Last week, an annual forum featuring Russia’s top people from the economic sector was held in St. Petersburg, and cryptocurrencies were a hot topic there. Notably, government agents and state-controlled businesses were vocal about their interest in blockchain, but seemed to distance themselves from digital tokens.
Meanwhile, the regulatory framework for cryptocurrencies is still missing in the country, despite the fact that local authorities have been tasked to prepare the needed amendment a while ago. So, where is Russia heading in terms of crypto and blockchain?
Russia’s stance on cryptocurrencies has been mixed and fluid, as demonstrated by how the “CryptoRuble” — the national stablecoin project — has been unfolding. First, the prospect of using a substitute for conventional money was deemed “illegal” by financial ombudsman Pavel Medvedev. Then, the Kremlin supposedly decided that a pet stablecoin could “minimize the amount of anonymous transactions,” or even help evade Western sanctions, thereby greenlighting the project. However, the CryptoRuble ended up on the back burner in the end, as the current status of the project is unclear. It was last mentioned in the news in January 2019, when a government official declared that it could go live “in a 2-3 years,” although the Central Bank of Russia (CBR) was acting “very conservatively” about the idea.
Cryptocurrencies at large are in a similar situation. In October 2017, President Vladimir Putin claimed that cryptocurrencies “cause serious risk” and are used for crime, citing the CBR’s decision to block websites selling digital assets. Just a month prior to that, Russian Finance Minister Anton Siluanov argued that the authorities had to accept the idea of the digital currencies market:
“There is no sense in banning them, there is a need to regulate them.”
There have been numerous attempts to define cryptocurrencies legally since then. At different times, Russian lawmakers have been urged to introduce a regulatory framework by President Putin (twice), the local Supreme Arbitration Court and the Financial Action Task Force.
In May 2018, the crypto bill — titled “On Digital Financial Assets” (DFA) — was passed by the Russian parliament but was soon sent back to the first reading stage due to the lack of definitions for key concepts, such as crypto mining, cryptocurrencies and tokens.
Last month, Prime Minister Dmitry Medvedev reportedly said that the popularity of cryptocurrencies “has decreased,” which is why the regulation issue “not that relevant” anymore. Notably, a year ago, he urged the government to legislate at least some basic crypto terms.
The current deadline for the regulatory framework set by Putin expires in July.
Despite the prime minister’s suggestion that cryptocurrencies have decreased in popularity, they were widely discussed at the St. Petersburg International Economic Forum (SPIEF), an annual Russian business event for the economic sector, which took place from 6 to 8 June.
The panel dubbed “Blockchain technology and cryptocurrencies: Past, Present, Future” saw Vitalik Buterin, a co-founder of Ethereum; Chris Lee, a financial director at Huobi; Ted Lin, chief growth officer at Binance; and Kevin Shao, among others, featured in the expert pool.
Lin and Lee reported an influx of traders of a “new generation” on their platforms due to the recent market growth. According to them, the trend will persist for the near future.
Buterin, in turn, talked about Ethereum 2.0, also called Serenity — a major upgrade that is supposed to make Ethereum 1,000 times more scalable in 18 to 24 months.
Sergey Shvetsov, first deputy governor of the CBR, reportedly compared cryptocurrencies to a “game” while peaking at the SPIEF. He is quoted as saying:
“If we’re talking about cryptocurrencies and forex-clubs, it’s not a financial market, it’s just a game. There are people who like to play, they invest in it [cryptocurrency], but the ripples will affect others. Which is why we have quite a strict policy here.”
Hence, the CBR once again stressed its skeptical position toward cryptocurrencies. Last month, Elvira Nabiullina, the head of the Bank of Russia, said her agency was against the idea of crypto becoming a substitute for fiat money.
Leonid Petukhov, the head of the Far East Investment and Export Agency, suggested creating an offshore destination for cryptocurrencies on the Bolshoi Ussuriysky island, which lies on the border with China. He told TASS, a Russian news media:
“We want to make a large financial center there. Metaphorically speaking, that would involve cryptocurrencies, cryptocurrency exchanges, timber trading platforms — so like domestic offshore, in a good sense. What we did in Kaliningrad.”
