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Russia Wants to Ban Cryptocurrency, Kind Of

Bitcoin and Ethereum
(Image credit: Shutterstock)

The Central Bank of the Russian Federation, the country's main financial regulator, has published a report covering risks associated with cryptocurrencies for investors and states. But while the report is urging to prohibit mining, trading, or using cryptocurrencies in the country, it looks like only trading and using will be prohibited. The Federal Security Service (FSB) lobbied the Central Bank of Russian Federation (CBR) to propose banning cryptocurrency payments within Russia due to political reasons.  

Decentralized cryptocurrencies have numerous advantages over regular currencies as they cannot be easily tracked down by governments, they are easy to use for cross-border payments, transactions are very fast, and they are sometimes good tools to hedge against inflation. But cryptocurrencies have their disadvantages too. They are extremely volatile fiat currencies not backed by or convertible into commodities or goods and because of their high volatility they are routinely used by fraudsters or criminals. Meanwhile, cryptocurrency mining consumes a lot of power, which poses risks to stable power supply to regular clients, and ultimately hurts the environment, which is why Swedish experts called its government as well as EU to ban Bitcoin and Ethereum mining.

But these are not the primary reasons why the FSB wants cryptocurrency payments banned in Russia. The government in the country put enormous pressure on political opponents and independent mass media in the recent years. To prevent their financing, the authorities essentially left free media without advertisers and then without private donations. The only way to support independent politicians (which are deemed 'undesirable organizations', 'extremists' or 'foreign agents') and media within Russia and not get into trouble is to send donations using hard-to-trace cryptocurrency payments. These payments are what the FSB targets and which is why the report has been published, reports Bloomberg

Russia was the world's third largest miner of Bitcoins as of August '21, according to according to figures published by the Cambridge Centre for Alternative Finance. Therefore, cryptocurrency mining is a huge business but also a huge source of pollution in the country.  

The current plan includes banning all cryptocurrency transactions allegedly to safeguard people against reckless investments and fraud within Russia. Yet, residents will still be able to own cryptocurrency in other jurisdictions, trade, finance whoever and whatever they want without any risks of getting prosecuted in Russia (mainly because it is impossible for FSB to control foreign cryptocurrency wallets), but with obvious risks associated with cryptocurrency and investments. For obvious reasons, it will be impossible to use Russian financial system to buy cryptocurrency from any foreign exchanges to use it in other jurisdictions. Also, financial institutions from Russia will not be allowed to buy various digital coins. All of these will ultimately reduce popularity of cryptocurrencies in the country. 

Another CBR proposal includes banning cryptocurrency mining in the country, but so far the regulator has not discussed it with any other government-run organization, reports TJournal. Apparently, the idea behind crypto crackdown in not to reduce consumption of electricity to ensure stable supply of power to regular clients, limit CO2 emissions, and protect environment, but rather to comply with FSB's requirements. 

Russia became a major Bitcoin and Ethereum miner after cryptocurrency mining was banned in China and many large-scale farms moved to Russia and Kazakhstan. At least for now, it looks like their business is more or less safe, but if it gets severely regulated or prohibited, the global Bitcoin and Ethereum hash rate will drop and nobody knows how this affects cryptocurrency prices.

Anton Shilov
Anton Shilov

Anton Shilov is a Freelance News Writer at Tom’s Hardware US. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • -Fran-
    Do svidanya Crypto, LeL

    Considering that this same argument can be used and is used to say illegal operations are being funded with crypto, I don't think there's much else to say. Whatever means of funding things is not "transparent" (traceable and taxable, mainly), it'll be used to fund The Shady (TM), deemed by the State/Govt. Sadly, this news reeks of politcal bias, but I can't help but think I rather have them banned everywhere and look for ways to protect actors, such* as independent politicians.

    Regards.
    Reply
  • Endymio
    But cryptocurrencies have their disadvantages too. They are extremely volatile fiat currencies...
    Another day, another article blunder. Crypto is extremely volatile; it is, however, not a fiat currency.
    Reply
  • zipspyder
    Endymio said:
    Another day, another article blunder. Crypto is extremely volatile; it is, however, not a fiat currency.

    Agreed but the true believers tried to push that as a fiat replacement in the beginning. So technically the article is correct.
    Reply
  • spongiemaster
    Endymio said:
    Another day, another article blunder. Crypto is extremely volatile; it is, however, not a fiat currency.
    Crypto as a whole is not, but Bitcoin is. El Slavador has declared it legal tender in their country.
    Reply
  • salgado18
    Decentralized cryptocurrencies have numerous advantages over regular currencies as they cannot be easily tracked down by governments, they are easy to use for cross-border payments, transactions are very fast, and they are sometimes good tools to hedge against inflation.
    Only to a few people, that is. Being untraceable is basically only good for avoiding taxes and other illegal activities. Transactions are not necessarily fast, some of them take way longer than a debit or credit card transaction. And rarely they are good against inflation, since they have such a volatile value. That is why the news should say something like "The argument in favor of decentralized cryptocurrencies", because they are just that, arguments, and not facts.
    Reply
  • InvalidError
    salgado18 said:
    And rarely they are good against inflation, since they have such a volatile value. That is why the news should say something like "The argument in favor of decentralized cryptocurrencies", because they are just that, arguments, and not facts.
    The problem with crypto as a currency is the same as wealth on the stock market: if everyone needs to cash out at about the same time for whatever reason, the market will run out of buyers capable of affording inflated prices and the markets will collapse. That's why wealth tax is scaring billionaires.
    Reply
  • Endymio
    spongiemaster said:
    Crypto as a whole is not, but Bitcoin is. El Slavador has declared it legal tender in their country.
    No. The defining characteristic of a fiat currency is not that it is legal tender, but that it can be issued indefinitely and unrestrictedly by the fiat -- or order -- of a governmental body.
    Reply
  • Endymio
    zipspyder said:
    Agreed but the true believers tried to push that as a fiat replacement in the beginning. So technically the article is correct.
    It's right because it's wrong? Your argument is akin to claiming , since electric vehicles are pushed as a replacement to gas-powered ones, that Teslas are technically gas-powered.
    Reply
  • Endymio
    salgado18 said:
    transactions are not necessarily fast, some of them take way longer than a debit or credit card transaction. And rarely they are good against inflation, since they have such a volatile value.
    While you are correct about the dismal speed of some crypto transactions, your latter statement is incorrect. Inflation is a characteristic of fiat currencies only. In periods of high inflation, investors hedge by transferring a larger portion of their assets into non-fiat commodities: gold, real estate, etc. From an investing perspective, crypto shares this characteristic with such commodities, and can be expected to outperform in periods of high inflation and strong economic growth. In the (less typical) case where high inflation is coupled with a recessionary economy, the volatility of crypto would likely outweigh its non-fiat nature, and investors would tend to favor more stable commodities.
    Reply
  • spongiemaster
    Endymio said:
    No. The defining characteristic of a fiat currency is not that it is legal tender, but that it can be issued indefinitely and unrestrictedly by the fiat -- or order -- of a governmental body.
    No, the defining characteristic is that it isn't back by a commodity. That's the whole point of fiat currencies, to remove the instability of being based on commodities whose values ebb and flow. They do also have to be considered legal tender by a government. Which bitcoin is by El Salvador. But that isn't the defining feature of fiat currency.
    Reply