- Reasons for the Ban
- Geographic Scope of the Mining Ban
- Expected Consequences
- The Mining Law Permits Imposing Restrictions
Starting December 1, 2024, a new law will come into effect in Russia, imposing strict restrictions (essentially a temporary ban on mining) on cryptocurrency mining activities in ten regions of the country. This measure was introduced by the government in response to growing concerns over energy shortages caused by the high resource consumption of mining farms.
Reasons for the Ban
The primary reason for imposing the mining ban is the need to stabilize the power grid and prevent overloads, particularly during the high-demand winter season. Russia’s Ministry of Energy highlights that large-scale mining operations exacerbate local energy shortages, especially in regions with limited energy resources.
Geographic Scope of the Mining Ban
The mining ban will be enforced in the following regions:
- Chechnya
- Dagestan
- Kabardino-Balkaria
- Karachay-Cherkessia
- North Ossetia
- Ingushetia
- Donetsk People’s Republic (DPR)
- Luhansk People’s Republic (LPR)
- Zaporizhzhia Region
- Kherson Region
In these regions, mining will be completely prohibited until March 15, 2031. In some other areas, such as the Irkutsk Region, Buryatia, and Zabaykalsky Krai, restrictions will apply only during the winter months, from November 15 to March 15, also until 2031.
Expected Consequences
Experts and industry participants have expressed concerns that such strict measures could drive legal miners into the “gray” economy. This shift would make it more difficult to monitor mining operations and could reduce tax revenue for the government.
Additionally, these restrictions could negatively impact the development of the crypto industry in Russia, which is already grappling with numerous regulatory hurdles. Although the law legalizing mining was passed in August, the new restrictions risk undermining its positive effects.
The Mining Law Permits Imposing Restrictions
On August 8, 2024, the President of Russia signed Federal Law No. 221-FZ, which legalizes cryptocurrency mining activities in the country. This law came into effect on November 1, 2024, introducing a range of new rules and requirements for market participants.
The law defines the legal status of mining and establishes requirements for its participants.
Key provisions include:
- Registration in the Registry: Legal entities and individual entrepreneurs (IEs) wishing to engage in mining must register in a special registry managed by the Ministry of Digital Development. Individuals can mine without registration, provided their electricity consumption does not exceed the established limits (currently 6,000 kWh per month).
- Prohibitions for Certain Categories: The law prohibits individuals with unresolved or unexpunged convictions for economic crimes and those linked to terrorist activities from engaging in mining. Mining is also restricted for legal entities involved in electricity transmission.
- Reporting Requirements: Starting January 1, 2025, miners are required to notify tax authorities about cryptocurrency received and income from its sale.
The law immediately granted the government the authority to impose mining bans in specific regions, particularly those facing electricity shortages.
Conclusion
The ban on mining in ten regions of Russia until 2031 represents a significant step by the government to address energy supply issues. However, this measure raises numerous questions about the future of the cryptocurrency industry in the country and its ability to adapt to the new conditions. It is worth noting that despite these restrictions, private miners can continue their activities as long as their energy consumption does not exceed 6,000 kWh per month.
The choice remains: prioritizing energy balance, particularly during winter, or fostering the development of cryptocurrency.
