Conservative national crypto regulation. What do new bills carry us?

The need to adopt a modular law (that is, a law defining the general framework of interaction), which will establish the legal basis for regulating a cryptographic market in Russia and determine the basic concepts in the established relations between various actors, said officials of different levels during the last year.

And last week, various authorities at different sites laid out three bills at once, one way or another relating to the regulation of cryptocurrencies and tokens, mining, and the organization of tokensails in Russia:
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1. The draft law of the Ministry of Finance “On digital financial assets” , which aims to lay the foundation for the creation, issue, storage and circulation of digital financial assets;
2. The draft law of the Central Bank “On alternative ways of attracting investments (crowdfunding)”, which establishes the rules for conducting tokensales;
3. The bill of the deputy Kurbanov & RAKIB “ On the system of distributed national mining ”, claiming to create a basis for mining a crypto-ruble.

These bills, without a doubt, are the most expected regulatory documents of the year, which are intended to lay the foundation for the legalization of the crypto market in Russia, so that the new ICO and ITO do not seek a roof in other jurisdictions . However, on close scrutiny, it turned out that the bills are not as modular as they were originally intended, and they claim to have a fairly strict streamlining of many aspects of the civil-law circulation of critographic tokens.

About digital financial assets

In general, the draft law proposes quite clear definitions of various phenomena from cryptomir localized in Russian. However, their content from the very beginning of the document raises obvious questions. As expected, regulators did not allow the recognition of cryptotokenes as a means of payment. Crypt - this property, with all the ensuing consequences. Describing the object of ownership, the authors of the bill propose a generalized concept of "digital financial asset" , which includes cryptocurrency, token. So - separated by a comma. Below is an explanation of what a cryptocurrency is, and what a token is. At the same time, cryptocurrency, despite their obvious purpose, would seem, there are no signs of currencies, because they are not a means of payment. They differ from tokens only in the absence of an issuer. There is an emitter - token. No issuer - cryptocurrency. Here is a rule that should be approved as in a school, without attempts of logical understanding of the ideas of educators. And so that the lesson is not forgotten, the document separately states that “this type of assets is not legal tender within the Russian Federation”.

In the chapter “Basic concepts used in the law”, the definition of mining is given. Thus, according to the authors of the bill, mining is an entrepreneurial activity aimed at creating cryptocurrency and / or validation in order to receive remuneration in the form of cryptocurrency. However, below in the text of the bill, there is no more mention of mining. But there is about validation and validator. The presence of “and / or” does not allow one to unequivocally say whether validation is a type of business activity or not. Both solo-miners and various pools, usually located abroad, can fall under the broad definition. At the same time, the operator of the blockchain on which the ITO is held, its rights, obligations and any liability is not described separately.

Interestingly enough, the validation of a digital recording is recognized as a legally significant action.

Further proposed imperative rules that determine the conditions under which it is possible to conduct ITO in Russia:

• Only a person licensed by a bidding organizer or a license to operate in the securities market, depending on the legal nature of the token, can issue tokens and be the organizer of ITO in Russia.

• All exchanges and exchangers that exchange cryptocurrencies and tokens will have to be licensed or their activities in the Russian Federation will be considered illegal (the Central Bank still insists that it will not be possible to exchange any crypt, but only tokens issued under the new rules of Russian law).

• To make any transactions on the exchange of cryptocurrency and tokens for rubles, foreign currency or another crypt will be possible only through a licensed exchange operator.
  Ordinary citizens will be able to buy within one ITO tokens in the amount of not more than 50,000 rubles, i.e. less than 1k USD. (However, clause 1 of Article 3 can be read in a completely different way, since the restrictions apply only to the purchase “within one issue of tokens.” It was not possible to find an explanation of what “one issue of tokens” in the bill).

• A complete ban on anonymity. Krypto-scaffolds and the accrual of tokens to any person are possible only under the control of the Central Bank and only after passing through a strict identification procedure in accordance with 115-.

• Provides protection of the rights of the acquirer of a token under a smart contract in order to protect the rights of a party to a contract concluded in electronic form.

• A public offer to issue tokens should have a number of mandatory details, including the issuer, beneficiary, validator, clarify the rights granted to the owner of the token and have a number of disclaimers for its acquirers.

• If the token falls under the definition of a security, then an investment memorandum must also be publicly posted.

• The public offer and investment memorandum must be signed by a strengthened qualified electronic signature of the director of the issuer of tokens.

The bill largely describes the already established best practice in the field of tokensails. However, it creates quite incomprehensible restrictions and introduces quite unobvious requirements for participants. The biggest question is the absence of any justification for the maximum amount of the acquisition of tokens and the extensive requirement to specify a validator when organizing a tokensale. How to establish a specific validator, for example, in the Ethereum network, the authors of the bill do not explain.

On alternative ways to attract investment (crowdfunding)

Despite the seemingly unrelated to the name of the cryptocurrency bill, this document also claims to establish the basic rights and obligations of the participants held by the TGE (Token Generation Event).

It is quite controversial to use the concept of “crowdfunding” as a collective activity for ICO / ITO related to the creation, distribution and circulation of cryptographic tokens. In contrast to the crowdsale, crowdfunding in the usual sense is carried out, as a rule, for charitable purposes or in order to support the creative, political potential. That is, it is not about business and investment, but about non-commercial and social activity.

However, the authors of the bill define crowdfunding differently. This is an organization of retail financing, carried out by commercial organizations and individual entrepreneurs.

