Russia to ban bitcoin, all digital currencies

Russia is planning to punish users of cryptocurrencies such as bitcoin, saying anonymous, difficult-to-trace transactions help kidnappers and money launderers.

The Finance Ministry in Moscow plans to submit legislation this month that would punish those who use digital currencies with fines as high as $38,000 and jail sentences of up to seven years. As opponents criticize such regulations as futile in the face of the growing popularity of bitcoin, Russia joins countries including Bolivia, Iceland and Vietnam in taking steps to criminalize it.

Russia has struggled since the fall of the Soviet Union to build confidence in the ruble and curb the once-common practice of Russians demanding payment in U.S. dollars and other foreign currencies. A decade ago, the government dropped capital controls limiting cash outflows, and in 2014, the Bank of Russia began to allow the ruble’s value to be set almost entirely by the market. Last year, the central bank revoked the licenses of 34 lenders for reasons such as violations of the laws prohibiting money laundering or financing terrorism.

The Finance Ministry’s proposal would prohibit the issuance of all cryptocurrencies or their use in exchange for goods and services in Russia. Penalties would start at four years in prison and a fine of $8,000 for individuals, with the harshest reserved for those in the management of financial firms.

Digital currencies such as bitcoin are not controlled by any government or central bank and can allow users to protect their savings against declines in national currencies and move money across borders without the participation of banks. Bitcoin has provided a haven for citizens of countries such as Venezuela, where access to the official exchange rate of 10 bolivars per dollar is severely limited, creating a black market where the local currency’s 98 percent plunge in the past three years means $1 costs about 1,100 bolivars. In Russia, the ruble has fallen about 44 percent against the U.S. dollar since Russia annexed Crimea from Ukraine two years ago.

According to some experts, however, efforts to ban bitcoin by Russian or any other country won’t work.

“A ban would be impossible to enforce because it is a peer-to-peer technology, it is a file sharing technology, and all people need to do to get around the ban is to have computers with an Internet connection,” said Jon Matonis, a founding director of the Bitcoin Foundation, a Washington group that promotes the cryptocurrency. “This perspective is out of step with the rest of the world. It’s like worrying about gravity: What can you do?”

Information for this article was contributed by Edward Robinson of Bloomberg News.

SundayMonday Business on 05/02/2016

mm – leading Bitcoin News source since 2012

Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. The information does not constitute investment advice or an offer to invest.