Not unlike many other jurisdictions around the world, Russia has come to recognize the potential benefits and risks flowing from cryptocurrencies by taking its first step to define and codify digital assets.
The new Russian legislation dubbed “On Digital Financial Assets” sets a clear direction for the treatment of cryptocurrencies by authorities and how both individuals and businesses can handle them in everyday practice.
Nevertheless, the new legislation may give pause to payments companies and fintech companies keen on expanding into the Russian market. While the approach of the Russian legislature toward cryptocurrencies — or digital assets, as they are defined under the new law — bears many similarities to the approach taken by United Kingdom regulators toward crypto assets, the clear prohibition of the use of digital assets as a means of payment draws a strong distinction between the U.K.’s Financial Conduct Authority, or FCA, and the Russian Duma.
What is the new bill?
First and foremost, the long-awaited new bill on digital financial assets, or DFAs, defines the term “digital assets” and their use. According to a translation by TASS, a major Russian news agency, the bill defines them as: digital rights, an aggregate of electronic data comprising money claims, negotiable securities, and rights to participate in the equity of a non-public company with shares.
The bill also provides a non-exhaustive list of permissible use cases for DFAs, clarifying that they can be bought and sold, inherited, or exchanged for other digital rights. But the possibilities are not endless; it has been made very clear that digital currency cannot be used or advertised as a means of payment for goods or services, nor does it constitute any form of Russian currency or any other foreign currency.
Even though limited, the new legislation legitimizes digital asset trading and exchange and sets out a skeleton of a regulatory framework for digital asset issuers and exchanges, both included in the bill under the umbrella term of “digital asset operators,” while traders and holders fall into a separate category of “investors.”
Regardless of the scope of permitted use for DFAs, the new law represents a giant leap toward crypto adoption in Russia, as the State Duma, in previous iterations of the bill, had contemplated a much less crypto-friendly tone and even criminalization of crypto activity.
The new legislation brings Russia in line with the position of U.K. tax authorities on crypto taxation matters, taking the view that digital assets are considered property in the eyes of the law and are thus taxable on an individual and commercial level.
A similar approach was taken by the English courts in the case of AA v. Persons Unknown, where it was held that crypto assets, such as Bitcoin (BTC), are categorized as property for the purposes of the law. Additionally, Her Majesty’s Revenue and Customs collects capital gains taxes on personal crypto investments and income tax in the case of crypto trading in a commercial context.
For the time being, it is unclear whether the Russian legislature will follow the same model.
What is the difference between the Russian and U.K. approach?
While the two regulators agree on the approach to taxation and treatment of digital assets as property, when taking a closer look at the FCA’s definition of crypto assets, the two perspectives begin to diverge.
The FCA defines “cryptoassets” as:
“Cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically.”
This definition is further narrowed down to a threefold classification of e-money tokens, security tokens and unregulated tokens.
The last category, unregulated tokens, encompasses all cryptocurrencies used as a medium of exchange, something that Russia has now expressly prohibited. The FCA refers to this category as unregulated, and it remains true to this terminology, as it does not lay down a regulatory framework, licensing scheme or other regime of compliance for a business or individual to engage in the exchange of cryptocurrency for goods or services. Even though the FCA previously issued warnings about notorious unregulated token OneCoin, it has since removed its warning, citing a lack of authority to regulate crypto assets as influencing the decision to remove it.
That said, the Bank of England, the U.K.’s central bank, makes it abundantly clear that crypto assets (unregulated exchange tokens) are not currency. This is also evident by the departure in the FCA’s terminology from “cryptocurrency” to the now commonly used “cryptoassets.”
This approach calls for a clear distinction between the classification of digital assets as currency and allowing their circulation as a means of exchange for goods and services. While payment is a function traditionally reserved for, and associated with, national traditional currencies, such as the Russian ruble or British pound, it should not be assumed that allowing cryptocurrency to fulfill such a function automatically equates it to a traditional currency, nor does it automatically endanger traditional currency.
This is a crucial distinction, as traditional currency has many other characteristics and performs macroeconomic functions reaching far beyond a means of exchange. Traditional currencies impact the ebb and flow of our entire economic system, with any change or addition to the system sure to cause unpredictable disruption. The FCA and other U.K. institutions carefully navigate this line. While they do not limit the use of cryptocurrencies as a means of exchange and payment, they refrain from equating crypto to traditional currency.
Why is recognizing digital assets as currency a point of contention?
Consequently, it is worth examining why regulators are so reluctant to consider digital assets a currency. Aside from the ideological and cultural aspects against such a classification, the economics behind defining cryptocurrencies as legal currency leaves much to be desired.
The current design of most cryptocurrencies accounts for a fixed eventual total supply, which in the macroeconomic sense carries a danger of deflation in wages and in goods and services. In turn, the lack of ability to manipulate money supply in response to market demand could lead to price volatility more problematic than that of an unregulated currency itself.
The role of the central bank in adjusting monetary policy has proven especially important in the context of the COVID-19 pandemic, with direct government financing to fund stimulus packages and government expenditure in response to the health crisis. Great examples are seen with direct monetary injections, such as in the case of the United States Federal Reserve, or through quantitative easing, such as in the case of the Bank of England.
