- >Russia Legalizing Cryptocurrency Offers Competitive Advantage
Russia Legalizing Cryptocurrency Offers Competitive Advantage
A new Russian law legalizing digital assets will come into effect on January 1st, 2021. The law gives cryptocurrencies legal status, but bans them from being used as legal tender. That is, Russian citizens are not permitted to spend cryptocurrencies on goods and services. Russians are still able to purchase, trade, sell, or exchange cryptocurrencies as they see fit. This move to legalize cryptocurrencies is one step closer to Russia detaching itself from the grasp of the American Dollar.
Keegan Francis | May 20, 2021
The Implications of Legalized Cryptocurrency in Russia
Russians are able to purchase and hold cryptocurrency legally. This is a big step for Russia, as the country has a history of oppressing its citizens. Russia has faced many economic sanctions imposed by the American government in the recent years. This has forced Russia into difficult economic positions as there is not much to do when your country’s trade is being hampered. Cryptocurrencies offer countries that face sanctions an alternative avenue for conducting trade with one another. For example, North Korea is reported to be a heavy user of cryptocurrencies.
This puts America in between a rock and a hard place. On the one hand, the sanctions are supposed to be penalties for the countries taking undesired actions. On the other hand, the more sanctions that are imposed, the more the country will seek viable monetary alternatives such as cryptocurrency. Perhaps the use of cryptocurrencies by problematic foreign regimes is one of the side effects of the mass adoption of cryptocurrency.
Clarification on Spending Cryptocurrency
The new Russian legislation states that cryptocurrency may not be used to purchase goods or services. Cryptocurrency may still be sold, exchanged, or traded. This begs the question, what if I am selling, exchanging, or trading the cryptocurrency for bananas? The correct interpretation of the law is that cryptocurrencies may be traded with one another, but not for assets not in the classification. So I may trade Bitcoin for Ethereum, or Monero for EOS, but I may not spend Bitcoin on bananas.
This new legislation provides the framework for Russian banks to become cryptocurrency exchanges. The definition of cryptocurrencies that was settled upon leaves much open for interpretation. Two separate definitions are given, one for digital financial assets (DFA), and another for Digital Currency. The definitions are loose enough to allow for the future expansions of cryptocurrencies into the tokenized asset economy. For example, cryptocurrencies may represent a share in a real estate asset. Under the legislation, I may not purchase a house using cryptocurrency, but what about a share in a house? In the future, cryptocurrencies may be able to represent just about anything of value. When this happens, the law may need to be revamped to allow for the spending of cryptocurrency on goods and services.
Russia Has a Leg Up
Any country that offers a legal clarification on cryptocurrency has a leg up on those who haven’t. This is because legal clarification significantly reduces the barriers that businesses face when entering the business of cryptocurrency. For other countries, months are spent obtaining licenses, permits, and speaking with regulators. Legal clarification provides businesses with a framework that can be followed. Any country, including Russia, that offers legal clarification on the classification and treatment of cryptocurrencies is putting a foot firmly in the future.