Vladimir Putin’s recent order to implement a new national cryptocurrency, the CryptoRuble, in Russia is the latest in a long line of significant developments in the cryptocurrency market this year. Statements from the Russian government appear to suggest that it shall be made the primary cryptocurrency in Russia, and that mining of other cryptocurrencies will be banned after its implementation. The decision makes Russia the world’s first government to announce the introduction of a state-backed digital currency.
Differences with Bitcoin
The analysis of the CryptoRuble, which will be blockchain-based, reveals several notable differences between the proposed new currency and other current digital currencies. The government’s decision to make it wholly state regulated, whereby it will be controlled, issued and maintained solely by the Russian government, is in contrast to currencies such as bitcoin which are primarily deregulated and decentralized. The inability to mine CryptoRubles also highlights a deviation from the features of many current cryptocurrencies, such as bitcoin.
The Russian government has stated that Russian citizens will be able to exchange CryptoRubles for regular rubles following the introduction of the currency. Illegal trade of CryptoRubles shall be prevented through levying a 13% tax on an owner of the currency unable to declare the origin their CryptoRubles. As Russia’s Minister of Communications and Mass Media, Nikolay Nikiforov, stated:
“When buying and selling a cryptoruble, the amount will be 13% from the earned difference…If the owner can not explain the reason for the appearance of his cryptorubles, when converting them into Russian rubles, the tax for him will be 13% of the total.”
Indeed, that the CryptoRuble is planned to be attached to the Russian ruble at a ratio of 1:1 may prompt some to comment that it is merely a digital version of the ruble, rather than a new and innovative cryptocurrency per se.
Though analysts may view this as a step toward embracing cryptocurrencies from a country that has traditionally been opposed to them, this is not the case. Indeed, Putin’s statement that all cryptocurrencies in Russia should be banned signifies the government’s continued opposition against them.
The sizable government regulation that shall accompany CryptoRubles evidences Putin’s desire to wipe out illicit financial activity (a central reason why he is opposed to current cryptocurrencies such as bitcoin) and eliminate money laundering, the online drugs trade, financing for terrorism and human trafficking. To prevent anonymous crime, CryptoRuble will use encryption designed by the Russian government in order for it to remain traceable.
Russia’s decision makes for interesting analysis. One of the central reasons which add to cryptocurrencies’ appeal is the deregulation and anonymity they provide. Through introducing a transparent, regulated and trackable currency, the traditional accolades of cryptocurrencies are omitted.
The allure of cryptocurrencies is suitably evidenced by the fact that, according to VC Mangrove Capital, the average return from investing in ICOs is 1,320%. Fascinatingly, the firm found that:
“If one had blindly invested €10,000 in every ICO, including the significant number of ICOs that failed, this would have delivered a +13.2x return.”
Despite the patent opportunity for monetization and generating profit through cryptocurrencies, the staunch decisions of China (as well as South Korea) to officially ban ICOs last month evidences the hard-line approach some countries have taken. That China’s ICO ban had little impact on the most popular cryptocurrency, bitcoin (priced at $5720 at the time of writing, despite a short-term minor slump), demonstrates the global popularity of digital currencies and thus partially underpins governments’ unease at the negative aspects it could entail.
Under the grounds of the mass fraud, criminal activity and harm that unregulated cryptocurrencies can cause, China’s actions are comparable to that of Russia. The actions of both countries symbolizes their skepticism of unregulated cryptocurrencies; despite taking different courses of action – China banning ICOs and Russia announcing its plan to implement a new national cryptocurrency – the recent decisions of the two nations evince their aim to closely regulate and centralize cryptocurrencies.
The implementation of the CryptoRuble is clear statement from Russia: it aims to monitor, regulate, distribute and centralize its national cryptocurrency – abolishing all other cryptocurrencies after its implementation. This corresponds to Putin’s distrust of bitcoin, associating it with criminal activity and fraudulence – the installation of the CryptoRuble aims to eventually eliminate this.
Its deviation from the standard features of cryptocurrencies makes the CryptoRuble a highly interesting emergence- one that may well precipitate the introduction of more state-backed cryptocurrencies in the future. However, whether it shall be used comprehensively by the Russian public, given its traceable, indiscreet and regulated nature, remains to be seen.
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