Russian Finance Ministry and Central Bank clash over how to control cryptocurrencies

Russia’s finance ministry and central bank are arguing over whether or not to ban cryptocurrencies, but cybercriminals should be concerned regardless of the outcome.

In January, the Central Bank of the Russian Federation has proposed that Russia ban digital currencies, triggering warnings of an impending cryptocurrency winter around the world. The Bank argued that cryptocurrency trading and mining threatens financial stability and should therefore be banned.

However, the finance ministry indirectly disputed the proposals, suggesting instead that Russia should introduce regulations to better control cryptocurrencies and create a market for the asset class. These rules would accept that cryptocurrencies can be used as investment tools, but not as means of payment.

The dispute took another turn on Friday when the Ministry of Finance presented its proposals. On Monday, the ministry said it would take into consideration the views of the central bank, Reuters reported.

Prohibition or not: stricter rules are coming

Although the Ministry of Finance’s touch is softer than the outright ban proposed by the Bank of Russia, the proposals would still put an end to the Wild West of cryptocurrencies in the country.

For example, the proposals would require money changers to obtain a license and pay taxes.

Customers would also have to abide by stricter rules if the Department of Finance has its way, including taking financial literacy tests to determine how much they would be allowed to invest.

Citizens who pass the test would be allowed to invest up to 600,000 rubles ($7,853) in digital currencies each year, while those who fail could only invest around $650 per year.

Customers should also submit to customer identification processes. Know your customer (KYC) processes are a hotly debated issue in cryptocurrency circles.

One camp argues that KYC would eliminate one of the main selling points of digital currencies: the ability to transact anonymously without central oversight.

The second camp also argues vehemently that introducing identity checks is the only way for cryptocurrencies to be taken seriously and widely adopted. Several financial market players share this sentiment.

The UK’s National Bureau of Economic Research, for example, published research in October 2021 that demonstrated how low-KYC exchanges were often used to launder money, making it difficult for law enforcement to prosecute criminals. The consequence is that bitcoin exchanges with lax KYC “serve as a gateway for money laundering and other gray activities.”

Hackers in Russia profit from cryptocurrencies

Cybercriminals in Russia are likely to closely follow the ongoing debate over cryptocurrency legislation. Bitcoin, ether, and other forms of digital currency are frequently used by ransomware gangs to get paid for their hacks.

According to a recent study by On-chain analysis. The market research firm estimated that more than $400 million worth of cryptocurrencies flowed into Russia due to these illicit activities.

The research also suggested that several Russian cryptocurrency companies were used to launder dirty money.

Vladimir Putin’s regime has repeatedly denied harboring cybercriminals.

Is cryptocurrency winter approaching?

A potential ban on cryptocurrencies in Russia has been linked to the recent downturn in the blockchain money market, but other factors have also exacerbated the fall in the value of the asset class.

Bitcoin, ether, and even coins like dogecoin have seen skyrocketing valuations over the past two years.

At the same time, the number of funding deals in the cryptocurrency industry has also surged. The 298 venture financings, M&As and public financings recorded in the sector had a total value of $3.9 billion in 2019, according to the analyst firm Data from GlobalData.

Those numbers grew to 301 deals worth $31.787 billion in 2020.

While bitcoin hit an all-time high above $69,000 in November last year, the digital dosh in general has had a rocky start to 2022. The cryptocurrency market has lost over $1 billion. dollars in value in January.

The decline has been attributed to several factors, not just the threat of a ban in Russia and tighter scrutiny from other regulators around the world who have made similar proposals.

Other contributing factors include growing political tensions in Ukraine, the fact that the US Federal Reserve is expected to raise its interest rate and end its pandemic spending policies, and simply the fact that social restrictions soften, which means people have less time to invest. in digital assets.

GlobalData is the parent company of Verdict and its sister publications.