Russia’s relationship with cryptocurrency has been filled with skepticism and ambiguity. It has extended support to the Bitcoin on and off- allowing Bitcoin and then banning it. In fact in November 2016, the federal tax service of Russia declared that bitcoins were illegal. It went on to add that people found trading in such digital currencies would be jailed.
Months later, the same government was willing to draft a bill to give Bitcoin and other digital currencies a legal status. Regulators and ministries were seen to take a stand on Cryptocurrencies and appeared set to formulate a legal framework to regulate digital currencies. The finance ministry is said to be toying with the idea of an indigenous- Russian-issued cryptocurrency- the ‘Cryptoruble’. Apparently this is being done to combat illegal transaction-fraud and corruption.
Meanwhile, Russian President, Vladimir Putin, has proposed the creation of a multinational cryptocurrency. Experts from several countries appear to be taking this seriously and are exploring the possibility of the creation of a new cryptocurrency. Many countries like India, Israel, Armenia, United States and others seem to be backing the experts. If this concept does take off, it promises to spur technological innovation for income growth and economic prosperity.
During the Pax Mongolica period, Genghis Khan created the world’s largest empire by controlling the “the Silk Road” trade route that stretched across China to Eastern Europe. This not only stimulated free trade between China and the Mediterranean countries but also stabilized them economically and politically.
Putin’s cyber-initiative is expected to be grander in scale than the ‘Pax Mongolica’. Consultations with Ethereum co-founder Blockchain expert Vitalik Buterin and experts from fifteen other countries appear to be positive and the idea of a ‘multinational cryptocurrency’ appears to be bright. His intention is to unite BRICS and the EEU countries with a new common currency using blockchain and smart contract technology.
Cryptocurrencies use blockchain technology, which is in actuality a decentralized database that records financial transactions and other types of deals. Although the use of blockchain is proliferating many countries, Russia seems to have an added advantage. Its mathematical and technical standards are considered the highest in the world and the country has continued to produce some of the world’s leading mathematicians. That the founder of Ethereum, the second most popular cryptocurrency in the world after bitcoin, is Russian-born Vitalik Buterin, 23 and the fact that the world’s largest bitcoin ‘miner’, Bitfury, was created by Valery Vavilov, 37, is from Soviet Latvia speaks for itself.
What the initiative means for member states
Many countries from the EEU like Russia, Belarus and Kazakhstan have been investing in blockchain technology and smart contract technology. Russia has opened two cryptocurrency agencies in Vladivostok, Kazakhstan is making an effort to create better conditions for blockchain startups, Belarus has created a tax free zone for blockchain investments and other emerging economies are preparing for the change. The offshoot would be cashless societies and an enhanced ability to manage their liquidities with support from the bank. However, economists, veteran bankers and financial institutions have been rather skeptical about the adoption of a multinational cryptocurrency and sought to negate ‘mass adoption’ of Bitcoin.
In the eventuality of the multinational cryptocurrency gaining wide-scale approval and adoption, trade efficiency among member states would improve and global trade might well be reshaped through Blockchain and smart contract technology. There is however, a long way to go- member state legislation for Cryptocurrencies would need to be updated to nullify the existing differences.
Russia intros new cryptocurrency bill
Russia’s central bank and finance ministry have jointly prepared a bill to regulate Cryptocurrencies and ICOs. The bill is expected to be adopted in March and finalized by July 1, 2018. The bill characterize cryptocurrency and ICOs tokens not as legal tender but as “other property.”
In order to regulate ICOs, the bill has imposed restrictions- this includes rules for purchasing of tokens and extent to which funds can be raised by an ICO. Yuri Pripachkin, President of the Russian Association of cryptocurrency and Blockchain was not in favor of limiting ICO fundraising as it would restrict foreign investments for Russian projects.
Taxation of cryptocurrency mining and trading
Currently, cryptocurrency mining and trading are not taxable and if the new bill is promulgated into a law, such activities would be deemed as ‘business activities’ and would attract tax. Cryptocurrency trading would not be subject to a value-added tax (VAT).
Cross-border tax policy
The bill does not appear to have addressed cross-border tax. Apart from Armenia, Belarus, Iran and Kyrgyzstan that adhere to OECD BEPS action plan, it’s not known how other member states will act when they conduct transactions using the new multinational cryptocurrency.
If it comes about, the new multinational cryptocurrency could pave the way to a new interconnected world without barriers. It remains to be seen to what extent economies will actually increase and how strongly the member states will connect.