Candidate of economic sciences Valeri Petrov worked as a top manager of several large financial companies and held executive positions in various financial market associations. At the end of last year, Petrov was elected vice president of the RACIB for the regulation and development of the market. In an interview with DeCenter, the expert said what was wrong with the draft laws on cryptocurrencies adopted in the first reading by the State Duma, how they should be corrected, and how the self-organization of business could push the whole blockchain industry forward.
At the end of May, the State Duma adopted three draft laws related to the cryptocurrency sector: on digital financial assets, on amendments to the civil code, and on crowdfunding. How much do these aspects contribute to the development of the market?
They have both pluses and minuses. The biggest disadvantage is that they are not sufficiently consistent with each other, both in terminology and in regulation provisions. We received three different documents. If you take them in the current form, then this will not bring the expected benefits for the industry.
Today, it is clear that the cryptocurrencies in Russian legislation, in the sense in which they are treated abroad in the most favorable jurisdictions (such as Japan and Switzerland), are unlikely to be adopted. The legalization of cryptocurrencies and transactions with them, which occurred in some countries, is unlikely to happen in Russia. The position of the Central Bank that private cryptocurrencies cannot be an alternative to the ruble as a means of accumulation and transactions on the scale of Russia is understandable and fully justified in the current economic conditions.
It is very important, however, not to simultaneously prohibit technological solutions based on tokenization. Also, no matter what they decide in Russia, no one can cancel the world market of cryptocurrencies with a capitalization of hundreds of billions of dollars. The main thing that the industry expects from legislators and the Central Bank is the creation of a mechanism for the legal attraction of investments in cryptocurrencies. It is short-sighted in the conditions of sanctions to abandon such a source of economic development. This is confirmed by the fact that companies collect very significant sums in cryptocurrencies: only in the second quarter of this year, $8.3 billion was raised through ICOs. Accordingly, if Russian legislation goes against the development of crypto investment procedures and takes the country out of the world market trend, this will significantly hamper its development, especially in innovative sectors. And, on the contrary, the right decisions could significantly help the implementation of the Digital Economy of the Russian Federation Program and the non-primary economy as a whole.
In your opinion, what major amendments should be made to the drafts in the second reading?
First, the three projects must be coordinated with the representatives of the crypto industry, legislators, and executive authorities to the end. Secondly, it is advisable at the legislative level to bring the concept of cryptocurrencies to those formulations that already exist in the civil code, since the concept of "digital money" is most likely not to fall into it. Without this, the legal value of the cryptocurrencies will be inadequate, and market participants will face a legislative vacuum around their work.
For example, until the full-fledged legislation for cryptocurrencies is developed, you can use the term "digital symbol" in relation to it. The essential content of the cryptocurrencies will remain, and at the same time, the probability of making mistakes or introducing excessive regulation will be reduced when the western term cryptocurrency is introduced into the Russian legal turnover.
If we talk about contradiction with other laws, then it is important, as they say, "not to throw out the child with the water.” Namely, to soften or remove the proposed restrictions for participation in ICOs. Do not hurry to pass laws that do not take into account the existing business practices in the market or build regulatory frameworks only for a small segment of the market (for example, excluding cryptocurrency from regulation). The criterion for admission to ICOs could be the standards developed by the community itself and the standards approved by the regulator. The process of controlling the conversion of the attracted cryptocurrency into the fiat assets could be realized through licensed exchange platforms, for example, on the same principles as working with foreign currencies.
At this stage, it seems inexpedient to introduce any new taxes, so I would like to limit the existing ones. Individuals must pay 13 percent of income, and legal entities pay those taxes that they already pay as a result of their activities.
In general, the very act of changing and amending the legislation is good. It is important that such basic concepts be introduced, which then do not have to be changed. The general opinion of the business community now is that we should not "hurry.” It is better to first minimize regulation, introduce only the most important provisions that would limit the risks of working in the market, exclude fraud, and adopt new legislation in stages, along with business development. In this regard, there are no special risks. No one has repealed the criminal code, and any crime can be punished. As a result, the practice of blockchain companies will allow us to adopt the most appropriate laws, which will not have to be changed frequently, and will make Russia an attractive jurisdiction for crypto investors.