However, the printing of money has often been criticized for its potential to result in inflation or hyperinflation. In simple terms, this means the devaluation of money in response to an increased monetary supply. However, in the case of COVID-19, it seems that in combination with relevant safeguards, it has proven to be a very valuable tool in times of crisis, even if the long-term repercussions are still unclear.
The distinction between traditional currencies and crypto also lies in the fundamental concepts they represent. In contrast to traditional currencies, cryptocurrencies do not function on the basis of a liability of the state toward the individual, but their meaning can be boiled down to a consensus between participants more akin to a barter system.
The economics of crypto as a currency are definitely far from “figured out,” which in itself justifies caution before declaring it a type of currency and equating it to traditional money. Nevertheless, economic analysis does not suggest complete elimination of the circulation of cryptocurrencies as a means of exchange.
Still a long way from DeFi and laissez faire
Despite the (much more than expected) crypto-friendly tone, the new Russian crypto bill remains very cautious toward many of the original ideals behind cryptocurrency. One of the key features of cryptocurrency is the removal of a central monetary authority, replacing it with a distributed ledger to achieve the system’s own checks and balances. Since the emergence of cryptocurrency, this concept has culminated in the decentralized finance movement.
DeFi is a movement aimed at creating financial networks and providing traditional financial instruments without the involvement of a central authority. It achieves this by using a decentralized, open-source network to account for the functions traditionally ensured by a central bank. While many DeFi protocols have emerged since the popularization of cryptocurrencies, they have a universal aim of removing intermediaries from everyday banking and financial instruments while ensuring trust and security on the network.
While the new Russian bill takes a big step toward crypto adoption, it makes it clear that those engaging in digital asset investments will be subject to close control and scrutiny by the Central Bank of Russia as the central authority. Digital asset operators, as defined in the bill, will be approved and registered by the Bank of Russia and all DFA transactions within their control will be carried out on a framework of “special information systems” that are also subject to central bank approval and verification.
Both the operators and investors will only be allowed to handle crypto operations subject to declaring their possession, acquisition and transfer. The Bank of Russia will also reserve the right to qualify central DFAs as accessible only to certain qualified categories of investors.
The key distinction between the Russian and U.K. approaches does not lie in whether cryptocurrencies can or will become a replacement for traditional currencies but in the fact that the U.K. recognizes their potential function as a complementary, improved feature of our monetary systems. As reported by the U.K.’s Cryptoassets Taskforce in its 2018 final report, small scale FCA testing proved that as a means of exchange, cryptocurrencies can offer improvements in speed and cost of monetary transfers, especially in the cross-border context. The Russian legislature fails to recognize such potential and entirely rejects one of cryptocurrencies’ key and original functions.
For U.K.-based crypto businesses, or crypto operators, seeking to provide services on the Russian market, this means significant expenditure on legal opinion to navigate what is shaping up to be a complex regulatory framework, as well as uncertainty on acquiring requisite approvals from the Bank of Russia.
Further, they will face the task of tailoring their services to ensure they remain within the definition of legalized crypto activity, whether this means disabling certain features or more creative technical solutions to ensure the limited use in line with the new Russian legislation. The more evolved businesses could even consider the development of liability protections from investors who use their platforms and fail to conform to the new limitations.
As far as the regulatory framework goes, the current bill merely serves as an indication of what is to come in terms of practical regulatory challenges. In its autumn session, the State Duma is due to release another piece of legislation, dubbed “On Digital Currency,” with more details regarding the regulation of DFA operators, investors and systems, and their relationship with the central bank, providing further clarity for crypto enthusiasts in Russia.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Martyna Dudek is a paralegal at Wirex, a digital payments platform. She is a law graduate who is passionate about the fintech payments industry and its interplay with intellectual property. Aspiring to qualify as a solicitor into the financial services space, she closely tracks the developments revolutionizing the global payments industry and tokenization of property.
Coin Metrics Report Details Surges in ETH, Doge Trading
Coin Metrics: Altcoins Are Taking Over
While bitcoin is still the world’s number one digital currency by market cap (it is currently trading for about $35,000 per unit), the asset has experienced some serious dips over the past month, while by contrast, Dogecoin and Ethereum have exhibited gains and are regularly moving up the digital ladder.
Coin Metrics garnered much of the information for its report by looking at data from Binance, arguably the largest and most popular crypto exchange on the planet in terms of daily trading volume. Additional statistics were gathered from exchanges such as Coinbase and FTX. Coin Metrics points out that thus far, 2021 has been the year for “smaller altcoins,” suggesting that a great many of them have surged heavily between the months of January and early May. From there, however, a serious crypto crash has taken precedence, with Coin Metrics unable to pinpoint what, exactly, might have been the cause.
