Bitcoin in Russia May Soon Become “Beyond the Law”?!

It was recently reported that on December 3, 2015 State Duma, the Lower House of the Russian Parliament, which is the main legislative body in our country, has passed in the first reading unprecedented laws that impose criminal and administrative responsibility for establishing financial pyramid schemes. Besides pyramid schemes the laws refer to cryptocurrencies as instruments of establishing fraud schemes. Mass media have previously discussed possible introduction of criminal and administrative responsibility for conversion of cryptocurrencies, including Bitcoin, into roubles. At this time there is a law in draft regulating issues mentioned above; currently this law undergoes expert reviews.

With a certain amount of confidence we may say that such law drafts are usually supported by opponents of innovations, which are abundant in Russian legislative institutions. In the foreseeable future these projects will become full-fledged regulatory legal acts and therefore will become an obstacle on the way of free circulation of Bitcoins in Russia. A few days earlier State Duma has discussed a legislative initiative to impose a restriction on Bitcoin circulation in Russia. The main reason behind the discussion is suspicions on possible use of Bitcoins to fund terrorism acts. As of now, Bitcoins are mentioned as related to the establishment of pyramid schemes.

Upon the initiative of the Minister of Finances of the RF, conversion (in other words, exchange) of cryptocurrencies into roubles threatens with an imprisonment for up to 4 years. At the same time, in compliance with new amendments to law drafts, if a financial pyramid attracts funds or property in especially big amount, the jail term may be extended up to 6 years. One more novelty in Russian legislation is an introduction of administrative responsibility for spreading in the Internet and mass media information that advertises this kind of schemes and invites people to join financial pyramids. According to the weight such an infringement of the law will be penalized from 50,000 up to 1,000,000 roubles. Thus, participation in pyramid schemes with the application of Bitcoins will be qualified as a crime or a violation of the law. Depending on the weight of an act criminal or administrative responsibility will be applied.

Let us remind you that financial pyramid is a fraud scheme focused on attracting funds from people and based on promises of paying an incredibly high interest to investors. The basic objective of such an organization is attracting new clients by investors-participants. Old investors receive their interest out of the funds deposited by new participants. How are cryptocurrencies, and Bitcoin in particular, related to financial pyramids? Let’s get the things straight.

Bitcoins as a payment instrument are very popular all over the world. Bitcoins appeared in 2008 and in no time won over people from all continents. Bitcoins represent e-money for virtual settlements with Internet-shops, moreover, they are used as an investment and exchange trade instrument. Bitcoins have both advantages and disadvantages. Like any cryptocurrency, Bitcoins are kept deposited in virtual accounts accessible from anywhere in the world (having Internet connection). Transactions are commission-free, that is why cryptocyrrency has become very popular. In addition, transactions are almost instant - highly appreciated feature by users who need to be sure that payments for goods/services or transactions to other users’ accounts are processed with no delays.  Moreover, Bitcoin system is controlled by nobody and allows transfers to both individual and business accounts with no difficulties. Besides that, Bitcoin transactions are anonymous. This feature might be considered as both advantage and disadvantage because anonymity is of high importance for most of frauds.

At the same time, if to consider the situation from the detached opinion of a financial expert, it looks like State Duma underestimates benefits of cryptocurrencies. Turning down Bitcoin in Russia without offering a chance to the cryptocurrency to prove itself as a payment instrument, State Duma crucially limits the rights of fair Bitcoin users, who use the system for “clean” settlements and potential investment.

Financial experts are skeptic about suchlike innovations in Russian economical situation. From the point of view of economics the nature of cryptocurncies is in easy and efficient circulation of currency units in the world-web. The purpose: accessible financial settlements anywhere worldwide. Any economical mechanism is historically designed as an instrument for simplifying this or that operation and rather often these mechanisms become a handy tool for frauds. This applies not only to Bitcoins but to any other economical innovations. Maybe in the future Russian legislative authorities will change their view on cryptocurrency relations and improve regulations related to this sphere of business.