Russia Proposes Ban On Cryptocurrencies, Crypto Mining

Another country has signalled its rejection of cryptocurrencies and crypto mining, after Russia’s central bank expressed its reservations on Thursday.

Reuters reported that Russia’s central bank has proposed banning the use and mining of cryptocurrencies on Russian territory, citing threats to financial stability, citizens’ wellbeing and its monetary policy sovereignty.

Countries around the world are increasingly signalling their concerns about the risks posed by highly volatile cryptocurrencies to established financial and monetary systems, as well as the huge power consumption needed for crypto mining.

Russia proposal

Last month for example, the Bank of England’s deputy governor Sir Jon Cunliffe warned about risks associated with cryptocurrencies, and urged the creation of a crypto regulatory framework

Like the UK, Russia has argued for years against cryptocurrencies, saying they could be used in money laundering or to finance terrorism.

That said, Russia eventually gave cryptocurrencies legal status in 2020 but banned their use as a means of payment.

Last month Russia’s regulator was reportedly in favour of a total ban on cryptocurrencies, which hit the price of bitcoin at the time.

But this week, Reuters reported a report from Russia’s central bank as saying that speculative demand primarily determined cryptocurrencies’ rapid growth, and that it carried characteristics of a financial pyramid.

The report warned that bubbles in the market could form, threatening financial stability and Russian citizens.

Russia’s central bank negative view on cryptocurrencies has therefore resulted in its proposal to prevent financial institutions from carrying out any operations with cryptocurrencies.

It also said mechanisms should be developed to block transactions aimed at buying or selling cryptocurrencies.

The proposed ban also reportedly includes crypto exchanges.

Russia’s central bank however noted that Russian citizens are active cryptocurrency users, with an annual transaction volume of about $5 billion.

Crypto mining

And Russia’s central bank also took aim at crypto mining operations.

Last October Cambridge University research published more data about the environmental costs of crypto mining, which currently consumes 0.45 percent of global electricity production, the research estimated.

It found that the US, Kazakhstan and Russia were now the top three producers of the Bitcoin cryptocurrency.

Russia’s central bank this week also noted that crypto mining created problems for energy consumption.

“The best solution is to introduce a ban on cryptocurrency mining in Russia,” the bank was quoted as saying.

In its report, the central bank pointed to steps taken in other countries, such as China, to curb cryptocurrency activity. It said it would work with regulators in countries where crypto exchanges are registered to collect information about the operations of Russian clients.

Russia’s regulator said crypto assets becoming widespread would limit the sovereignty of monetary policy, with higher interest rates needed to contain inflation.

It said the long-term potential of cryptocurrencies being used for settlements was limited.

Meanwhile, the Bank of Russia is planning to issue its own digital rouble, joining the global trend to develop digital currencies to modernise financial systems, speed up payments and counter a potential threat from other cryptocurrencies.

Earlier this month China’s central bank launched a pilot version of a wallet app in an effort to expanded usage of the digital version of China’s sovereign currency.

The digital yuan or e-CNY is a digital version of China’s sovereign currency and has been in the works since 2014.

Other countries

Russia is not alone in banning crypto mining or clamping down on cryptocurrencies.

Earlier this month Kosovo officially banned cryptocurrency mining, as the Balkan country battles ongoing blackouts and an energy crisis, caused by soaring global energy prices and an electricity shortage after its largest coal-fired power plant was shut down last month over a technical issue.

Cryptocurrency mining has also been banned in China and Iran.

It should be remembered that cryptocurrency mining uses large amounts of energy, much of it derived from the burning of fossil fuel.

Essentially this is because cryptocurrencies are created when high-powered computers compete against other machines to solve complex mathematical puzzles, a process known as mining.

At current rates, crypto mining uses about the same amount of energy annually as the Netherlands did in 2019, data from the University of Cambridge and the International Energy Agency has previously shown.

In June 2021 China began a crackdown on Bitcoin and other cryptocurrencies, which – like many other governments – it considers dangerous to financial stability and a means of laundering money.

In September 2021 China declared all transactions in the currency to be illegal.