Financial Legal Aspects of Legal Regulation of Digital Currency Circulation

Andrianova Natalia Gennadievna PhD in Law Researcher at the Department of Administrative Law and Administrative Process of the Institute of State and Law of the Russian Academy of Sciences 119019, Russia, Moscow, Znamenka str., 10 natalia.g.andrianova@gmail.com Other publications by this author

In the context of unprecedented sanctions pressure on the Russian Federation, the need to find alternative instruments for making settlements on cross-border payments outside the banking system is increasing. In this regard, the issue of detailing the procedure for legal regulation of the turnover of digital currencies in the Russian Federation becomes relevant. In Russian legislation, the term "digital currency" is used instead of the term "cryptocurrency". The definition of the concept of "digital currency" is contained in paragraph 3 of Article 1 of Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation" [Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to certain legislative acts of the Russian Federation"// "Collection of Legislation of the Russian Federation", 08/03/2020, No. 31 (Part I), Article 5018], from which it follows that a digital currency is a set of electronic data contained in an information system and can be accepted as a means of payment that is not Russian, foreign or an international monetary unit or as an investment in respect of which there is no obligee. The legal regulation of the procedure for the circulation of digital currencies is not regulated in detail in Russian legislation, however, the above-mentioned federal law contains the basic rules for the circulation of digital currencies. So, in particular, paragraph 5 of article 14 of the above-mentioned law establishes a ban on the adoption of digital currency as a counter-provision for goods transferred, works performed, services rendered. It seems that the legal approach associated with the restrictive approach of the Russian legislator in terms of regulating digital currencies is largely related to the risks of using such tools for the economic security of the state ^[1]. It is noteworthy that one of the key areas in the field of digital currency circulation, namely, the procedure for creating units of digital currency or the so-called "mining" of digital currencies has not received detailed legal regulation in the above-mentioned federal law. At the same time, according to experts, Russia ranks second in the world in mining digital currencies ^[2]. So, in 2023, the mining market in Russia doubled, in particular, about 54,000 bitcoins were "mined" for a total amount of 3.5 billion. dollars ^[3]. Currently, Federal Law No. 221-FZ dated 08.08.2024 "On Amendments to Certain Legislative Acts of the Russian Federation" [Federal Law No. 221-FZ dated 08.08.2024 "On Amendments to Certain Legislative Acts of the Russian Federation" // Official Internet Portal of Legal Information http://pravo.gov.ru 08.08.2024] (previously - Bill no. 237585-8 "On Amendments to Certain Legislative Acts of the Russian Federation (regarding the regulation of digital currency)" [Bill No. 237585-8 "On Amendments to Certain Legislative Acts of the Russian Federation (regarding the regulation of digital currency)"// URL: https://sozd.duma.gov.ru/bill/237585-8 ]), (hereinafter referred to as the "law on the circulation of digital rights") the procedure for legal regulation of digital currency mining is proposed. In this regard, it seems necessary to analyze the existing doctrinal approaches to the definition of the concept of "mining" of digital currency and analyze the presented initiative regarding the legal regulation of mining of digital currency from a financial and legal point of view. The bill proposes a definition of the concepts of "digital currency mining", lists the categories of entities that can mine digital currency and the basic requirements for them. It seems necessary to analyze these provisions consistently.

In article 5 of the law on the turnover of digital rights, "mining of digital currency" is proposed to mean "activities for conducting mathematical calculations by using technical and software and hardware to make entries into an information system using technology, including distributed registry technology, with the purpose of issuing digital currency and (or) receiving by a person carrying out such activities, rewards in digital currency for confirming records in the information system." From the above definition, several main features of the phenomenon in question can be distinguished:

1) mining is an activity for conducting mathematical calculations;

2) the purpose of such activity is the issuance of digital currency and (or) the receipt by a person of remuneration in digital currency for confirming records in the information system.

The term "mining" itself comes from the English word "mining" - mining of something. In scientific research on the topic of mining digital currencies, the concept of mining is often defined through the concepts of "process" and "activity". So, in particular, A.V. Generalov points out that mining is "a process in which a network of computers generates and issues cryptocurrency and verifies new transactions" ^[4]. G.V. Subbotin equates the concepts of mining and bitcoin emission, believes that this is "a complex computational process when bitcoin transactions are made public This is why new Bitcoin coins are being created" ^[5]. At the same time, it seems that the concept of mining is applicable to the issue of any digital currency (cryptocurrency), and not only to the issue of bitcoin, since bitcoin is only one type of digital currency. Some researchers define the concept of mining through the concept of activity. So, A.A. Sitnik believes that mining is "the activity of using the computing power of a computer to perform mathematical calculations leading to the creation of new structures (blocks of information) and their entry into the blockchain, in order to confirm transactions and ensure security on the network" ^[6]. O.S. Lababueva indicates that under mining It should be understood as "activities aimed at maintaining an information system and creating blocks associated with receiving cryptocurrency for such activities" ^[7].

