Cryptocurrencies in Russia: Ambiguity, Distrust, and Progress

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Updated: Mar 4, 2019, 13:22 UTC

These days, a rare ICO or blockchain-related project works without someone with a Russian name on the team.

People leave Russia for numerous reasons. When it comes to cryptocurrencies and blockchain, the country’s government seems to get accustomed to sending controversial signals to the community.

Meanwhile in Russia

A few years ago, the government sought to ban cryptocurrencies and even accused them of being a CIA brainchild devised in order to devastate Russian economy. Those who dealt with cryptocurrencies were looking at seven years in prison.

On the other hand, German Gref, the chairman of the country’s biggest state-owned bank Sberbank, claimed that he owned some bitcoins himself. He praised blockchain and even stated at some banking conference that half of those attending will have to seek a new career in ten years’ time thanks to decentralized technologies.

This could be an opinion of just one person hadn’t it been for the government who suddenly started weighing on legalizing bitcoin and other cryptocurrencies. However, the support for decentralized money wasn’t unanimous.

So-called ‘securocrats,’ who mostly work with the police, the Federal Security Service, the Investigation Committee and so forth were more than reluctant to embrace the concept of money that a government cannot control by any means. Still, the parliament, the State Duma, created a special working group on cryptocurrencies tasked with studying the matter and presenting a draft regulatory framework for digital money.

The high-ranking spokespersons for the regulator, including its chairwoman Elvira Nabiullina, were very cautious about cryptocurrencies. They claimed they were money surrogates involving high financial risks for their holders. The deputy minister of finance of Russia Alexei Moiseyev released statements with controversial subjects.

All in all, the broad Russian government is not a single entity when it comes to the cryptocurrency question. This might explain why they had to address the question to Vladimir Putin, who seemed to prefer some middle ground and advised the government officials to thoroughly study everything about cryptocurrencies prior to making any decision in their regard.

This general controversy has not resolved so far, and the status of cryptocurrencies in Russia remains ambiguous. They are not banned, they are not regulated, but they are extensively talked about.

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Regular cryptocurrency users are the different side of the coin (pun intended). The recent developments, mostly concerning the enormous ICO hype and bitcoin price skyrocketing, have heated up the interest towards cryptocurrencies amongst average Russians, some of which never heard of Bitcoin before, and others revising their view of it as a financial pyramid.

“The complexity usually involved in dealing with cryptocurrencies scares a lot of people away,” says Ivan Rublev, the chief developer of Sibcoin, an altcoin project from Russia. “They haven’t seen anything like that before, and naturally it produces some distrust and uncertainty.”

The obvious appeal of cryptocurrencies to average Russians combined with their traditionally cautious stance towards everything they don’t know much about, might explain different phenomena that occur there.

This caution manifests itself in the ambiguous government policy in regard otoBitcoin and altcoins, as well as their statements on blockchain and its use cases.

For instance, Alexei Moiseev, the deputy minister of finance said that bitcoin trading shall be available only to professional and duly certified investors stating: “As for so-called traditional cryptocurrencies like Bitcoin, there are, of course, different opinions. There’s opinion that it’s a Ponzi scheme, and generally it’s hard to deny that. We want to make it in such a way as to let qualified investors who for some reason want to invest in cryptocurrency and make money out of it have such an opportunity. But it may involve only the Moscow Stock Exchange.”

Just a few months before that, he spoke quite differently:

“Bitcoin and other cryptocurrencies have to be introduced into the legal terrain and legalized. It has to be a product one would normally buy in a bank. We don’t intend to issue licenses for bitcoin sales.”

On the other hand, average Russians who knew nothing about Bitcoin last year joined the crypto-rush as the first cryptocurrency’s price climbed upwards at an enormous speed. The legal ambiguity of the situation, as it seems, didn’t change their minds.

“Hardware stores were wiped clean of GPU’s. People took on loans to buy mining farms. Electricity bills were horrifying. People just saw an opportunity to become rich in an instant. I don’t think that’s country-specific, it’s more about what they know about cryptocurrencies and what are their plans,” says Mr. Rublev.

Similar rush happened with Ethereum whose price also skyrocketed this year. However, the insufficient understanding of cryptocurrencies resulted in some sad events. For instance, when ETH price dropped down, some Russians, most of whom had invested in ETH mining farms, tried to write an electronic petition to Vladimir Putin in the hopes that he would convince Vitalik Buterin to put the price back.

“This mostly explains why we work on Sibcoin. People just need a cryptocurrency they could easily understand, and therefore, trust,” Mr. Rublev concludes.

Volatility inherent in most cryptocurrencies seems to have sobered some people up. They came to realize that Bitcoin, Ethereum, and their peers are digital, not easy money.

The hype around them doesn’t seem to subside though. Statements made by government officials can generally be reduced to the simple notion of not knowing what to do with it as yet.

Conclusion

Of course, there are Russians who know exactly what to do with cryptocurrencies. Some of them create their own cryptocurrency adapted for local users, like Mr. Rublev and his team. Others enjoy cryptocurrency trading or calmly mine BTC or ETH while being well aware of their high volatility. And the rest join the ranks of people with Russian names on international project teams.

The understanding of cryptocurrency is probably one of the most important issues standing in the way of their wider adoption. Even though Bitcoin will soon turn 10 years old, there are not enough people in the world who can fully understand why decentralized digital money and blockchain are such a big deal, and Russia is one of the best illustrations of what the community has to overcome in order to truly make cryptocurrencies the future of money.