Russia is drawing up rules about how to conduct initial coin offerings (ICO), breaking ranks with China after Russian President Vladimir Putin signaled his approval for digital currencies.
While China slapped a blanket ban on ICOs this month, the government in Moscow plans to regulate cryptocurrencies like securities rather than outlawing them, Russian Minister of Finance Anton Siluanov told reporters on Friday.
That marks a full reversal from his ministry’s proposal last year to punish people who use digital currencies with up to seven years in jail.
Appetite for the instruments has been growing ever since Putin in June met with the founder of the world’s second-largest cryptocurrency after bitcoin and gave his blessing for Russia to develop blockchain, the technology underlying bitcoin.
A consortium of lenders including Sberbank PJSC is seeking to use the technology to cut costs, while a presidential aide last month announced plans for an ICO.
By contrast, China’s central bank has ordered all fundraising efforts related to ICOs — which have raised at least US$1.25 billion globally so far — halted immediately, a decision that might have an effect on investors who had participated in at least 65 of the projects by mid-July.
Chinese regulators have also decided to close domestic cryptocurrency trading platforms, Caixin reported, citing unidentified people close to the nation’s Internet financial risk prevention team.
“The state certainly understands that cryptocurrencies are a reality, there is no point in prohibiting them,” Siluanov told reporters in Moscow. “It is possible to regulate them, so the finance ministry will draw up a bill by the end of the year.”
That reality was not always apparent in Russia. Before Putin’s meeting with Vitalik Buterin, the Russian-Canadian founder of ethereum, the legal status of cryptocurrencies was unclear.
Since then, a company co-owned by the president’s Internet ombudsman, Dmitry Marinichev, has announced a plan to raise US$100 million in an ICO to fund a domestic digital currency-mining operation.
Herman Gref, Sberbank’s Tesla-driving chief executive officer, has put the weight of Russia’s biggest bank behind a modified ethereum protocol dubbed “masterchain” to make interbank money transfers safer and faster.
However, not all Russian officials are believers.
Bank of Russia Governor Elvira Nabiullina on Friday said at the same forum that there was “gold fever” surrounding digital currencies and said that they should not be used as a surrogate for money.
Regulators around the world have expressed concerns with ICOs.
The Canadian Securities Administrators last month said it would decide whether an ICO should be considered an offering of securities on a case-by-case basis.
To do an ICO, entrepreneurs typically post a white paper online outlining their idea, then offer supporters the opportunity to buy tokens — typically with a cryptocurrency like bitcoin — to finance the project. The tokens can trade on online exchanges, where some of the market values have swelled to more than US$1 billion.
The relative ease of doing an ICO has let to multiple scams, with many issuers simply copying the offering documents of a successful ICOs, such as Tezos.
Last month, the US Securities and Exchange Commission told investors to watch out for scams involving ICOs, a sentiment echoed by the US Financial Industry Regulatory Authority.
Not only scammers, but also hackers can wreak havoc on an ICO.
Last year, a project called the DAO raised hundreds of millions of US dollars before falling prey to hackers. Some ICOs get canceled or end up refunding investors their money.
Meanwhile, European Central Bank (ECB) President Mario Draghi on Thursday criticized a proposal by the Estonian government to launch a state-managed digital currency, reaffirming instead that the euro was the only valid money in the euro area.
A rise in popularity in cryptocurrencies has been worrying the ECB, which has said they could in theory erode its control over the supply of money.
Estonia became the first European country to openly discuss the prospect of a digital currency managed by the government and offered to the nation’s more than 20,000 e-residents — foreign entrepreneurs who open a firm in the country via the Web.
Draghi’s comments come as the status of the euro is called into question in Italy, where an opposition party has proposed that the government issue small-denomination, interest-free bonds to pay suppliers as a way to circumvent a ban on currencies other than the euro.
“I won’t comment on the Italian intention, but I will comment on the Estonian decision: No member state can introduce its own currency,” Draghi said in response to a question during his regular news conference. “The currency of the eurozone is the euro.”
The idea for the “estcoin” came from Kaspar Korjus, the head of Estonia’s e-Residency project. The Tallinn government is seeking feedback online.
Additional reporting by Reuters
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