If we turn to the explanatory dictionary, the term "process" means "the course, the development of some phenomenon, the successive change of states in the development of something" ^[8]. The Soviet Encyclopedic Dictionary indicates that "the process" (from Latin. processus —promotion) is "a set of sequential actions to achieve a result" ^[9]. According to the explanatory dictionary, "activity" is "occupation, work" ^[10]. The Soviet Encyclopedic Dictionary states that activity is "a specific human form of attitude to the world around us, the content of which is its expedient change and transformation in the interests of people; a condition for the existence of society. The activity includes the goal, the means, the result and the process itself" ^[11]. Based on the above definitions of the terms "process" and "activity", it seems possible to conclude that "activity" is a broader concept that includes the process itself and the goal, which is why the definition of "mining" should be constructed precisely through the concept of "activity".

To ensure the turnover of digital currency, the law on the turnover of digital rights provides for the creation of a register of persons engaged in cryptocurrency mining. In the sphere of turnover of digital financial assets, it is also practiced to create special registers and include persons in them in order to be able to carry out transactions with digital financial assets ^[12]. The presence in the legislation of a separate requirement for inclusion in a special register of persons engaged in transactions with digital financial assets allows for preliminary control over such entities and to prevent persons who do not meet the criteria stated in the legislation from entering the sphere of turnover of digital financial assets. In addition, the law on the turnover of digital currency provides for the possibility of creating a mining pool - combining the capacities of technical and software and hardware used for mining digital currency by several owners of such funds - participants in the mining pool. The mining infrastructure is the facilities that are used to host the technical and software and hardware used for mining digital currency.

In the field of digital currency turnover, based on the provisions of the law on digital currency turnover, the following subjects can be distinguished:

1) the person organizing the activities of the mining pool;

2) mining infrastructure operator;

3) a person engaged in mining digital currency.

The law on the circulation of digital currency establishes a general prohibition, according to which the person organizing the activities of the mining pool, the person mining the digital currency, the participant of the mining pool cannot be individuals who are individual entrepreneurs who have an outstanding or outstanding criminal record for crimes in the field of economics, crimes against government or for intentional crimes of moderate gravity, serious crimes, especially serious crimes included in the list of organizations and individuals in respect of which there is information about their involvement in extremist activities or terrorism, or in the lists of organizations and individuals associated with terrorist organizations and terrorists or with the proliferation of weapons of mass destruction, or in respect of which The interdepartmental coordinating body responsible for countering the financing of terrorism has decided to freeze (block) funds or other property, as well as legal entities, if they themselves or their founders (participants), beneficial owners, sole executive body do not meet the requirements for business reputation.

Let's take a closer look at each of the above-mentioned entities in the field of digital currency turnover.

The person organizing the activities of the mining pool is a Russian legal entity, an individual entrepreneur or an individual - a citizen of the Russian Federation who is not an individual entrepreneur, providing services for combining the capacities of several technical and software and hardware used in mining digital currency, as well as distributing the received digital currency among the participants of the mining pool. It is separately established that the person organizing the activities of the mining pool can simultaneously mine digital currency.

A mining infrastructure operator is a person who provides services for the provision of mining infrastructure for mining digital currency. Russian legal entities and individuals - individual entrepreneurs have the right to carry out the activities of a mining infrastructure operator after being included in the register of mining infrastructure operators. It is established that additional requirements for the activities of the mining infrastructure operator, the nature and volume of services provided by them will be established by the Government of the Russian Federation.

A person engaged in mining digital currency is a person who directly carries out activities for conducting mathematical calculations by operating technical and software and hardware tools for making entries into an information system aimed at issuing digital currency and (or) receiving remuneration in digital currency by a person for confirming entries in an information system. The person entitled to mine digital currency are Russian legal entities, individuals – individual entrepreneurs after their inclusion in the register of persons engaged in mining digital currency. Individuals – citizens of Russia who are not individual entrepreneurs can carry out activities related to mining digital currency and become members of the mining pool without being included in the register of persons engaged in mining digital currency, subject to the condition that their energy consumption in carrying out such activities does not exceed the energy consumption limits established by the Government of the Russian Federation. The person mining the digital currency, a member of the mining pool, is obliged to provide information about the receipt of the digital currency to the authorized body. The Government of the Russian Federation, in agreement with the Bank of Russia, has the right to establish other requirements for the activities of persons engaged in mining digital currency (including participants in the mining pool). As a measure of liability in case of violation of the requirements established by law, a person engaged in mining digital currency may be excluded from the register of persons engaged in mining digital currency. The Government of the Russian Federation, in coordination with the Bank of Russia, may establish other cases of exclusion of a person from the register of persons engaged in mining digital currency.

