“The position of the CBR categorically denies the possibility of the cryptocurrency as an economic mechanism”

Market participants: about the lack of legal regulation and shortcomings of the draft bill “On digital financial assets”

The bills on cryptocurrencies had to be adopted in Russia until 1 July on the instruction of the president of Russia. The specified terms have already passed, but the issue of legislative regulation of the market has remained open, the main document — “On digital financial assets”, submitted to the State Duma last year, is still being in limbo, and Russian businesses working with the cryptocurrencies continues to be forced to register in other countries. About the causes, consequences and possible solutions — read the article of Realnoe Vremya.

“The act has been suspended”

The draft law “On digital financial assets” has been in the State Duma since last spring, and at this moment it is adopted in the first reading. The first version of the document — extremely controversial, according to market participants — included the following provisions: first, mining was defined as entrepreneurial activity, which automatically made private mining illegal, second, cryptocurrency and tokens were not a legal means of payment in the territory of the Russian Federation, and digital assets have been legalized through the concept of “other property” and were defined as “property in electronic form”.

Third, the protection of the rights of smart contract participants was carried out similarly to the rules for the contract concluded in electronic form. Fourth, transactions with cryptocurrencies, according to the document, were possible only through the operator of the exchange of digital financial assets. Fifth, the persons who are not qualified investors could purchase tokens in the amount of not more than 50,000 rubles within one issue, and the person who decided to announce the release of tokens was obliged to disclose information not only about himself, but also about the final beneficiaries and validators of transactions (including name, surname, patronymic and place of residence — if they are natural persons).

This approach of the authorities to the difficult issue of legislative regulation of the crypto-currency market did not suit the industry and caused a flurry of criticism. In particular, Head of the Russian Association of Cryptocurrencies and Blockchain Yury Pripachkin, announced at 2018 SPIEF that “the existing bills that were adopted in the first reading do not suit the industry and will never suit them”.

The version of the document prepared for the second reading had to take into account the comments of market players, and it should be recognized: it is really different from the original version. The digital financial asset now refers to any rights registered on the basis of the distributed registry system. Another important difference is that the authors of the bill practically abandoned the definition of cryptocurrency and focused on tokens as a means of attracting investments. Mining is seen more as a tool to raise funds than as a way to generate blocks in the blockchain for profit.

The consideration of the draft law “On digital financial assets” in the second reading was to take place in the spring of this year but was postponed due to the requirements of the Financial Action Task Force on Money Laundering (FATF): the international organization pointed to the need to expand the terminology of the document, through including the previously missing concept of “cryptocurrency”.

“The bill on digital financial assets has been suspended. The FATF mission demanded us to settle the issues related to bitcoins and so on. We waved away and wanted to somehow sidestep this issue, because there was a certain position of the Central Bank. But now we are either in the law “On digital financial assets”, or we will prescribe a rule in a separate bill that will determine the requirements for these crypto-tools,” TASS cites the explanation of Chairman of the Committee of the lower house of the parliament on the financial market Anatoly Aksakov.

“Now we are working in the grey zone”

The discussion of the legislative regulation of the crypto-currency market in Russia began in 2016-2017. In 2018, its players were presented with a relevant bill, but the industry has not received any specifics yet. It is worth noting that the lack of regulation often forces Russian businesses to register in other countries. One of the striking examples is Cryptorobotics project.

“We started the project in Kazan because there are the best programmers. The cost of Kazan specialists is several times lower than Moscow ones, but the responsibility and quality of work is several times higher. We registered in Gibraltar because Russian legislation is not ready to register the companies accepting cryptocurrency and having their own tokens. Now we are working in the grey zone. What we do is not prohibited, but it is not officially regulated as well. However, everything can change soon because they can adopt the relevant law,” the company founder Ivan Shcherbakov told in the interview with Realnoe Vremya.

Cryptocurrency coach Evgeny Kaminsky explains the delays in the preparation of the legal framework by that “around the law there are a lot of concerned persons, departments and personalities”.

“It is difficult to agree — very different branches of government, ministries and so on. It is strongly bureaucratic process, and everyone has their own interest — and some don't conceal this at all,” the expert considers.

“We have many laws that exist, but do not work — the law on the digital financial assets will be one of them”

Despite all the transformations and metamorphoses of the draft law on the digital financial assets, the players of the crypto-currency market and the expert community are extremely skeptical about the document being worked out.

“The thing is that the industry lives by the laws of the market and technologies that are developing, but this bill was written under the dictation of the Central Bank, from the perspective of its understanding of financial regulation,” said the head of Russian Association of Cryptocurrency and Blockchain (RACIB), Yury Pripachkin. “In fact, it is devoted not to the market, but to the functioning of the closed blockchain. There is no market, there is no possibility to attract investors — it's just an accounting mechanism, closed tokens that operate in certain ecosystems. It will give nothing to the market. Closed blockchain is a meaningless story from the market point of view. It is useful for the modernization of certain industries, but it is useless in terms of creating a new economic order. Therefore, the industry will not notice it if it comes in this form.”

Russian miner and cryptocurrency coach Evgeny Kaminsky holds a similar position.

“The market works as it works, and it doesn’t care about the bill in general. The market has developed its own rules, regulations, formats — that is, self-organized. Even if the bill is adopted, it is unclear how they will monitor all this, how they will manage it,” the expert comments. “Most likely, even if this bill is adopted, it will not work — at least for the first time. Further, as it usually happens, there will be some ‘demonstrative flogging’, but, in general, it is unlikely to lead to any result in the near future. In principle, the law has always been aimed at ensuring that the state began to earn in this industry, but so far it seems very, very vague.”

In turn, Lenar Mukhametzyanov, the head of the blockchain technology project, head of the IT company Top, is sure that “the law will go parallel to the industry itself”.

“We have many bills that exist, but do not work — the bill on digital financial assets will be one of them. I would not say that the document will somehow change the crypto industry as a whole. Perhaps, in the industry there will be more money as it will be possible to pump in money officially, but no more,” the interlocutor of our edition considers.

At the request of Realnoe Vremya, Head of the Association of Cryptocurrencies and Blockchain Yury Pripachkin told what points should be taken into account before putting an end to the elaboration of the document.

“It is necessary to focus the bill on the industry, to make it clear, to introduce there all the terms and definitions that are needed. It is necessary to determine what mining, cryptocurrency, smart contract using cryptocurrency are. Now smart contracts have been defined, but without cryptocurrencies, and how can a smart contract function without them fully? If you want to create your own cryptocurrency, then you should create it taking into account the mechanism of decentralized registers, and not a closed centralized blockchain, which, by the way, is a nonsense,” the expert believes. “The position of the Central Bank of Russia categorically denies the possibility of the existence of cryptocurrencies as an economic mechanism. They believe that this is a purely speculative mechanism. In our view, this is a systemic error related to misunderstanding of the current economic processes.”

By Lina Sarimova