Given these trends, can Russia become a popular jurisdiction for ICOs in the near future?
If we talk about ICOs, at first glance, the situation is not changing for the better. With a total investment of $8.3 billion in the second quarter, in July, the blockchain startups managed to raise only $416 million in their ICOs. This, in general, is the lowest it has been since May 2017. Almost 60 percent of the projects attracted less than $500,000.
It would seem that the trend is unequivocal. The ICO as a tool for investors is becoming less popular. In fact, it is nowhere near as popular as it was last year. It is necessary to take into account what happens to the main cryptocurrency, Bitcoin. We understand that after a significant reduction in its value, the amount of ICO earnings also fall. The number of ICOs has also decreased, which I think is a good trend. If you recall how many scams appeared at the end of 2017, it is clear that now, the hype has come to naught. At the same time, investors have learned to better analyze projects and have become more selective.
All this suggests that the ICO technology itself is not just "developed," but it is gradually standardized. For Russia, one of the main questions now is how to fit into the community of countries with attractive jurisdictions. Unfortunately, the analysis of the existing draft laws indicates a reverse movement. If the rules on ICO in these documents remain in the current form, then interest in Russia from the investing community will be minimal.
How can we solve this problem? We believe that it is necessary to introduce special economic zones, following the example of how it was done in Belarus, and to allow ICOs to be carried out within these platforms, thereby controlling the turnover of the produced tokens. There are no restrictions on their use as accounting units within projects. In the event that external accounting functions are acquired by tokens, this process can be standardized. It is important to control the risks of investors in order to avoid such phenomena as financial fraud and to ensure the use of the ruble as the only legal fiat currency in Russia. All the rest is less critical. In this case, Russia will not remain outside the borders of the ICOs.
This way we will be able to interest startups that need investments and crypto investors. In addition to Bitcoin, there are a number of well-known cryptocurrencies which have good liquidity. They can also be used as payments for ICO tokens. If, for the time being, it is impossible to solve the ICO problem on a countrywide scale, let's solve it on the scale of a separate "economic zone." Risks are reduced, and the effects can be very significant.
What ministries and departments are most active in relation to the cryptocurrency sector?
I would single out the Central Bank, the Ministry of Economic Development, the Ministry of Digital Development, Communications, and Mass Media, and the Ministry of Finance. Unfortunately, an active position does not always mean support for the industry.
The experience of working with the Ministry of Digital Development, especially in the area of “blockchain for public services” and working with information, is interesting. I also cannot fail to mention the Ministry of Economic Development. The experience of the Central Bank with its initiative of the "regulatory sandbox" is interesting, in which the projects of the Russian Association’s blockchain industry will be presented. This tool is very useful, and I would like to reduce barriers to access to it. Not all startups meet the high requirements of the Central Bank, but they need such support very much.
And what about financial institutions?
If we are talking about large financial institutions, here, I would like to single out banks, primarily VTB and Sberbank, which are actively involved in fintech projects.
Of the brokerage companies, I would single out Finam Holdings. In my opinion, this is one of the leaders and pioneers of blockchain among broker companies. Without going beyond the bounds of the law, they support the increase of financial literacy in our industry and actively participate in legislative processes.
What is the role of cryptocurrencies in Russia?
Considering cryptocurrencies as a full-fledged type of money at this stage of its development is not yet possible. For example, as a means of accumulation, they can hardly be used because of the substantial speculative component of their exchange rates. It is unlikely that, in the foreseeable future, they will be able to become a full-fledged means of payment. But in the role of a means of calculating within a particular project, cryptocurrency or tokens may well be used. As for using cryptocurrency as a security, it is also possible, but one must understand that these processes will be regulated in the same way that the circulation of securities is regulated. Therefore, such use is unlikely to bring significant benefit.
As for the Russian experience, we have created and widely used a completely legal cryptocurrency BioCoin, created by LavkaLavka. This currency can be used for payments in shops and restaurants using the payment service Robokassa, which, in fact, allows you to use BioCoin throughout the country. These tokens are also tied to the Visa Bank's VisaBank card, so they can be exchanged for rubles and paid by them at many outlets.