The current project provides for a different amount of rights for qualified and unqualified investors, the status of which is determined by the Federal Law "On the Securities Market". There are no definitions of “digital financial assets” or “tokens” in the law. In this part, the document refers to the first draft law “On Digital Financial Assets”.

Proposed innovations:

• The rights and obligations of the “platform organizer” and the “investment attraction organizer” are set separately, and the definition of the “investment platform” is given;

• Only Russian entities included by the Central Bank in a special register will be able to engage in “crowdfunding”. They must have at least 5 million rubles of their own funds;

• There are special requirements for the head of the platform for tokensale;

• A non-discriminatory approach to offering tokens to a wide range of individuals is being established. Closed presails are not allowed;

• Platform servers for organizing tokensale must be located in the Russian Federation;

• Ordinary citizens will be able to buy within one ICO / ITO tokens in the amount of not more than 50,000 rubles and not more than 500,000 rubles per year in the framework of different tokensails. And regardless of the status of a qualified investor, the total investment for one person per year is limited to a maximum amount of 200 million rubles. It is up to the organizer of the tokensale to follow this;

• Tokens can be purchased / sold only for non-cash rubles and only on sites that have received a license from the Central Bank;

• Tokens, which are uncertificated securities, are issued according to the rules provided by the legislation on securities, and the register of their acquirers is transferred to the depositary;

• A complete ban on anonymity. To identify and authenticate purchasers of tokens, ESIA can be used for public services;

• Information on concluded smart contracts must be provided by the platform operator at any request of the court or law enforcement officers;
  The required amount of information has been established, which should be posted on the website of the operator of the investment platform

The bill defines 5 types of tokens, previously allocated in practice, but not named in any laws:

• token receipt;

• token security;

• mixed token;

• license token

• Commodity (utility) -token

The proposed bill also proposes amendments to the legislation on advertising. So, when advertising TGE must contain disclaimers, warning that investment is highly risky and can lead to loss of deposited funds in full. But advertising platforms exclusively for qualified investors is prohibited at all.

About the system of distributed national mining

This bill is an attempt to implement the modernist utopian fantasies of some ideologists of the national cryptocurrency, created as an alternative to modern unregulated cryptocurrencies. As indicated in the explanatory note, it is largely created so that computing power does not remain unused, since they are used “only as usual entertainment platforms or surrogates of typewriters” .

The draft, as follows from the explanatory note and the text itself, is aimed at the legal regulation not of any mining, but only of mining a crypto-ruble. Unlike the previous bill, this one does not associate mining with entrepreneurial activity and assumes that a natural person can be a miner. However, all miners of a crypto-ruble must be registered in the distributed digital transaction registry approved by the authorized state body, and any of their activities without identification and authentication is not allowed.

The law establishes the possibility for banks to open nominal crypto accounts for acceding miners in order to receive remuneration and disposal of crypto rubles. At the same time, there is a legal reservation that the bank does not guarantee the safety of funds in such crypto accounts.

We must pay tribute to the fact that, unlike the draft law “On Digital Financial Assets,” the elaboration of the conceptual apparatus is much more thorough here. In addition to the generalized Miner concept, the bill discloses such concepts as “operator”, “validator”, “user” and “digital asset exchange operator”, endowing each of the subjects with a number of characteristic rights and obligations.

Despite the fact that at the beginning of the text and in the explanatory note also it is said about the taxation of the said activity, in the text itself there is not a word about taxes.

Worse than the neighbor, but better than nothing?

The Russian Internet community has already differently evaluated the proposed bills / However, no matter what the collisions and acute moments were contained in the current bills written in a very conservative spirit, the dynamics for supporters of legalization and scaling of cryptocurrency services are positive, since the first legal frameworks are created for activities in this industry. This will undoubtedly allow more investors and new institutional players to enter the crypt market. But it will be a slightly different crypt. Absolutely not the one we have now. Cryptocurrency, cut off from the original principles of its libertarian creators and cipherpanks, seeking to ensure the anonymity of transactions to each user on earth and the possibility of its use without any intermediaries. Current cryptocurrencies have no place in current bills. We have to admit that all three bills do not have any connection with the existing cryptographic market and are aimed at creating a new market of tokens fully controlled by the state.

Of course, until the bills reach the third reading in the State Duma, they will still undergo many changes and are likely to become even less liberal and more formalized in their essence.

With these bills, no doubt, we should expect satellite laws in the near future:

• imposing sanctions in the form of criminal and administrative responsibility for the circulation of monetary surrogates and violation of the rules for the circulation of cryptocurrency / tokens

• determining the procedure for taxation of activities on the alienation / acquisition of tokens and cryptocurrencies.
  

Then there will be a series of bylaws plugging holes and collisions during implementation, and only then will law enforcement begin to draw any practical conclusions about how the proposed legislation actually works (or does not work). Of course, in many respects, many attempts to regulate cryptoteans at the level of individual national legislations raise serious doubts. In any case, having a law is worse than that of a neighbor - this is a losing option in advance. And while we see much softer approaches formed by our closest neighbors in Belarus, Kazakhstan and Armenia, against the background of which the current approach of Russian lawmakers seems too stifling and inconsistent with the needs of the existing market. Obviously, the limits of liability and tax rates, which are yet to be determined by legislators, will cause the community much more interest, since it is they who will ultimately determine the future of global cryptocurrencies in Russia.