Russia Developing System to Identify Crypto Miners but Considers Tax Break

A Russian ministry is preparing a bill for the regulation of cryptocurrency mining which reportedly includes a “special system” to detect crypto miners. In addition, there may be a 2-year tax break for miners as well as energy quotas and special tariffs.

Also read: Japan’s DMM Bitcoin Exchange Opens for Business With 7 Cryptocurrencies

System to Detect Miners

The Russian Ministry of Communications and Mass Media is reportedly developing a system to identify cryptocurrency miners in Russia so that they can be taxed, Vedomosti reported last week. The publication elaborated:

There will be a special system for detecting miners – according to the structure of current consumption and Internet traffic, to correlate the capacity of the mining equipment with the amount of cryptocurrency that the miner declares on the crypto exchange.

According to the publication, two people familiar with the matter have confirmed that this information is included in the mining regulation prepared by the Ministry of Communications. The bill is expected to be submitted to the State Duma by February 1.

This is not the first time Russia has explored ways to identify miners. In October, the chairman of the State Duma Committee on Financial Markets, Anatoly Aksakov, noted the possibility of using electricity consumption to track crypto miners.

The Feasibility of This Tracking Method

The Ministry of Energy believes that “technically, this is possible, but it is necessary to understand that such processes and activities should be economically feasible,” Ria Novosti reported. “Perhaps it is worthwhile to monitor only the large nodes that provide this activity on an industrial scale,” the ministry explained.

Experts told the news outlet that “The main question is how the authorities will detect the consumers’ accounts that earn cryptocurrencies, and not those who watch TV or heat apartments,” adding that:

It is extremely difficult to track whether a consumer in his apartment is crypto [mining] or downloading a series of films.

“Detection of miners by the profile of their power consumption and Internet traffic will be very difficult to realize,” explained Andrei Koptelov, director of the Center for Economic Research at the Synergy University. “It is virtually impossible to distinguish between what consumes electricity, a mining farm or household heater, and the means of private virtual networks allow you to encrypt traffic.”

Tax Holidays, Energy Quotas, and Special Tariffs

While emphasizing that crypto mining will be taxed, RBC reported that the Ministry of Communication is considering special benefits for miners:

For starters, the miners will be given two years of tax holidays with compulsory accounting. Then they will be obliged to pay profit [income] tax, but they will not pay VAT.

However, Deputy Finance Minister Alexei Moiseev told reporters last week that his ministry “does not see the need for tax holidays for miners,” Ria Novosti reported.

In addition, the Ministry of Communications also plans to give miners “energy quotas and a special tariff,” the news outlet detailed.

A representative of the Ministry of Energy attended the meeting held by the Ministry of Communications to discuss Russia’s mining regulation last week. “So far no one has been able to explain why” there should be special tariffs for miners, the Energy ministry stated. “In the Russian Federation, currently the existing tariffs are among the lowest in the world, which already makes computing facilities in Russia quite attractive,” the ministry’s press service asserted.

Do you think Russia will be able to identify crypto miners? Should miners be given tax holidays, energy quotas, and special tariffs? Let us know in the comments section below.

Images courtesy of Shutterstock.

Need to calculate your bitcoin holdings? Check our tools section.