Russian authorities revealed a new draft law to regulate cryptocurrency usage. According to this document, all global cryptocurrency as well as mining businesses should be prohibited. This very tough position of the Russian government could trigger capital outflow from the country, experts say. Meanwhile, a draft law on a similar topic already came to the Senate of Kazakhstan for further consideration.
The updated version of the new draft law “On Digital Financial Assets” that was proposed at the State Duma (Russian parliament) has many changes from the original version. These new rules are committed to the complete prohibition of all kinds of cryptocurrency turnover in Russia unless these assets are issued under internal regulations. The mining of cryptocurrency and advertising should be banned as well.
According to the Russian media, all market players as well as experts are considering this tough approach as an exaggeration that might impact the whole market. For example, if mining were banned, the Russian economy might lose more than $2 billion per year, experts say.
The topic of cryptocurrency regulation has been discussed in Russia since 2018, when work started on the draft law “On changes and amendments to some regulation acts of the Republic of Kazakhstan on digital technologies regulation.” In general, this draft law is about digital technologies regulation. However, it also deals with digital assets. Belarus already legitimized all crypto exchanges in the frame of its High Technologies Park. The Eurasian Commission even tried to reach some harmony in this area by recommending cryptocurrency regulation. Nevertheless, member-states of the Eurasian Economic Union (EAEU) used their own national approaches and only time and practice may reveal the most effective method.
Several years ago, National Bank of Kazakhstan, headed by ex-chairman Daniyar Akishev, held the same conservative position as Russian Central Bank does now. Meanwhile, Astana International Financial Center (AIFC), which has a special constitutional status, already legitimized crypto business in the frame of its jurisdiction in 2018.
Last year, President Kassym-Jomart Tokayev discussed digital assets in his national address and called for assistance to AIFC to create an open jurisdiction brand.
Kazakhstan Has No Objections
According to the draft law “On digital technologies regulation,” the legal nature of the digital assets is determined as property created in a digital format with the help of cryptography and computing and is not money or securities. The digital asset is not a means of payment but an item which can be sold or purchased in the digital environment.
Two types of digital assets are determined: secured (digital tokens) and unsecured (cryptocurrency). Digital tokens are a means of accounting, exchange and certification of property rights. In other words, they are provided with a basic asset in the form of goods or services. In international practice, these are the so-called “utility tokens” used to tokenize transactions, goods and services.
Unsecured digital assets are cryptocurrencies. The issue and circulation of unsecured digital assets in Kazakhstan is prohibited, except as otherwise provided by law. This means a reference to the Constitutional Law on AIFC and its regulations managing crypto-exchanges.
Thus, Kazakhstan designated the legal status of crypto assets by incorporating them into existing civil law; separated tokenization from securities, means of payment and cryptocurrency; and limited the circulation of cryptocurrencies to the AIFC jurisdiction, which already has licensing, financial monitoring and other regulatory mechanisms.
Mining as a Business
The Kazakhstan draft law “On the regulation of digital technologies” articulated the concept of digital mining and determined when rights to digital assets emerge. The law does not require a ban on mining activity in the Republic of Kazakhstan; in fact, crypto mining is legalized and removed from the “gray” zone.
At the same time, the developers of the draft law suggest considering mining as a process rather than entrepreneurial activity. Income and relevant tax liabilities arise in two cases: the sale of mined cryptocurrency or rent computing equipment for mining as outsourcing services. The latest is an activity similar to data center services and is regulated by a specific law.
In general, the government of the Republic of Kazakhstan embraces the crypto business and believes in its economic value. Mining firms registered as data centers continue to develop in Kazakhstan as part of the digital economy, utilizing extra electric power, exporting computing resources and attracting investments. Due to a surplus in low-cost electricity, Kazakhstan has serious competitive potential in the global market.
Debates Still Ongoing
The issue of regulating the circulation of cryptocurrencies is controversial internationally. Some stand for progressive regulation, others for neutrality, and still others for conservative caution. Nevertheless, there is a global trend towards the legalization and institutionalization of the crypto market.
Given the experience of some developed countries and the recommendations of international organizations, such as Financial Action Task Force on Money Laundering (FATF), this trend is a logical response to the long-discussed risks associated with fraud, anonymity, money laundering and trafficking. The key point is the separation of the black (shadow) and white (allowed) market, in which it is possible to carry out supervision, licensing, monitoring and development. The goals of such regulation will be traceability of turnover, implementation of financial monitoring and identification procedures, while the ban creates shadow turnover risks with no proper supervision.