If you're talking economics in Russia these days, you won't be able to avoid the matter of digital currency.
Leading online Russian news agency Lenta.ru’s economy lead on November 20 made no bones about the issue. “What will help Russia escape its oil dependence?” asked the headline. The vaunted solution: digital currencies.
Yet, despite Vice’s recent assertion that Russia has gone “all-in” on digital currencies, the Kremlin continues to deliver mixed messages. On the one hand, government officials will not stop berating digital currencies, claiming that they are the tools of money launderers and terrorists. But there are also signs that Russia might just be on the verge of embracing digital currencies – on an unprecedented scale.
Cause for concern?
Where does the negativity stem from? Well, for a start, the country’s Central Bank recently warned of “serious concerns over the risks of digital currencies,” claiming that terrorists can exploit them to their own ends, and berating “the highly volatile nature of the crypto-currency market.”
Officials have vowed that they will issue a comprehensive set of regulations before the year is out, and the Duma’s head of IT Leonid Levin said in September, "In a country where millions have suffered from pyramid schemes, we should not allow citizens to sell their apartments to make cryptocurrency investments."
Last month, the central bank even said it would move to block access to online digital currency exchanges, and called bitcoin and other currencies “dubious.”
Glass half full
You could argue that shutting the door to digital currencies makes no real sense to Russia, a country that is quite publicly trying to find ways to reduce its well-publicized dependence on selling oil and gas.
Many claim that digital currency mining presents countries like Russia with a massive opportunity. As energy prices remain so low in Russia, Vladimir Putin and his aides are no doubt casting an eye at former Soviet states like Georgia, whose state-run bitcoin mining center is now the envy of all Central Asia. This success story appears to have them, “why aren’t we doing something like this?”
Russian Miner Coin, a venture that Bloomberg claims is run by one of Putin’s internet aides, is proposing to do just that. Dmitry Marinichev, Russia’s Internet Ombudsman of Russia and perhaps the most influential digital currency advocate in the country, has claimed that Russia “has the potential to reach up to a 30 percent share in global cryptocurrency mining in the future.”
Much has also been made of Putin’s recent meeting with the 23-year-old founder of Ethereum, Vitalik Buterin, with the Kremlin’s official website recounting that “Buterin spoke about the possibilities of using the technology he had developed in Russia," and adding that “the president supported the idea of establishing business contacts with potential Russian partners."
The country’s banks also seem very keen on Ethereum. Vnesh Econombank (VEB) announced it had begun work on an Ethereum-based project back in August, with Buterin himself turning up to sign an agreement with VEB chiefs.
Meanwhile, another leading Russian bank, Sberbank, has recently joined the Enterprise Ethereum Alliance (EEA), whose members also include the likes of Accenture, Deloitte, Intel and Microsoft. The alliance was created in February this year, and aims to apply blockchain technology to real-world business situations using Ethereum.
Some believe that digital currencies provide Russia with a way to sidestep Western sanctions in business dealings – by disposing with the need for offshore companies and utilizing a minimum of intermediaries.
And then there is the much-vaunted “Bitcoin City” project. This ambitious venture could see the government set up a state-run “megacity” bitcoin mine, Georgia-style. The site is an as-yet-unnamed Siberian city, possibly near the Chinese border – where it could increase the influx of “business tourism.”
Hybrid approach possible
Instead of loosening the reigns or issuing a China-style government crackdown, the Kremlin perhaps wants to take a hybrid approach to digital currencies. Putin, it might be argued, seems happy to let digital currency-based enterprises thrive in Russia on two conditions: that the government knows about them, and that Moscow takes a cut.
Take, for example, the Kremlin’s proposed cryptocurrency mining legislation. If passed, Russian miners would be able to continue their activities unabated – so long as they paid taxes on their earnings.
No doubt, Russia has massive competitive advantages when it comes to potential bitcoin mining. As mentioned above, power is cheap, especially in rural areas. And much has been made of the possibility of placing mining data centers in some of the coldest parts of the country to solve overheating problems. Energy prices in Irkutsk, for example, are five time cheaper than in Moscow – a reason why many of the country’s bitcoin miners have already set up shop in this Siberian city, and why Irkusk residents are now using mining software to “pay their utility bills.”
Crucially, the Central Bank’s Deputy Chair and head of blockchain technology Olga Skorobogatova spoke during a recent televised interview of imposing mining taxes. Skorobogatova stated that these taxes would apply to both individual miners and to private mining ventures.
There is also talk of regulating (rather than banning) initial coin offerings (ICOs), another sign that Russia sees digital currencies as a potential money-spinner.
Only time will tell what Putin’s digital currency policy is – the chances are he is happy for the rest of the world to remain in a state of confusion regarding his true motives. And with so much at stake, perhaps he believes playing his cards close to his chest is the smartest move he can make right now.
But for a country that seemingly has so much to gain from digital currencies, it is hard to imagine Putin ordering a Beijing-style clampdown.
As Lenta.ru’s Yegor Polyankov speculates intriguingly, “Who knows? Perhaps Russia’s rich are already converting their money into digital currencies.”
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Writer for the BBC, The Guardian, The Jewish Chronicle, Korean Air’s MorningCalm, Chosun Ilbo, Weekly Chosun, Kyunghyang Shinmun, Essen, The Korea Times, Joongang Ilbo, Korea IT Times and many others.