Russia to Launch Crypto Monitoring Service

It is quite a pivotal moment for crypto regulation. President Biden’s original infrastructure bill features language which would massively regulate and monitor the digital asset industry. Further, the US Senate Committee on Banking held multiple hearings around the virtual asset industry on July 27.

Now, seemingly following their fellow US legislators, officials from Russia aim to stiffen regulations on the digital assets sector through the tracking and monitoring of crypto assets and transactions.

Crypto Under Scrutiny by US Lawmakers

This past week saw US legislators examining extensive regulation with far-reaching implications for digital assets. The first bill, a bipartisan infrastructure bill, seeks to bring taxation on crypto transactions. The bill demonstrated such a broad definition of a “broker” that miners, developers, and DEXs could also be included.

As described in great detail by The Tokenist, the infrastructure bill stirs up a number of concerns. The three most significant concerns include:

1. The broad definition of a broker, which could encompass miners, validators, and liquidity providers on DEXs.
2. The bill has impracticable tax reporting requirements, as it would require applicable crypto users to file Form 1099 — which is normally done by financial institutions, not individual users.
3. Large-scale surveillance on digital assets.

However, courtesy of hard work from some crypto advocates, an amendment to the flawed infrastructure bill has been introduced. The amendment excludes blockchain validators, miners, cryptocurrency wallet makers, and some other categories from being classified as brokers.

Nevertheless, the recent chaos does not finish with flawed bills seeking to impractically regulate the crypto industry. US Senator Elizabeth Warren, who previously attacked cryptocurrencies in a Senate hearing, once again took to Twitter to slam the crypto industry. 

In a recent tweet, Warren called cryptocurrency the “wild west of our financial system.” She also supported comments by SEC chair Gary Gensler which pushed Congress to bring in more regulatory oversight of the digital assets market. 

However, this time, billionaire investor Mike Novogratz countered the criticism saying politicians don’t really understand how the crypto market works.

In the midst of this regulatory madness, a prevailing concern is officials bringing in an unreasonable amount of regulations — making the space so tight that there remains no room for growth. SEC Chair Gensler, who called himself “technology-neutral,” appears to hold a harsh instance when it comes to regulating digital assets. The full extent of his stance however, has yet to be seen.

Just recently, Gensler said he is “anything but public policy-neutral.” He added:

“…new technologies come along, we need to be sure we’re achieving our core public policy goals… In finance, that’s about protecting investors and consumers, guarding against illicit activity, and ensuring financial stability.”

Russia to Bring Monitoring to Crypto

Now, the US is not the only jurisdiction eyeing a tighter grip on digital assets. The financial monitoring agency of Russia has chosen a contractor to develop a Bitcoin and cryptocurrency tracking system, a recent report reveals. Reportedly, this would enable Russia to identify wallets linked to illegal activities as well as terrorism financing.

Data from CoinDesk reveals that a company named RCO has won the auction for creating the tracking tool. Furthermore, Rosfinmonitoring, Russia’s federal executive agency responsible for combating money laundering and terrorist financing, would pay the contractor 14.7 million Russian rubles (around $200,000) for the service.

According to the proposal, this new tool would be able to track transactions and collect information regarding a cryptocurrency wallet. Rosfinmonitoring aims to use this system to build a database of crypto wallets possibly connected with illicit activities and terrorist financing.

Cryptocurrencies like Bitcoin and Ethereum are not anonymous, rather they are pseudonymous. This means that all their transactions and the linked wallet addresses are recorded on an unalterable public ledger, which is open and easily accessible to everyone. However, this information alone doesn’t reveal any identifiable details about a persona.

Yefim Kazantsev, a Moscow Digital School expert said he believes that the new system tries to de-anonymize users. While Rosfinmonitoring has previously revealed intentions to build a tracking system last August, it is still unclear to what extent such a tool would be functional. 

In late May, Russia partially lifted a ban on cryptocurrencies as it allowed for digital assets to be used as a “contractual” means of payment. The country also plans to release a digital prototype for its central bank digital currency by the end of 2021. 

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Do you think the new Russian tracking tool can really de-anonymize crypto users? Let us know in the comment below.