is there still an opportunity for Russian citizens to turn to foreign exchanges and buy bitcoin, ether, etc. there? Will crypt be sold to Russians on exchanges of foreign jurisdictions?

SM: Let’s start with the main point concerning such a thing as the Russian information infrastructure, the use of which will be prohibited under the new law. It is clear that there is a special prohibition on the use of Russian domains, sites, hosting, etc., but the question remains whether, for example, there will be a regular smartphone, which is used by an ordinary Russian citizen in order to buy or sell cryptocurrency on some Western exchange – Binance, for example, or Huobi – will it be considered an object of the Russian information infrastructure?

Because if so, then in this case you need to understand that any exchange located anywhere in the world automatically falls under criminal prosecution in the Russian Federation. And any person, an individual who will provide services for the sale and purchase of cryptocurrency outside the Russian Federation to citizens of the Russian Federation, that is, leaving Russian IP addresses, automatically, according to the Russian legislation proposed now, will be subject to a ban and criminal prosecution.

We all know what this leads to. In particular, for a huge number of citizens of foreign jurisdictions, the purchase and sale of cryptocurrencies is already prohibited. There are serious difficulties with US citizens, certain difficulties with citizens of Singapore, South Korea and a number of other jurisdictions. In fact, with this bill, the Russian Federation will introduce itself into a kind of sanctions field, and world crypto-exchanges, in order not to violate the law and not fall under criminal prosecution, will have to completely deny citizens of the Russian Federation in using their resources for trading.

Again, the question remains, at what point a smartphone belonging to a citizen of the Russian Federation ceases to be a member of the Russian information infrastructure. If, for example, I leave the Russian Federation with my smartphone, will this smartphone participate in the Russian information structure? Most probably not. But at what point will the transition take place? When will the passport be stamped when crossing the border? These nuances are not indicated in the new law.

You need to understand that no one will understand this whole story at first. That is, if the law is adopted in the form in which it is supposed now, then, I repeat, this will most likely lead to very serious consequences for the entire Russian crypto business. In particular, for all crypto exchanges and crypto exchangers that are currently operating in the Russian Federation. It is clear that all of them are somehow connected with world crypto-exchanges, world financial flows, and this story alone cannot exist in any way. There can be no sovereign Internet in the crypto environment.

– Under the new bill, not all cryptocurrencies are subject to the ban. Why bitcoin, the first and main cryptocurrency, is outlawed, while “copyright” tokens can be traded? Is this so, and where is the logic?

SM: The draft federal law is very loose with interpretations associated with the definition of what a cryptocurrency is in principle. In particular, according to the new federal bill, it is prohibited to trade those tokens that do not have a person obliged under them. We all know that cryptocurrencies like Bitcoin or Ethereum do not have a central authority to issue them. There are independent miners, the currency is freely circulating, and it is these tokens that will be banned. That is, under the new law, bitcoin is subject to a complete ban, and bitcoin, if this law is passed, will not be able to trade. But, for example, such cryptocurrencies as Tether (USDT) or a number of other, very popular and well-known, primarily stablecoins, have persons who are obliged for these tokens in their composition and in their whitepaper. That is, any stablecoin, except for those issued according to the principle of oracles and decentralized ones, has a certain real structure under it that is responsible for them and bears obligations to pay real fiat funds on these stablecoins.. 

Specifically for Tether, this is Tether Limited. This is a well-known company that is constantly criticized, audited and so on. From the point of view of the new law, it turns out that USDT, unlike bitcoin, can be traded. Why? Because he is not subject to the ban. It turns out a paradoxical situation: from the point of view of the law, it will be possible to trade Tether, which has a person obliged under it, but at the same time it will not be possible to trade bitcoin. This is extremely strange, because it is completely clear that if it is possible to trade USDT within the Russian Federation, then it will be bought here, and then, if someone needs bitcoin, it will be possible to exchange USDT for BTC on Western exchanges in order to bypass the sanctions..

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And it is clear that from this point of view, the law will need to be finalized, to separate several key points within the law, because the whole world and all world practice follows the path of dividing tokens into different subspecies, and in our Russian Federation the authors of the law have introduced some kind of new gradation. There is no such thing as, for example, a security token.

– What other concepts in the new bill, in your opinion, need to be improved?

SM: There are other points that are not entirely clear how they will be implemented and in general what the authors had in mind. These are key points related to the fact that the law in its current form allows trading USDT tokens, which in the Russian Federation, unlike Bitcoin, Litecoin, Ethereum and others, are within the law. And all independent coins, which in fact are exactly cryptocurrencies, are outlawed.