With a positive assessment of the above-mentioned amendments to the legislation, which initiated the process of legal regulation of the turnover of digital currencies, it should be recognized that at the moment, the process of exchanging digital currencies for fiat money and the process of transferring digital currencies from one person to another remains outside the framework of legal regulation. At the same time, according to experts, the size of digital currency cashing activities in the Russian Federation reaches about $ 80 billion per year ^[13], in addition, it is at the stage of exchanging digital currencies for fiat money and transferring digital currencies that criminal acts are often committed. For example, the verdict of February 15, 2019 in case No. 1-134/2019 of the Oktyabrsky District Court of Tambov ^[14] describes a situation in which an attacker agreed to purchase cryptocurrency from the victim in the amount of 0.03875392 BTC, without intending in advance to fulfill his obligations to pay for cryptocurrency. Unaware of the criminal intentions of the attacker, the victim asked to transfer fiat money in the amount of 20,000 rubles to his bank card in exchange for the designated amount of digital currency. Continuing to realize his criminal intent, the attacker, not intending to fulfill his obligations to pay for cryptocurrency, decided to send the victim an SMS message that completely repeats the SMS message of the mobile bank in its content, hoping that the victim will accept such a message as a message from the mobile bank service about the receipt of funds to the settlement account. Being misled into believing that the SMS message was actually received from the mobile bank service, the victim transferred a cryptocurrency in the amount of 0.03875392 BTC to a bitcoin wallet. Having taken possession of the cryptocurrency, the attacker disappeared and disposed of the stolen at his discretion, causing material damage to the victim. The verdict of the Leninsky District Court of Cheboksary dated 07.03.2019 in case No. 1-58/2019 ^[15] describes a situation in which an attacker, having special knowledge in the field of information technology and programming, performed actions to register a domain name, the essence of which was to provide services for the exchange of cryptocurrency for currency in common civil law the reverse, and vice versa. During the provision of cryptocurrency exchange services through a registered domain name, the attacker received an offer from the victim to withdraw funds from the exchange by selling a code suggesting an interest-free mechanism for depositing/withdrawing funds, in which the transfer from one investor's account to another's account occurs without actually withdrawing funds, however, the investor who replenished his account through activation after receiving the code, assumes obligations to pay for the received funds. The attacker made the first such transaction in full. By timely and conscientious fulfillment of his obligations, the attacker formed a positive opinion about himself and aroused a trusting attitude on the part of the victim. After some time, the victim, being confident in the integrity and reliability of the attacker, against the background of trust relations that had previously developed from the previous transaction, again turned to the latter with a request to provide services for withdrawing funds in the amount of 276,650 rubles by generating and transmitting a code to him, and the attacker agreed to provide such services and pay for the received code, by transferring funds in the amount of 276,650 rubles to the bank card account indicated by the victim. The victim generated a code and sent it to the attacker, who activated it and replenished his account on the cryptocurrency exchange in the amount of 276,650 rubles, but did not fulfill the obligations assumed to pay for the received right.

In order to protect the rights and legitimate interests of persons engaged in the exchange of digital currencies for fiat money and the transfer of digital currencies from one person to another, it seems necessary to expand the range of subjects in the field of digital currency turnover by including a new subject - the operator of digital currency exchange. Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation" [Federal Law No. 259-FZ dated 07/31/2020 "On Digital Financial Assets, Digital Currency and on Amendments to Certain Legislative Acts of the Russian Federation"// "Assembly legislation of the Russian Federation", 08/03/2020, No. 31 (Part I), Article 5018] it is proposed to add a new entity in the field of digital currency turnover - the operator of digital currency exchange. We consider it necessary to create a separate register of digital currency exchange operators, which will be created and recorded by the Bank of Russia. It is necessary to amend the above-mentioned federal law, according to which transactions for the purchase and sale of digital currencies and other transactions related to digital currencies, including the exchange of digital currencies for fiat money, will be carried out through a digital currency exchange operator, which ensures the conclusion of transactions with digital currencies. It seems that credit institutions, as well as other legal entities that meet the basic requirements of the above-mentioned federal law, should become the operator of the digital currency exchange:

1) registration of a legal entity must be carried out on the territory of the Russian Federation;

2) the amount of the authorized capital must be at least 50 million rubles;

3) the amount of net assets must be at least 50 million rubles;

4) participants, members, shareholders of such a legal entity may not be legal entities registered in offshore zones;

5) the requirements regarding business reputation, creation of a collegial management body, internal control service and risk management service are met.