How did BioCoin succeed if we are banned from using cryptocurrency? This asset was legally described not as a cryptocurrency but as "the right of claiming a bonus score recorded in a blockchain." They were checked even by the Prosecutor's Office and it did not reveal any legal violations. This creates an important precedent when a token was legally described within the framework of existing legislation. If even in the current conditions, there is a "tokenized" business, it turns out that the token as a means of calculation is not only possible but also necessary, since it simplifies the technological chains of the firm and increases its turnover.
And yet, new bills on crypto assets, according to your words, do not suit market participants. Can they somehow affect the legislative process?
RACIB has an answer to this question. We have registered a legal entity SRO RACIB which will be able to perform the role of a self-regulated organization (SRO), that is, assume the functions of solving a large number of issues of standardization, lawmaking, and contentious issues of the industry-state relationship. The SRO already has the competence to participate in the development of legislation and work on reducing regulatory barriers.
The work of creating an SRO goes on in a planned manner. Several dozen companies have already expressed their desire to enter the organization. All the main provisions and directions of work are formalized. There is an understanding of the structure: the SRO will consist of 10 committees. Now, an active SRO is being formed and there are leaders ready to head committees.
The main objective of the SRO is to protect the legitimate rights and interests of the blockchain companies. We plan to achieve this by creating industry standards and monitoring their compliance. The SRO will also participate in the formation of the regulatory framework and contribute to creating a high investment attractiveness of Russia for the industry participants at home and abroad.
We need to guarantee the legal and effective conduct of businesses related to the digital economy, especially in the part of working with blockchain technology.
According to our calculations, the SRO's work will allow us to attract at least $12 billion a year to the industry, produce hundreds of new solutions and products on the market, and create at least 30,000 new jobs in the blockchain industry over the next three years. To this end, RACIB, in particular, launched the procedure for the official registration of new professions of the blockchain branch in the Ministry of Labor.
The SRO will not only make money but also save money. It is no secret that a significant portion of taxes goes to the creation of bureaucratic apparatuses to monitor the processes in the economy. If many of the supervisory and control functions are transferred to the community, that is, the SRO, this can be well saved. The practice of the work of self-regulating organizations has already been worked out, including in the financial market.
Savings can amount to not less than 50 percent of companies' expenses both for mandatory payments (taxes and fees) and for attracting investors.
The most fundamental point here is standardization. If there is no SRO, we are in a situation where each company will work within its rules and norms. This is already happening. For example, there is no standardization of the API although it would seem that it hinders this. Therefore, to solve most of the problems that we are talking about today, it is necessary to create a self-regulatory organization for the blockchain industry.
Authoritative international institutions, such as the G20, participate in the regulation of cryptocurrencies. Now, this organization is preparing international standards for the compliance of the crypto market with international laws in the field of combating money laundering, fraud, and so on. Do the Russian authorities somehow take into account the position of such organizations in their policies?
Most of the economically-developed countries are trying to create favorable conditions for the development of new technologies. In doing so, they seek to limit negative aspects, primarily speculative risks. Russia actively participates in the work of the G20. But if we talk about the cryptocurrencies, we have just decided that they have the right to exist, and this industry needs to be developed.
The laws adopted in some countries suggest that there will be cryptocurrencies, but the process of their formation will take some time. The fact that the legislative process is actively underway in Russia allows us to hope that our country will integrate into these world processes.
Will cryptocurrencies replace popular currencies for international transactions?
There can be no talk yet of the free circulation of cryptocurrencies, or the appearance of some "private money." We see, however, that the dollar is gradually losing the status of the world reserve currency, and this is pushing all countries to search for alternatives. No one will go to simply replace the dollar with cryptocurrencies, though. It is not necessary. Most likely, the regulatory processes within the framework of the G20 will go more slowly than in individual countries.
I am sure that if we unite our efforts to develop our industry within the framework of RACIB, Russia will not be disregarded by the flows of investments and resources that will appear in connection with the development of cryptocurrencies, blockchain, and other digital technologies.