Well, it is clear that a number of things are still missing in the law. For example, the rules for issuing digital financial assets in the information system organized on the basis of foreign law are not specified, the problem of identifying foreign investors is not resolved, the maximum amount of transactions with digital financial assets of Russian legal entities is not set, and a number of other points that must be provided for in the law.

– What do you think about the penalties that the new law is going to introduce? Why is cryptocurrency trading equated to a criminal offense, and is it supposed to be punished more severely for organizing work with it than for a series of much more serious illegal actions? And on what legal basis has cryptocurrencies been traded so far?

Is there a future for the cryptocurrency business in Russia

SM: Now, crypto-assets or digital rights, whatever it is called in the Civil Code, can be traded in the Russian Federation. The law clearly separated the concepts of currency values ​​and digital rights, introducing Article 141.1 of the Civil Code and allowing their circulation. The logic of the legislator here is also not entirely clear, because if the legislator would like to completely ban the trading of cryptocurrency assets, he could do it very simply – without separating the concept of digital rights and currency values. Article 141 of the Civil Code refers to currency values ​​- they are all clearly regulated. In order to change and conduct other operations with currency, you need to obtain special licenses available to banking institutions. That is, if the legislator wanted to completely prohibit the trade of digital assets, digital currencies, digital rights and others, it would be enough for him not to introduce Article 141.1 into the Civil Code, but simply equate currency values ​​to Article 141.

For some reason, the legislator did not do this, that is, they wanted to separate this moment from the very beginning. But now the regulators have tried to return this issue back to normal – to ban it, and at the same time to impose very serious sanctions, because those amendments to the criminal code that are supposed to be much tougher and much stronger in punishing cryptocurrency trading than, for example, for violations related to currency transactions.

That is, if you start somewhere quietly changing rubles for dollars, then everything in which you can be punished according to the Code of Administrative Violations is to be fined for the whole amount of the transaction. That is, if you changed $ 10,000 for rubles, not as an individual, but quietly organizing some kind of underground currency exchange office, then in this case you may be fined for the full amount of the transaction. If you try to organize such an exchange office with cryptocurrencies in the wording of the new law, you can easily get up to 7 years in prison.

To me this bias seems somewhat illogical. It seems strange to me that the legislator suddenly decided to punish much more severely for cryptocurrency violations than for violations related to fiat currencies.

– Do you have any plan for how Garantex will act in the new conditions? Are you going to leave the Russian market?

SM.: In any case, even before the approval of this bill, we were thinking about how we would have to interact with it, how we can continue the work of Garantex in order, first of all, to fully comply with Russian legislation, and secondly, to observe some necessary parity basis for free trade. Because it is clear that if the law completely prohibits us from working as an Estonian crypto exchange on the territory of the Russian Federation, we will not be able to do this in violation of the law..

But inside Garantex, we have come up with several ways that our exchange can overcome these moments. We have resolved all issues related specifically to cryptocurrency trading outside the Russian Federation. That is, we will not in any way use the Russian information structure within our platform – no domains, no servers, and so on. We will not have anything in common with Russian structures – foreign registrations, foreign licenses, foreign completely everything. All infrastructure will be removed outside the Russian Federation. 

Issues related to the replenishment or withdrawal of funds will be resolved in approximately the same way in which they once thought of replenishing and withdrawing funds from webmoney and qiwi wallets. Russian legislation allows this within the framework of the national payment system, therefore, in general, we will be fully prepared to meet this law. But I repeat once again that, of course, it will be very difficult to do, it will deal a very serious blow to the entire cryptoindustry in the Russian Federation.

– What would you say to our legislators if any of them sees this interview?

SM: I really hope that the government of the Russian Federation and the State Duma will listen to the opinion of the crypto community and crypto experts and abandon the idea of ​​adopting the bill in the form in which it is written now, for the reasons that I have outlined. We very much hope that we will be able to continue to work calmly within the Russian Federation on the principles on which we have done this so far. We very much hope that reason will prevail and the state will nevertheless enter into a dialogue with experts in order to establish the work of the industry and develop new legislation without a total ban.

– Thanks for the conversation!

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Is there a future for the cryptocurrency business in Russia
Is there a future for the cryptocurrency business in Russia
Is there a future for the cryptocurrency business in Russia

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