Russia Attempts To Ban Ban Bitcoin? – What Will This Mean

The Russian Attorney General’s office has released a statement in regards to the recent ban on Bitcoins that cites a law, Article 27, signed in 2002 by President Vladimir Putin.  The law states that “the official currency of the Russian Federation is the ruble.  Introduction of other monetary units and money substitutes is prohibited.”  Supporters of Bitcoin  claim that this ban will hurt Russian entrepreneurs and consumers.  What does this ban mean and how will it effect the Russian economy going forward?

What is Bitcoin?
Bitcoin is a virtual currency that has no physical form and is not connected to any single country or group of countries.  It is a young and volatile market where the price is largely determined by speculative actions that have the possibility for a high risk of loss.  As Jinyoung Lee Englund, the spokesperson for the non-profit Bitcoin Foundation, told FoxNews.com, “Bitcoin is the first payment protocol designed for the internet.  It is faster, cheaper, and more secure than the existing systems and as a result, we are seeing an increase in merchant adoption worldwide.”

The Great Debate
This ban could effectively remove Russian entrepreneurs from a burgeoning world market.  Bitcoin was not widely used by the Russian population at the time of the of the ban, but it was beginning to gain popularity.  Maps that can be found at http://blockchain.info/nodes-globe?series=48hrs and http://www.google.com/trends/explore?hl=en-US#q=bitcoin&date=today%2012-m&cmpt=geo show recent participation in various countries.  Bitcoins in Russia are primarily used for saving.  Participants who noted the potential growth rate and invested are receiving a solid income today. However, Russian transactions only account for approximately $10,000,000 of global transactions.  While this may not have an immediate impact on the Russian economy, it does limit or remove any potential for growth in emerging global market.

On One Side
The Russian government has asserted that, aside from the law introduced in 2002, the current ban on Bitcoin and other crypto-currencies is a result of the growing use in criminal organizations and because of the high risk of loss due to the price being determined solely by speculative actions. The authorities feel that with the rise of interest in Bitcoins for legitimate uses, there has also been a growing interest in the crypto-currency for money laundering.  In Russia, money laundering is a felony and is punishable by up to 7 years in prison.

Some experts agree with the ban.  There is worry about when the Bitcoin bubble will bust.  Maxim Petronevich, chief expert at Gazprombank’s Center for Economic Forecasting says about Russia’s ban, “Overall, the Central Bank’s position is justified.  They’re trying to protect the financial system.  The main complaint regarding Bitcoin is there is no backing from any central monetary authority, and the are underpinned only by user confidence that they can make purchases.  The danger to the financial system is that they can be impaired.  However, the value is provided by the fact that it is very difficult to generate Bitcoins.”

In The Other Corner
Supporters of Bitcoin counter with the opinion that banning Bitcoin will make it harder to track the use by criminals due an increase in undocumented person to person transfers.  Other countries such as the United States are researching the impact of crypto-currencies and investigating how to best regulate the transfer of them to protect investors.  This includes the requirement that all transactions be documented and that they be completed with proper ID.  This allows for the Bitcoins to be traced as they are transferred from person to person.  Such regulations are similar to those already in place for other financial institutions when establishing new customer accounts.

Several experts feel that the ban will not have much effect on the use of the currency.  For now, many users say that they plan to ignore the ban until formal action is taken by the Russian Central Bank.  The Russian Central Bank has even gone so far as to say that any individual or company found using Bitcoin will be charged with supporting terrorism, but has yet to take any action.  The penalty for supporting terrorism is punishable by up to 15 years in a Russian prison.  To date, however, there is no stated sentence for distributing Bitcoin or other crypto-currencies.

Things To Consider About Regulation
No one knows what the future holds for crypto-currencies.  There are many questions that need to be addressed and possibilities that need to be explored.  Regulation seems to be the lynchpin to many of the voiced issues.  Bitcoin is similar in many ways to the stock market and as such, this could be the answer to laying a successful foundation for the future.  If Bitcoin were to self regulate and comply with said regulation, it could pave the way to acceptance in many countries reluctant to accept it’s viability and legitimacy.  Any reluctance could further deter acceptance from governing authorities in countries other than just Russia.

What It All Boils Down To
Until the Russian authorities actually enforce the ban and begin to pursue prosecution for the transfer and use of Bitcoin and other crypto-currencies, many companies and individuals plan to continue on as they were before.  Several Subway restaurants in Russia offer 10% off the price of purchase if you pay using Bitcoin.  There are even taxis that accept Bitcoins as a form of payment.  Many do not plan to discontinue their use until there are very real penalties.  Unfortunately, this turns a legitimate business and everyday people into the criminals that the government claims that it is trying to protect them from.

Only time will tell how this decision will play out.  One would hope that all governing forces explore every aspect of the issue before making any sudden decisions that could have long term implications on the economy.  The ramifications, whether positive or negative, need to be thoroughly weighed so that the best possible outcome for the people is achieved.

All compiled information for this article can be found at FoxNews.com, The Verge, coindesk.com, inthecapital.streetwise.com, rbth.ru, heavy.com, geeky-gadgets.com, and reddit.com.

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