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.