Russian Government Says Bitcoin Is Illegal

The Russian Prosecutor General’s Office has warned businesses against adopting Bitcoin, saying that the use of currency that is not regulated by the Central Bank of Russia goes against the law.

It added that due to its anonymous nature, Bitcoin users can unwittingly participate in money laundering and fund terrorism.

The Prosecutor General’s Office is currently working with the Central Bank to establish the legal status of the currency in the country, and develop frameworks that would prevent it from being used for criminal purposes.

It’s unlikely that the advisory will result in Bitcoin businesses or other virtual currency operators shutting down on a massive scale. However, it adds to the concerns about the future of Bitcoin, and could have contributed to it losing more than a quarter of the value over the weekend. According to CoinDesk Bitcoin Price Index, BTC was trading around $582 (£355) at the time of publication.

The announcement was made as Russia became the second largest market for Bitcoin, following China.

Only the rouble

Bitcoin is a decentralised cryptocurrency especially popular among people interested in keeping their transactions secret. It is not tied to any real money, but traded on various electronic exchanges to establish its price.

On Thursday, the Prosecutor General’s Office issued an advisory, in which it declared virtual currencies such as Bitcoin and Litecoin “money substitutes” that cannot be used by citizens or legal entities.

It added that since Bitcoin value is not guaranteed by goods, it can lose value rapidly, thus endangering the legal rights of its owners. Finally, the Prosecutor General’s Office reminded that crypto-currency owners are forgoing any legal protection of their funds since such currencies are not considered legal property.

The advisory revealed that the Central Bank and law enforcement agencies are busy developing an approach that would tackle these problems, although the exact nature of this approach remains to be seen.

The document mentioned “foreign experience” so Bitcoin entrepreneurs will hope the Prosecutor General’s Office keeps an eye on the developments in countries like the US and UK, where authorities are a bit more flexible in their attitudes towards virtual currencies.

The advisory was sharply criticised by Pavel Durov, CEO of Russia’s largest social network Vkontakte.ru, who said the authorities were threatened by the emergence of new forms of online money because they were preventing them from “fleecing the flock” by issuing national currency which is always losing value through inflation.

Two weeks earlier, the Central Bank of Russia said that Bitcoin trade was highly speculative, and carried huge risks. It warned that due to anonymity of transactions, innocent citizens could be drawn into participating in illegal activities, such as money laundering – a charge which regularly crops up in Bitcoin-related criminal cases.

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