Back in 2016, Russian institutions had announced that anyone seen trading cryptocurrencies would be jailed. However, a year after, the government declared that Russia will legalize the use of cryptocurrencies.
So Why The Change After a Year?
The reasons lie behind the serious issues Russia’s been attempting to discuss for a while now. Their economy is falling apart since 2014, with their banking sector being affected the most.
The Russian Central Bank has been stressing more anti-corruption campaigns, to address banks that use money-laundering methods to remove capital from the country. With around 100 banks being shut down in the last three years, things aren’t looking so bright for Russia. As told by the Central Bank head, Elvira Nabiullina, the campaign will be continuing for at least 2 more years.
The cost of closing down a bank isn’t cheap; this process has cost the Deposit Insurance Agency (DIA), around $50 billion. Along with this, the Central Bank is trying to dodge the liquidity concerns that arise with closing banks. Increased cash shortages are causing social unrest among the regions of Russia.
Corruption is another issue the Russian central authorities are working to reduce. The banks that were shut down were all involved in lending money to companies that carried out no real business activities, giving fake loans to individuals and money laundering. Unfortunately, their owners are the first to flee when investigators begin to take matters into their hands.
Shutting down banks is not enough to eliminate the occurrences of fraud and its impact on their economy. Instead, they must find a solution to stop it from happening in the first place.
To begin with, they can implement new technological applications that allow the government to observe people involved in the system. They’re approaching it enthusiastically due to its complete concealment from the government and unlike traditional currencies, Bitcoins are mined.
One is able to purchase Bitcoins with paper money on any bitcoin exchange portal or banks. These bitcoins can be used to purchase all sorts of goods and services, provided it’s allowed in that country.
Although, governments’ fear the anonymity that comes with cryptocurrencies, as it could help in money laundering. It’s a good news to them that the blockchain system is very transparent and allows tracking of user transactions.
A blockchain is a distributed public ledger that keeps track of all bitcoin transactions taking place, basically keeping a record of everything.
The three main characters:
- It consists of no central database or server that can be hacked.
- Easily accessible by the network members who can view the transactions in real time.
- It is completely encrypted.
This is another reason why the Russian authorities want to implement this technology to their financial systems. The benefits that come with using blockchain technology include faster processing speed, lower fees, and most importantly increased security. These features have attracted the Russians and they’re now working their way into the digital world.
We’re not aware if the Russians are planning on digitizing their banking sector completely, however they do have plans to adapt to the existing blockchain technology so that they develop a better understanding of the digital world; until banks can develop their own systems.
For now, their aim is to decrease the amount of fraud and corruption circulating throughout the financial sector. By doing this, they would be able to bring down government costs and get back on track.