Russia proposes to completely ban mining and trading of virtual currencies

It is the latest move in an effort to tighten regulation of virtual currencies globally, as governments everywhere, from Asia to Europe, have expressed concern that privately operated digital currencies could harm weakening state control over financial and monetary systems. In recent years, Russia has opposed virtual currencies, saying they can be used for money laundering or terrorist financing. Even in 2020, Russia also banned the use of virtual currency as a means of payment.

In December 2021, the price of Bitcoin dropped after Reuters news agency quoted a source as saying that Russian authorities were leaning towards a complete ban on virtual currencies. In a report released on January 20, the Central Bank of Russia attributed the rapid growth of virtual currencies mainly to speculative demand. They have the characteristics of a financial pyramid. The bank warned that a bubble in the market could form, threatening financial stability and the welfare of citizens.

The bank proposes to ban financial institutions from conducting any transactions in virtual currency and should develop a mechanism to prevent transactions for the purpose of buying and selling virtual currencies for fiat money. Cryptocurrency exchanges are also in the list of proposed bans

According to the Central Bank of Russia, Russians are active users of virtual currency with annual transactions worth about 5 billion USD. Russia is also the third largest cryptocurrency mining country in the world, after the US and Kazakhstan.

The bank said that cryptocurrency mining causes problems with energy consumption. Bitcoin and other virtual currencies are mined using powerful computers, competing with others in a global network to solve complex math problems. This process is very electricity-intensive, while electricity is mostly produced by fossil fuels, which is harmful to the environment.

“The best solution is to ban cryptocurrency mining in Russia,” the report said.

In August 2021, Russia accounted for 11.2% of the global hashrate. Hashrate is a term used to measure the performance of cryptocurrency miners. In its report, the Bank of Russia mentioned the measures that other countries are taking to prevent cryptocurrency activity. The organization said it will work with authorities in other countries where virtual currency exchanges are located to collect the activities of Russian customers.

In September 2021, China completely banned all trading and mining of virtual currencies, causing Bitcoin and other major virtual currencies to drop in price and put pressure on crypto- and blockchain-related stocks. According to the Central Bank of Russia, the popular virtual currency asset will influence the power of monetary policy and it is necessary to raise interest rates to curb inflation.

Meanwhile, the Bank of Russia intends to issue a digital ruble, joining the trend of digital currency development to modernize the financial system, against the potential risk of other virtual currencies.