Russia’s announcement that it will soon issue its own cryptocurrency – the CryptoRuble – offers a significant perspective on the ongoing history of virtual currencies as well as the gradual conversion of domestic economies to blockchain. The issuance of this currency may be seen as a mid-ground stance that is sure to influence many other countries around the world and may shape the future of cryptocurrency, not necessarily for the better.
In a story first broken by the CoinTelegraph on October 15, Russian President Vladimir Putin and his Minister of Communications Nikolay Nikiforov, announced the details of this state-issued cryptocurrency. Among its notable features:
- It cannot be mined. Unlike other cryptocurrencies, the CryptoRuble is issued and controlled by Russian authorities.
- All transactions must be accounted for. If a holder cannot explain the source of the CryptoRubles in his/her possession, they will be charged a 13% tax.
- The 13% tax will also apply to arbitrage-style sale and purchase of the CryptoRuble.
- Every transaction will require proof.
- Although the CryptoRuble is a cryptocurrency, other cryptocurrencies will still not be allowed. The Russian Government still maintains an official ban on all other types of virtual currency.
Is the CryptoRuble a Legitimate Cryptocurrency?
The Russian government, through its central bank and affiliated agencies, have been working on a digital currency for months, and the end product is clearly being generated through the country’s own network of blockchains.
Seth Klarman’s Collective Wisdom: Risk Analysis Is The Key To Investment Success
Please note this article is based on publicly available information, however ValueWalk just received Baupost's 2018 letter moments ago and will have exclusive coverage shortly. Seth Klarman is widely regarded as one of the best value investors the world has ever seen. Over the past few decades, his hedge fund, the Boston-based Baupost, has achieved Read More
However, experts worldwide decry its closed origins and controlled environment as being completely counter to the cryptocurrency ethos.
Luis Cuende, a world-renowned digital innovator and entrepreneur, voices the opinion of many in the global community:
“The CryptoRuble seems to go completely against the basic principle of cryptocurrencies and decentralization. Trustless, decentralized public blockchains are the premise of cryptocurrencies that make them resistant to corruption, manipulation, and governmental abuse. National cryptocurrencies cannot offer advantage over traditional currencies without these essential properties, except maybe for better settlement times.
“Adoption of the underlying technology does pave the way for cryptocurrencies in general to break through to the attention of the mainstream, but also has the possibility to negate the effects for them through regulation or even restrictions.
“Nations trying to create their own cryptocurrencies are like telcos trying to create their own Internet. It just misses the point.”
In this regard, it appears the Russian government has taken the key elements of cryptocurrency and brought them in-house, stripping away all of the self-defining components, such as mining and valuation based on the mathematics of usage, in place of strict government control.
The Move Toward Blockchain
Aside from the contrarian closed-circuit control of the CryptoRuble, it must also be noted that its release represents a large-scale endorsement of blockchain technology. It illustrates the slow shift that countries are making towards deploying some or all of their “mission critical applications” from trade to finance to record keeping, healthcare, supply chain and so much more, to the blockchain.
The Russian announcement described the tight oversight of transactions and the 13% tax on unaccountable activity as a move against fraud, which may have some merit in a country that has seen a great deal of questionable financial activity in the post USSR years.
Other countries are also making great strides in the adoption of blockchain technology, mostly in small pockets, using private sector companies as test beds. More avante-garde and financially confident countries like Dubai have taken concrete steps towards a complete changeover. The upshot being that blockchain continues to emerge as the next de facto technology of communication, interaction, ledger-keeping, and commerce, not only in theory, but in the actions of participants around the globe. The release of the CryptoRuble is, in a uniquely Russian way, testament to this ongoing trend.
A more disturbing ramification of the CryptoRuble points to a growing sense of economic isolationism that is circling the globe at the same pace and with the same reach as the expansion of cryptocurrency and blockchain, but with the opposite goals. The United States, as well as many of the countries involved in Brexit have demonstrated a profound desire to circle the wagons and retreat from global economic cooperation.
Mr. Nikiforov’s announcement included the imperative that Russia had to release its blockchain-based currency to beat Europe, who would otherwise do it first.
In a great ironic move, at the very moment technology opens up the worlds of finance and commerce to a centerless and self-defining technology, many of the major global economic players are appearing to turn their backs, focusing instead on a tight position of self-defense, in open defiance of the obvious benefits of global communication. This of course leaves the harvest to those countries who choose to stay active in the global blockchain economy, and advance themselves, suddenly relived of so much competition.
Just Like Uber…
In some ways, the revelation of a government controlled cryptocurrency echoes other recent events in blockchain history, specifically the debate over the legitimacy of ICOs, whose free-floating idea of crowdsourcing through tokens is being routinely pulled to the ground by national government agencies seeking to peg them as securities for liability and taxation reasons.
Similarly, the bloom is off the rose at companies like Uber, whose notion of a centerless transit system has been challenged by federal and municipal level governments to a point where the company has had to cease doing business in certain cities, to the relief of local taxi drivers.
Rather than being a bad news story, this all points to a gradual, if turbulent, birth of a new economy in which the virtual takes precedence over the brick and mortar. How it turns out will be anyone’s guess, however a brief review of history suggests that no government will be willing to cede control over its money. Blockchain may indeed become the new platform of operations for the global economy, but the “chain” in its name will likely have more to do with the way in which it remains bound to the governments and agencies it was designed to avoid.