After China in May 2021, another major country, Russia, wants to ban the mining of cryptocurencies.
In a consultation paper published by the Central Bank of Russia Federation, the regulator has proposed banning the use and mining of cryptocurrencies on Russian territory citing threats to financial stability, citizens’ wellbeing, and its potential use in money laundering and financing terrorism.
“The best solution is to introduce a ban on cryptocurrency mining in Russia.”
– Central Bank of Russia
According to the bank, crypto mining has caused energy consumption problems because of the energy intensive process whereby nodes compete to solve complex math problems that help to update a blockchain.
While some may dismiss Russia’s importance in crypto, the nation accounts for 11.2% of bitcoin’s hashrate and is the world’s 3rd-largest player in crypto mining behind the United States and Kazakhstan. However, Kazakhstan is expected to experience a miner exodus over fears of tightening regulation following unrest earlier in January 2022.
Russia has generally been hawkish about cryptocurrencies for years, apparently concerned about their usage in illegal activities even though it eventually granted crypto legal status in 2020 but banned their use as a means of payment.
In this latest twist, the Central Bank laid out its key concerns about cryptocurencies:
Crypto’s rapid growth is primarily driven by speculative demand
Crypto’s have the characteristics of a financial pyramid
Crypto activity can cause bubbles in the market threatening financial stability and citizens
As such, the bank also recommends the country to block transactions aimed at buying or selling cryptocurrencies for fiat currencies as well as banning institutions from dealing in it. However, this does not equate to a total ban on cryptocurrencies, according to Elizaveta Danilova, head of the central bank’s financial stability department.
All of this comes amidst the bank’s plans to launch a Digital Ruble CBDC. The Central Bank’s move has predictably drawn attention with leading Russian entrepreneur and Telegram founder, Pavel Durov coming out to criticize the proposals.
According to Durov, Russia risks alienating itself from being a leader in blockchain technologies.
Speaking about the proposed Russian ban on crypto, Durov said:
“No developed country bans cryptocurrencies. Reason: such a ban will inevitably slow down the development of blockchain technologies in general. These technologies improve the efficiency and safety of many human activities, from finance to arts.”
– CEO, Telegram
He further nored that Russia’s smaller neighbours like Uzbekistan and Ukraine are putting in place progressive laws for crypto just like any developed nation would.