Petukhov was likely referring to Oktyabrsky Island in the Kaliningrad region, which, along with Russky Island in Vladivostok, became offshore economic zones in 2018. Foreign companies registering in those clusters are exempt from certain levies — for instance, they are free from paying taxes on profits received by way of dividends. However, neither of those zones currently involve any cryptocurrency-related benefits.
Herman Gref, CEO of state-owned bank Sberbank, declared that he considers bitcoin a “technical instrument for transactions,” rather than a type of investment. He also referred to his own experience of investments in crypto, revealing that he had bought bitcoin when it was worth about $5 and used it for payment purposes instead of holding the coins.
Further, Gref clarified that his bank will not develop any crypto-related services but will focus on blockchain-enabled tools instead. As the CEO put it, the crypto market’s hype has gone, but “regular work with blockchain tech has remained,” which makes him “happy.”
Nornickel, the world's leading producer of nickel and palladium, signed a partnership agreementwith IBM and the Moscow Institute of Physics and Technology (MIPT) during the forum. The alliance will establish an education center that will offer blockchain-related programs, both for postgraduate and Ph.D. students.
“Students and postgraduates will learn how to apply blockchain technologies, and will gain knowledge about cryptocurrency exchanges, stablecoins, tokenization platforms and similar services,” the parties reportedly declared in a mutual statement.
Moreover, Nornickel’s president, Vladimir Potanin, argued that tokenization has the potential to make trading easier, cheaper and more transparent. Earlier in March, he unveiled his company’s plans to create cryptocurrency tokens backed by palladium. Those tokens will purportedly be used for trading palladium through a Switzerland-based palladium fund, as well as on several other digital platforms.
Blockchain-based Vostok platform’s main network was launched at SPIEF. The mainnet will reportedly be used to validate transactions, while Vostok’s clients — represented by large Russian corporations and state agencies — will also have the ability to create their own nodes and use private subnets.
As Cointelegraph reported last month, the Russian city of Nizhny Novgorod had begun testing the use of the Vostok-powered application “City N,” which allegedly allows residents to file their taxes and verify their identity, among other things.
Igor Sechin, head of major Russian oil company Rosneft, reflected on a potential relationship between oil and cryptocurrencies. Specifically, he said that the possibility of paying for oil using digital assets in the future “should not be ruled out.”
According to Sechin, Silicon Valley tech giants like Google, Amazon and Apple are beginning to explore the oil and gas sector, which is why a Facebook stablecoin could one day be used to purchase oil by the barrel.
Further, Sechin warned there are some obstacles that cryptocurrencies need to overcome in order to draw the attention of energy giants. He was quoted as saying:
“Greater flexibility often means greater volatility, and digitalization creates risks for maintaining commercial secrets and leads to the need to create new regulatory mechanisms, additional reservations. Today, technology companies do not have quality answers to these fundamental questions.”
Meanwhile, the Russian government continues to consider strict regulations for the cryptocurrency industry. Most recently, a representative of Russia’s parliament mentioned that the officials are considering imposing administrative responsibility for the mining of cryptocurrencies.
“We believe that cryptocurrencies created on open blockchains such as bitcoins, ethers, and others are illegitimate tools,” Anatoly Aksakov, the chairman of the State Duma Committee on the Financial Market, told TASS.
Things are much more bullish on the blockchain front, however. This week, Russian authorities signed an agreement with Danish logistics titan Maersk to launch TradeLens — a blockchain shipping platform — across all of Russia to digitize paper-based transportation operations. Earlier last month, Russian state-owned holding conglomerate Rostec proposed an ambitious roadmap on applying blockchain in all the governmental data systems — all of which seems to suggest that Russia’s intentions toward the technology are getting increasingly serious.
In recent weeks, major South Korean financial institutions have rolled out a number of services incorporating blockchain technology, especially in the areas of