For the most part, numerous altcoin pairs are offered on Binance, which explains why the company’s trading volume for many of the world’s smaller assets likely overtook that of bitcoin. The report says:
ETH volume surpassed BTC volume on Coinbase by a wider margin than on Binance. Coinbase did not offer Dogecoin trading in May (although they introduced it in early June), so it did not have a Doge rush similar with Binance, but it did have a relatively high amount of volume for some other altcoins, led by MATIC, ADA and Ethereum Classic (ETC)… Continuing the trend, ETH volume edged out BTC on FTX, although not by much, but comparatively, the top altcoins made up a lower percentage of total volume on FTX than on Binance and Coinbase.
Some of the world’s smaller exchanges – such as Huobi – also saw Ethereum and Dogecoin trading surge to levels beyond what people were doing with bitcoin. The report continues to say:
Similar with Binance, DOGE volume surged on Huobi, taking the spot as the third most traded currency by volume.
Bitcoin Hasn’t Been Fully Cut Out Yet
The only place – according to the document – where bitcoin trading appears to remain dominant at the time of writing is the CME in Chicago, Illinois. The company delves in bitcoin futures trading and has recently opened the door to ETH futures, though this is still in its early stages. Coin Metrics writes:
The markets continued to move mostly sideways over the last week. Bitcoin and Ethereum usage both stayed relatively flat, with daily active addresses dropping 2.5 percent and growing by 3.3 percent, respectively. Ethereum daily transaction fees dropped by over 35 percent week over week as gas prices continued to fall, and bitcoin transaction fees followed a similar pattern, dropping by 40.5 percent.
Bitcoin Taproot upgrade finally achieves activation lock-in!
The much-anticipated Bitcoin Taproot upgrade passed the Speedy Trial, which was a signaling period which gauged support for the upgrade from bitcoin’s mining sector. Since SegWit, Taproot has been touted as the next significant upgrade for Bitcoin.
Data from Taproot.watch, a webpage created by Bitcoin developer Hampus Sjöberg, released an interesting yet hilarious video to announce the completion of the lock-in stage.
— Hampus Sjöberg 🥕🟩 (@hampus_s) June 12, 2021
On the official page, it read:
“This period has reached 1815 Taproot signaling blocks, which are required for lock-in.”
Different mining pools tweeted their support for the upgrade on their respective platforms with Slush Pool being the first to do so.
TAPROOT LOCKED IN AT BLOCK 687285 BY SLUSHPOOL 🟩 pic.twitter.com/FFDdibtmGt
— pourteaux (@pourteaux) June 12, 2021
AntPool also supported the upgrade.
“As of block 687284, Taproot signalling has reached 1815 blocks this period, guaranteeing that absent very deep reorgs, it is guaranteed to lock in. Following that, it will activate at block 709632, probably around mid-November 2021.”
He also addressed that ‘there is a lot of work left of course’, which included:
a) PSBT extensions to communicate Taproot keys/scripts/signatures,
b) MuSig2 standardization so the software can cooperate in signing,
c) Output descriptors,
Why is it so important?
“With this upgrade, you’ll see Bitcoin to be the settlement network. Funds are transferred from one institution to another, say one bank to another.”
“The update would lower the data size of smart contracts, in turn lowering transaction costs. Taproot is also expected to enhance smart contract functionality and efficiency.”
Jeremy Rubin, a Bitcoin Core contributor and founder of Judica projected a similar optimistic narrative,
“With taproot, you get optimization of Bitcoin, much different from how people know Bitcoin today- little too inefficient or reveal too much information about what you’re trying to do. Taproot helps to be private and efficient.”
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Next-Gen Decentralized NFT Platform, NEFTiPEDIA Announces Launch of its ICO In 3 Days
NEFTiPEDIA, a next-generation decentralized NFT platform that operates in a way that contributes to the elevation of digital artists, creators, and investors has announced the launch of its ICO which is set to happen in 3 days.
NEFTiPEDIA has designed a commission-free platform to enable its artists to maximize income, following its aim to help them increase revenue via NFTs.
Following NEFTiPEDIA’s plans to storm the marketplace while launching its ICO, it aims to serve the marketplace with different categories of products including cosmetics, vehicles and property.
“….we believe NEFTiPEDiA will become a community-run marketplace and the industry will make our project as a kind and remarkable one in the world,” the announcement reads.
The development will see the platform provide a decentralized marketplace for Artists, where they can sell and validate their NFT links to fans and interested buyers.
NEFTiPEDIA Offers Exciting Prizes to Users
The team behind the project have allotted a total of 250,000,000 $NFT tokens for its users to enjoy in the upcoming ICO.
To further celebrate the intended development, the platform has proposed a referral scheme where winners can enjoy amazing and exciting prices.
Users who wish to participate in the program are required to sign up for the platform’s ICO panel and get a referral code.
The code can as well be shared with friends, giving users the opportunity to win exciting prizes.
A minimum of 5 referrals is required for participants to be considered for winning.
“Only those referrals ended in purchase will be added to the count. After the completion of ICO in 30 days, winners will be announced. Notably, winners will bear all the applicable tax.” The team further elaborated on the conditions for winning.
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How Does Bitcoin Mining Work? Is It Profitable in 2021?
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Trouble Looms For Bitcoin As U.S Looks to Bar Holders From Converting Crypto To USD
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