Issues in Regulating Virtual Currencies

Abstract

The Russian federal legislation on digital financial assets and digital currency (Law No. 259-FZ dated July 31, 2021) makes provision for additional federal acts regulating the issuance and circulation of private virtual currencies in Russia. The Ministry of Finance has proposed positive (non-prohibitive) regulation, while the Bank of Russia has announced a counterinitiative that would ban cryptomining and activities facilitating cryptocurrencies in Russia. The article discusses the dilemmas and distinctive features of regulating virtual currencies — one of the “families” in the taxonomy of cryptoassets. Economic use of cryptocurrencies is hindered by lack of a way to bestow value on them so that they may serve as a tender of payment. (They are completely walled off from the set of debt relationships that gave rise to the official fiat money units now in use.) That the law does not recognize them in this capacity is a secondary consideration; however, the basis for any legislative initiatives in Russia has been laid out by the provisions of Article 14 of Law No. 259-FZ, which prohibits the acceptance and offer of digital currency as payment for real items (goods and services). Although it would be justifiable to regard cryptomining as a socially worthless consumption of electricity and computing capacity to create a speculative product, an outright ban could prompt a counterproductive “withdrawal into the shadows,” and therefore positive regulation would seem to be the preferred alternative. That the goal of regulation is not to create comfortable conditions for cryptomining, but to thoroughly protect the rights and legitimate interests of consumers (users) should be clearly understood. The existing or planned legal acts in other countries (Mexico and the European Union) described in the article could be useful examples from which to develop a Russian approach to regulation.