Russian bankers propose to penalise users of non-custodial cryptocurrencies. Why?
The Association of Russian Banks, an association of more than 300 Russian banks and financial institutions, has called on the government to criminalise the storage of cryptocurrencies outside centralised exchanges in cryptocurrency wallets. In doing so, such wallets allow investors to “be their own bank” – they get full control over their cryptocurrencies and own the private key associated with it. Consequently, bankers want to deprive ordinary people of truly owning their money. We tell you more about what’s going on.
As a reminder, the Association of Banks of Russia is the largest banking association, founded in 1990 and covering almost 90 per cent of the banking infrastructure in the Russian Federation as of early 2022. Binance, the world's largest cryptocurrency exchange, officially started working with the association back in February. The association's cryptocurrency expert centre was headed by Olga Goncharova, Binance's head of government relations for Russia and the CIS.
At the same time, non-custodial cryptocurrency wallets are those cryptocurrency wallets whose users own private keys to the address. Accordingly, they are full owners of the contents of the cryptocurrency address and can dispose of it without any problems. A distinctive feature of non-castodial wallets is the need to write down a sido or so-called mnemonic phrase – of 12, 18 or 24 words – when creating the wallet. It is this phrase that will allow access to the coins to be restored anywhere and under any circumstances.
Recovering a cryptocurrency wallet using a codphrase
Examples of custodial wallets are common trading exchanges. There, coins are controlled by the management of the platform. Accordingly, users need to get permission for regular withdrawals - meaning they don't essentially own the money.
Cryptocurrency investors
Understanding the bankers’ dislike of such addresses is simple. Firstly, anyone can create and use them without any proof of identity or documentation. Secondly, it is impossible to reach and control the coins in such addresses – and this is contrary to the practice of the traditional financial sector.
Bankers against cryptocurrencies
Anatoly Kozlachkov, vice-president of the Association of Banks of Russia, explains the organization’s calls to block cryptocurrencies by the lack of leverage with which financial institutions could influence potential debtors and criminals. The message is quite clear: bankers are annoyed that their clients can simply choose crypto and withdraw money from the banking sector altogether.
The Association’s demands are very tough: criminal liability for storing Bitcoin and altcoins outside of centralized platforms, Cointelegraph reports. The proposed restrictions are part of a package of regulation of the crypto market developed with the Ministry of Foreign Affairs. A letter with the proposal has already been sent to various government agencies – including the Central Bank and Rosfinmonitoring.
Anatoly Kozlachkov, vice president of the Association of Banks of Russia
The most interesting thing is that bankers themselves admit in their letter that “getting” to cryptocurrency coins is practically impossible without assistance from their owners. It turns out that the government will have to demand crypto-enthusiasts’ private keys when approving the proposed regulations. Which authorities will do this, and whether they will do it at all, remains to be seen. In any case, crypto owners from the Russian Federation do not need to worry yet – it is not certain that such radical measures will be listened to in the government.
Read also: Russia may use cryptocurrencies in settlements with African countries: official's proposal
While the Russian Federation is only discussing the issue, stricter measures regarding the crypto industry are already being introduced in Iran. In particular, the local government will increase fines for the use of subsidised electricity in cryptocurrency mining, i.e. energy at a discount. Iran has faced serious shortages of the resource in recent years, so officials are further restricting miners to meet the state’s needs.
Citing information from a local power company, the Tehran Times reported on Saturday that the government plans to sharply increase fines for miners using subsidized electricity. Company spokesman Mohammad Khodadadi Bohluli commented on the situation with the following quote, which was cited by Cointelegraph.
Any use of subsidised electricity meant for households, industrial, agricultural and commercial subscribers for cryptocurrency mining is prohibited.
Cryptocurrency mining
According to Bokhluli, fines for using subsidised electricity for mining will increase by a minimum of three times and a maximum of five times. Repeated violation could lead to revocation of business licence and even imprisonment. As a reminder, mining is a legal activity in Iran and is subject to licensing from 2019.
As of January 2020, the Ministry of Industry and Trade had issued more than a thousand mining licences. In May 2021, Iranian President Hassan Rouhani announced a temporary moratorium on cryptocurrency mining due to serious problems with the country’s power grid. The moratorium was lifted in September 2021 and reinstated in December.
We believe that such initiatives are the enemy of progress and advanced citizens, who have already appreciated the benefits of digital assets and decentralisation in general. Of course, they have the right to manage and own their own money for real, while keeping their coins out of the reach of bankers. And the latter, thanks to such ideas, have once again proven themselves incompetent and unprepared for fair competition.
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