Last week, Russia's central bank proposed a ban on issuing and using cryptocurrencies, citing the fact that the digital assets could potentially upend Moscow's financial system and imperil the country's monetary policy.
Crypto mining, or the process of minting new digital currency by solving a complex series of algorithms, was also mentioned as a threat to the country's energy supply. Russia is one of the top five countries for crypto mining, accounting for nearly 7% of Bitcoin mining power, according to data from the Cambridge Centre for Alternative Finance. Crypto mining remains hugely energy-intensive, with Bitcoin mining alone gobbling up approximately half as much annual electricity as the entirety of the United Kingdom.
“The Bank of Russia suggesting a total ban on cryptocurrencies is throwing the baby out with the bath water,” Pavel Durov, CEO and co-founder of the Telegram messaging app wrote on Saturday in his Telegram channel. “None of the developed nations [are] banning cryptocurrencies.”
Durov claimed that the ban would disrupt the country's development of blockchain technology, preventing the IT sector in Russia from reaching its potential and likely driving an exodus of talent outward to better pastures.
On January 20, Leonid Volkov, who is the chief of staff for Russian opposition leader Alexei Navalny, also weighed in on the proposed ban: “Technically, banning cryptocurrency is the same as banning person-to-person transfers (i.e. it’s impossible)," he wrote. "Yes, they can make it very difficult to deposit funds on crypto exchanges, which means that intermediary services will simply appear that will do this through foreign jurisdictions. Yes, transaction costs will rise.”
Russia's head of the central bank, Elizaveta Danilova, said that Russians with overseas crypto wallets would not be barred from trading crypto, and that the proposed legislation would not be applicable to overseas virtual assets.
Still, the decision of Russia's central bank to compare cryptocurrencies to pyramid schemes underscores the regulator's negative outlook on digital currencies and its belief that crypto might ultimately jeopardize Russia's monetary sovereignty.