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In 2016, Russia became the world’s top producer of bitcoin mining rigs.
As of June 30, 2017, there were 45 operational crypto-mining operations in Russia, of which half are situated in the Moscow region, the Ministry of Industry and Trade’s representative in charge of crypto-mining told CNBC. The farms are worth $8 million, he said.
This was the result of huge investments by venture capital funds and established miners from the US, according to the Russian Union of Mining and Processing Enterprises.
“We forecast that within two years we will have 150 [mining farms] here,” Aleksey Kavashnok, deputy head of the Russian Union of Mining and Processing Enterprises, told CNBC.
Russia’s Mining Industry Committee believes that within five years there will be at least one of the three largest mining farms in the world located in Russia.
“As for bitcoin, it doesn’t mean that it can be compared with conventional currencies or gold. Bitcoin has a market capitalization of around $80 billion and does not lose value … but to apply it to real economy is a different thing. It will depend on many factors, for example the decision of the authorities,” said Kirill Ilanyushin, Head of Crypto Exchanges at ADVFN.
Finance Ministry’s representative in charge of crypto-mining told CNBC that the general mood among state officials and Russian people regarding the bitcoin is positive.
“It is in the interest of the Russian government to promote crypto-economic developments. The ministry has recently introduced amendments to the law on treatment of virtual currencies. The main goal of the bill is to provide a legal basis for operating exchange for such crypto-assets in Russia. The operators of exchange services will be able to act as intermediaries for payment and settlement,” said Alexei Moiseev, Deputy Finance Minister of Russia.
Russia has a history of clamping down on bitcoin trading. In April, the country’s central bank warned that state organs were subject to the same regulations that apply to financial organizations, bringing bitcoin to the spotlight of a crackdown on the cryptocurrency.
While the central bank has never outright banned bitcoin trading, the government has sought to discourage citizens from using the cryptocurrency.
Earlier this month, Russia’s communications watchdog said that virtual currencies must be monitored and secured against attacks, adding that the regulator was discussing measures to prevent crime and money laundering.
For now, the Kremlin has refrained from taking a position on cryptocurrencies.
“We are still looking at it. We have to look at what its pros and cons are, how to use it and how to regulate it,” Putin said last week at an annual press conference.
However, Russian officials are leaning toward treating bitcoin as a form of money rather than a financial asset.
“The main purpose of Bitcoin is not to transfer funds from one person to another person, but to serve as a means of payment,” Kavashnok of the mining industry union said.
Russia has experienced bouts of inflation over the past decade and its currency has lost 80 percent of its value against the dollar since 2000.
The government’s attitude towards bitcoin appears to be a conservative one but officials are still concerned about the risks of bitcoin.
“The dangers of these ‘virtual’ currencies are evident: cyberattacks, the dismantling of a payment system, scams by cybercriminals,” Putin said.
“Also the risk of virtual currencies being used in criminal schemes such as the laundering of money from the world market. … and also the problem of high volatility,” Putin said.
But officials seem to be looking at bitcoin more positively, after Putin suggested a government-backed cryptocurrency.
Screen shot from CoinTelegraph
“For many countries it is a very hot issue. We consider cryptocurrencies to be a technological innovation, and accept this technology. But we need to regulate it in a way that it won’t be used for criminal activities,” Putin said.
“We need to properly monitor the real use of crypto-assets and address their security issues. Otherwise they will be useless,” he said.
And other government officials see the cryptocurrency’s potential.
“It is very tempting to see blockchain technologies in both Russian and foreign-based businesses and government sectors, this seems to be promising area for the future,” said Russia’s Deputy Finance Minister Moiseev.
In the near future, the government is expected to set the minimum age for using bitcoin to 20 years old, with the minimum investment in cryptocurrencies of 2,000 rubles ($31.8) for individuals and 25,000 rubles ($387) for businesses, according to Vedomosti.
In the long run, the central bank is likely to set the minimum price for bitcoin trading, a Russian-based industry source said.
According to him, the government should set the price of bitcoin trading to equal that of Russian rouble, with the possibility to establish a floor for the Russian currency. The price would then be automatically adjusted, the source said.
Most crypto-currency exchanges currently operate with few problems, Kavashnok of the mining industry union said.
“All the exchanges work online and have an escrow system that protects customers. We want them to have the right to create accounts, pay fees and have access to public databases of transactions,” Kavashnok said.