Ever since their introduction to the market, cryptocurrencies have drawn ample amounts of aficionados and critics alike. Notable critics of cryptocurrencies include the chairman and chief executive of JPMorgan Chase, Jamie Dimon, who believes that governments are destined to show opposition to cryptocurrencies, citing their need to “know where the money is, who has it, and what you’re doing with it,” as a primary reason for this predicted reaction.
Larry Fink, chairman and chief executive of BlackRock, championed Dimon’s hypothesis, equating the price of bitcoin to an “index of money laundering.” These concerns have been echoed by a significant critic of cryptocurrency’s acclaim, the Federal Republic of Russia itself.
Russia and Cryptocurrencies
Russia’s response to the climb in popularity of the cryptocurrency has been less than warm; its central bank and government synonymous in their denouncing of the latter’s uncertain reliability and incomparable facilitation of numerous criminal transgressions. This scepticism, not unfounded due to Russia’s past with unfulfilled promises brought on by failed economic reforms as well as its considerable underground economy, is the driving force behind the Russian Central Bank’s proposed restrictions on the selling or exchange of the cryptocurrency.
First Deputy general, Sergei Shvetsov, has clarified in a public statement made to CNBC, ”We cannot stand apart. We cannot give direct and easy access to such dubious instruments for retail.” During a recent conference in Moscow, it has been officially stated that the Russian government will block access to the websites of exchanges that offer cryptocurrencies such as bitcoin.
Ksenia Yudaeva, first deputy governor of the Central Bank of Russia, has gone to further cement Russia and the central bank’s decisiveness on the issue, stating during a Moscow Stock Exchange forum in New York, “The rouble is the only transactional currency allowed in Russia as far as we are concerned. We are very conservative on this issue of initial coin offerings and crypto. There has been a lot of froth in this industry and it reminds me of the early days just after the fall of the Soviet Union with promises of big gains coming from nothing.”
Enter Dimitry Marininchev. Head of his own IT solutions company, RadiusGroup, Marininchev is best known as Putin’s internet ombudsman and was appointed in 2014 as a liaison between internet companies and the Russian government.
Marinichev’s most current project is building what is known as the Russian Mining Center, a 9,000 square-meter warehouse and former Soviet car factory turned cryptocurrency farm in the southeast of Moscow. Marinichev hopes his project will widen Russia’s presence on the cryptocurrency map as well as emphasise the benefit cryptocurrency can bring to the Russian economy, as cryptocurrency is not monopolised by the West, whereas the banking system is currently under the stranglehold of US and EU sanctions.
This is a major benefit as sanctions cannot be imposed on cryptocurrencies, and therefore Russian gain through cryptocurrency will be maximised. This potentially will lead to larger profits from trade and a healthier and less oil-dependent economy. In pursuing this project, Dimitry Merininchev is proving to the Russian government that cryptocurrencies and blockchain technology will become an essential part of Russia’s future.
To the surprise of many, Putin supports Russia’s involvement with the world of cryptocurrencies but stresses a need for their regulation concerning the anonymity of the transactions, applying anti-money laundering standards to cryptocurrency payments, and ICO’s and tokens. In fact, President Vladimir Putin has recently commissioned a blockchain-based version of the rouble, the crypto-rouble.
The crypto-rouble is to be a state-controlled cryptocurrency that will enable the government to profit from Russia’s large underground economy, as a 13% tax will be levied on individuals and organizations who trade in their crypto-rouble for their fiat counterpart without proof of the legal obtention of the coins. This policy, if implemented, will grant the government a large profit margin from Russia’s shadow market, especially money laundering operations and other financial crimes.
Russia has one of the world’s largest underground economies relative to GDP, reaching an all-time high at 19trn roubles ($630bn) in 2011 and only growing since. Taxing the shadow market could benefit the economy greatly as it would be another step in the process of balancing Russia’s economy.
This new version of cryptocurrency, state-controlled and regulated, may also prove beneficial for other countries, such as Venezuela, suffering from people’s lack of faith in current currencies and massive inflation, as well as a better store of wealth fulfilling role of currency better.
Venezuela has already taken steps to initialise this process. President Nicolas Maduro announced his cryptocurrency project in early December as a replacement to the swiftly depreciating bolivar; Reuters reports the price rises in Venezuela of 1,369% between January and November. Reportedly, the petro (Venezuela’s cryptocurrency) will differ from bitcoin and other cryptocurrencies, as it will receive backing from hard oil assets.
Both Venezuela and Russia’s dive into the world of cryptocurrencies could be the start of a blockchain technology revolution. Could this be a step towards all currencies going digital? Could the future hold the end of all fiat currencies?
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