The issue of the development of cryptocurrency turnover in Russia rests with the regulation of this sector, as in most countries of the world. Except for some states, such as China, government regulators tend to be a wait and see attitude toward digital assets. The vagueness of cryptocurrency regulation is what can be said about both the United States and the European Union. But the new law proposed by the Ministry of Economic Development makes Russia one step closer to regulating the cryptocurrency industry and successful application of digital currencies in practice.
A Full Regulation of the Cryptocurrency Industry Is Nowhere to Be Found
Legislative ambiguity is often accompanied by the fact that there is no single regulation at all, which, for example, is recognized by the European Banking Authority. By the way, the mood in the department regarding cryptocurrency is not very friendly: the officials would like the Maltese “cryptocurrency freemen” not to exist as they do now, and the rules of law in the island state to be the same as in all other 27 E.U. member states. The E.U. Securities and Markets Authority stated that without the approval of cryptocurrency ETFs by their U.S. counterpart, the Securities and Exchange Commission (SEC), it cannot legally green-light the crypto coins.
Meanwhile, talks about the need to regulate this sphere have been going on for years, but so far, no country in the world fully codifies all norms aimed at describing aspects of cryptocurrency and blockchain businesses. In Russia, for example, the process was much slowed down because, as noted by Deputy Finance Minister Alexei Moiseyev, some technical experts who had begun reviewing the bill had a desire, in fact, to “touch all the hot buttons,” that is, to lay out thoroughly all the technological aspects of financial technology regulation, and this led to “endless edits.”
Due to the Absence of Legal Norms, the Crypto Sector Is Developing at Snail Pace
Despite all this, however, to some extent, cryptocurrency was spreading, along with mining, and blockchain was introduced not only at the level of individual companies but also within entire industries, such as oil and gas. From a legal point of view, in the event of business disputes, the principles of analogy and custom are used. This allows, for example, to levy taxes on cryptocurrency activities, without recognizing cryptocurrency formally at the state level.
But it is obvious that it is possible to talk about the development of the crypto market in such an environment only conditionally, as it will move at snail pace. Curiously, not only interested representatives of the cryptocurrency community understand this, but also the authorities—in particular, in Russia. High-ranking Russian officials continue to monitor the phenomenon of cryptocurrency and even find some positive aspects in it. But what next? And then comes the sandbox, which actually hides more potential than it might seem at first glance.
The Regulatory Platform of the Bank of Russia: Release Tokens and Then Immediately Destroy Them
Usually, “sandboxes” (regulatory platforms) are perceived as a kind of proving grounds for testing various technologies. And this is true as shown by the example of the sandbox, which was organized by the Bank of Russia on April 19, 2018. Prior to that, in December 2017, the Central Bank of the Russian Federation published a report that summarized the experience of creating and using sandboxes in different countries of the world.
The Russian regulatory platform has already been tested. On October 19, 2018, Sberbank announced that the capabilities of the credit institution were involved in the ICO trial, with the issuer and the buyer of tokens, and the bank mediated this transaction. Released tokens were eventually disposed of after the experiment. Approximately 20 more projects are on the way. The features of the sandbox from the Central Bank of the Russian Federation are that it is “played in” mainly by companies from the financial sector of the economy, and in addition, it is unlikely that such experiments will go beyond the regulatory platform.
A Sandbox the Size of a Region
Even more interesting is the fact that the Ministry of Economic Development of Russia has decided to create its own sandboxes, which are also, like those of the Central Bank, focused on digital technologies. What are the differences? Let us look at the bill, which has already been submitted to the State Duma. The document was published on January 11. The news received little media coverage, but on January 21, a new wave of interest arose in the proposal of the department. It has turned out that the Ministry of Economic Development intends to use regulatory platforms to assess how businesses can use cryptocurrency to circumvent financial sanctions of Western countries. The “pilot” regions will have to become a proving ground for the technology. Potential candidates include the Kaliningrad Region, the Republic of Tatarstan, the Primorsky Territory, the Omsk Region, Moscow, St. Petersburg, and the Republic of Crimea.
The text of the bill is also interesting as it was created on December 16, 2018, but was not submitted to the State Duma at the time, which coincided with the fact that the consideration of new sanctions against Russia had been postponed by the U.S. Congress to the first quarter of 2019. The document says that both legal entities and individual entrepreneurs will be able to work in the “sandbox”—that is, a wider group of participants than on the regulatory platform of the Central Bank of the Russian Federation.
Not Just Testing Cryptocurrency Mechanisms, but Preparing to Launch Them in Practice
In addition, it is stated that it will be possible to launch such projects when “there are barriers to the application of digital innovation or the activities carried out with its use in the regulatory legal framework that cannot be eliminated by changing the existing legal regulation.” Thus, such a regulatory platform opens a way for the launch of virtually any cryptocurrency project that does not contradict the fundamental principles of Russian law.
At the same time, the project should represent a “finished product for applied use,” and the bill explains: “The establishment of an experimental legal regime for the implementation of ideas and concepts not expressed in the finished product for applied use is not allowed.” This means that although we are talking about testing, as in the sandbox of the Central Bank, in fact, there will be “commissioning” of tools ready to be used even in real life. It is also important that in the information that appeared around this bill, the emphasis was placed precisely on circumventing sanctions.
Sanctions Are Not the Only Argument for Using New Financial Technologies
It is clear that Russia is planning to test ready-made mechanisms in a situation where settlements using traditional methods with counterparties will not function due to external constraints. But if sanctions of this kind are not introduced, does this mean that running such mechanisms will be a waste? Obviously not. Here we can remember that Russia has launched an internal analog of SWIFT, the System for Transfer of Financial Messages (SPFS). Initially, it was prepared in case of a disconnect of the Russian financial system from SWIFT. This did not happen, and the SPFS was not created in vain as it is actively used now. Moreover, as the head of the State Duma Financial Market Committee, Anatoly Aksakov, said, it overtook SWIFT in the number of users.
Settlements in cryptocurrencies, which the Russian government plans to test with a number of companies in the regions, also have prospects to become more widespread and on an ongoing basis. Moreover, this can occur both along the way out of such projects that have proven their viability beyond the framework of the sandbox, and by expanding the boundaries of the regulatory platform, with its special legal regime, to a larger number of regions. The first option is unlikely since the process of legal registration of all aspects of cryptocurrency activity will take quite a long time—possibly, two or three years—and will be completed just when the State Duma can come up with the issue of launching a crypto ruble. Not only sanctions can hasten the use of digital innovations in the Russian economy—the country’s political elite does also realize that it will simply not survive without them. Therefore, the “sandbox” of the Ministry of Economic Development is a serious tool for choosing those real and “tasty” cryptocurrency mechanisms that can be used to benefit the entire Russian economy.