Hard to ban what is not defined by law: experts assess possible mining ban in Russia

The arguments laid out in the Bank of Russia report advocating a ban on mining on Russian territory do not withstand any criticism, ForkLog’s consulted experts said.

In the new document, the Bank of Russia noted that the current scale and further spread of cryptocurrency mining within the country poses risks to the economy and financial stability.

According to the Cambridge Centre for Alternative Finance, Russia is one of the world leaders in terms of hash power in the Bitcoin network. In November, media reports stated that Russia received applications to host 1.8 million miners after China banned Bitcoin mining.

Among mining-related risks, the regulator highlights the heavy load on electrical networks, which also harms the environment, and notes the creation of “demand for infrastructure for carrying out cryptocurrency operations”.

In this regard, according to the Bank of Russia, the optimal solution is a ban on mining in Russia.

Experts describe such a conclusion by the regulator as strange and “quite surprising,” since cryptocurrency mining as a business activity has existed in Russia for several years, significant capital has been invested in mining, and officials have repeatedly spoken about the need for proper regulation of this business.

“In a situation where the state has quietly approved investments in this activity and did not resolve to regulate it properly, and then suddenly puts it outside the law, the question arises – who will pay for such indecision?” — says Dmitry Kirillov, adviser at Lidings and lecturer at Moscow Digital School.

According to ENCRY Foundation co-founder Roman Nekrasov, all the arguments cited in the BoR report as reasons for a ban do not withstand criticism.

If a mining farm consumes electricity legally and uses the capacities defined in the contract, this is not about idle electricity consumption, the expert noted:

“This is as stupid a statement as saying that a shoe factory consumes electricity and therefore creates a risk for providing for residential buildings. Illegal connection creates a risk, legal connection — does not.”

Managing partner at GMT Legal Andrey Tugarin noted that it is not particularly hard to give electricity for mining an “industrial status” and move it out of the private sector. To this end, it is necessary to define mining as entrepreneurial activity and officially extend all necessary requirements.

Nekrasov also emphasised that the non-existence of mining enterprises does not create demand for cryptocurrencies, but demand for cryptocurrencies creates interest in mining:

“And here one should pose a counter-question to the regulator: what have you done to make the Russian ruble appear reliable and attractive to the population, rather than a volatile Bitcoin?”

The argument about Bitcoin mining’s ecological impact is often overstated by many experts as well.

Representatives of data-centre operator BitRiver told ForkLog that a full ban on mining, especially on an industrial scale, is unlikely from a legal standpoint.

“BitRiver, for example, operates as a data-centre operator and does not own mining equipment. We perform the same activity as data centers, for example Rostelecom: host and service equipment, with the only difference being that Rostelecom’s servers belong to Rostelecom,” said BitRiver’s PR director Roman Zabuga.

He stressed that BitRiver’s business model is fully legal, and the company itself does not interact with crypto assets, since all its financial processes run through fiat.

“I think other Russian data center operators with mining equipment on their balance sheets will find a way out even in the event of a total ban on cryptocurrencies and continue to provide service and technical support to their clients,” Zabuga noted.

CEO of Comino Evgeny Vlasov believes the Bank of Russia’s initiative presents problems for major market players, since they are easier to identify.

Experts forecast that, should a ban on cryptocurrency mining be imposed, the flow of mining equipment to Russia would substantially shrink. At the same time, migration to other jurisdictions popular among miners, notably the United States, is currently difficult.

“Now one must understand that miners are people who know the harsh environment they operate in here. They know that tomorrow they may be closed down. Many have already “recouped” their equipment and are ready to sell the “iron” and move abroad tomorrow,” said Evgeny Vlasov.

According to Roman Zabuga, banning mining is not the Bank of Russia’s ultimate objective. The regulator is more concerned with the turnover of cryptocurrencies, he concluded.

Experts hope that lawmakers will not approve the BoR’s initiative in full.

“Russia now has a real chance to become one of the major players in a high-tech niche,” said Roman Nekrasov.

Co-founder of BitCluster Vitaly Borchenko also noted that turning away from the strongest technological trend does not align with the government’s aims to lift Russia to global leadership in the age of digital technologies.

At present mining in Russia is not banned and its precise regulation is not set out. The central bank’s report is only one of the proposals to consider for regulating the cryptocurrency market.

The Bank of Russia certainly has the option to view mining as a legal process, but the regulator pursues a prohibitive policy, without citing any act established in the RF, noted Andrey Tugarin:

“It is very difficult to ban what is not defined by law. Until there is an exact and official definition of mining, talking about banning it in Russia is not possible.”

Experts hope lawmakers will listen to business and not take the hard prohibition route proposed by the BoR.

In October last year, the governor of Irkutsk Oblast, Igor Kobzev, wrote to Deputy Prime Minister Alexander Novak, in which proposed to legally enshrine mining as a form of entrepreneurial activity. Earlier, a similar initiative was advanced by Anatoly Aksakov, head of the State Duma Committee on Financial Markets.

Representatives of several ministries supported this proposal.

Even then, the Bank of Russia opposed this idea, arguing against any “initiatives facilitating the emergence of monetary surrogates.”

In November, the State Duma announced preparation of a bill to regulate mining.

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