The moment has finally come! The Russian Ministry of Finance published the draft Federal Law “On Digital Financial Assets,” aimed at regulating various applications of Blockchain technology

A draft of the Federal Law “On Digital Financial Assets” (the “Draft Law”) has been published on the Ministry of Finance website. The Draft Law resulted from a collaboration between the Ministry of Finance and the Central Bank of Russia. The intention is to create legislation defining the concepts of “mining,” “cryptocurrency,” “smart contract,” “token” and others. The Draft Law even deals with distributed ledger technology.

The Draft Law’s authors have decided not to recognize cryptocurrencies as legal tender in Russia, and cryptocurrencies would not be considered “currencies” for the purposes of Russian currency regulation and control.

Cryptocurrencies and tokens are treated as “digital financial assets,” which are further defined as “property in electronic form, created by means of cryptography.”

Under the Draft Law, cryptocurrencies could only be used legally to exchange for other cryptocurrencies, Russian rubles or foreign currencies. This would represent a significant leap forward for the Russian cryptocurrency market and is expected to breathe new life into Russia’s burgeoning blockchain technology community; in the current legal limbo in which blockchain exists in today’s Russia, a holder of cryptocurrencies cannot even legally turn his holdings into cash.

Although the Draft Law’s process for carrying out an initial coin offering (ICO) is superficially similar to the existing procedure for an initial public offering of shares (IPO), the Draft Law would accomplish a loftier goal: creating a special-purpose legal framework for regulating the blockchain economy (as opposed to attempting to close the gaps in the regulation of cryptocurrencies and token offerings by applying ill-fitting existing laws to them).

It’s expected that when a new blockchain law is passed, it will be accompanied amendments to be made to the Russian federal laws “On the Securities Market,” “On Organized Trading,” as well as the Civil Code, the Tax Code and other laws and regulations. We continue to watch this space, but what the market has seen in the Draft Law has already sparked optimism that Russia’s blockchain regulatory regime will be designed to facilitate deals, innovation and creation of markets using blockchain technology.