Published February 07, 2014
If you’re going to the Sochi Olympics in Russia, don’t bring bitcoins. Yesterday the Russian Prosecutor General’s office released a statement that clearly prohibits Russians from using the new digital currency.
“Bitcoin is a money substitute and cannot be used by citizens and legal entities,” the agency’s press release reads.
The Russian law enforcement agency cited an existing 2002 law signed by Russian President Vladimir Putin that reads, “the official currency of the Russian Federation is the ruble. Introduction of other monetary units and money substitutes is prohibited.”
But supporters of bitcoin -- a virtual currency unconnected to any country that has no physical form in paper or coin -- say the Russian ban will only hurt Russian entrepreneurs and consumers.
“Russia's loss is everyone else's gain ... Companies and profits that could have benefited Russia will now go towards other countries,” spokeswoman for the non-profit Bitcoin Foundation Jinyoung Lee Englund told FoxNews.com.
“Bitcoin is the first payment protocol designed for the Internet. It is faster, cheaper and more secure than existing systems and as a result, we are seeing an increase in merchant adoption worldwide.”
The Russian government says it is moving against bitcoin and other cryptocurrencies because of growing use by criminal organizations and because “its price is determined solely by speculative actions that entails a high risk of loss.”
The price of bitcoin on Coinbase.com, the largest American site for buying and selling bitcoins, fell from about $780 before the Russian announcement to $700, before rising back to $750 by mid-day Friday. The price may also have been affected by financial problems at the Japanese bitcoin exchange MtGox.
Englund agreed that bitcoin is very volatile, but noted that buyers are aware of the risk.
“It is no secret… However, in time, as the market matures, the price will most likely stabilize.”
Regarding criminal elements, some noted that banning bitcoins may actually make it harder for Russia to track bitcoins use by real criminals.
“Requiring bitcoin companies and exchanges to operate legally and require user verification would aid in that,” bitcoin entrepreneur Margaux Avedisian, who runs Bitcoin Capital Partners, told FoxNews.com.
That’s because if bitcoins are purchased legally through regulated currency exchanges, which require identification from customers, the government can see who bought the bitcoins and can trace where the person then spends them.
But if a person manages to buy bitcoins without giving their name at purchase – for instance, if they do so in person from another individual – then it is much harder to trace a later illegal purchase back to them.
Englund said that, despite the Russia ban, he is optimistic about bitcoin regulation.
“Other countries like France and Brazil are trending towards adopting the United States’ 'smart regulation' approach,” he said.
The United States government has given mostly positive signals about bitcoin regulation. An FBI legal filing against the founder of Silk Road, an online drug bazaar that used bitcoins, noted: “Bitcoins are not illegal in and of themselves and have known legitimate uses.”
The IRS has also announced that it is working on tax guidance for U.S. bitcoin users. The government agency FinCEN (Financial Crimes Enforcement Network) has also issued guidance that it will treat bitcoin similarly to foreign currency.
There has been other good news for bitcoin lately. Despite a Chinese ban on banks using bitcoins, companies in the country have started trading them again.
“Once regulators dive into understanding the technology, fear goes away and they begin to see the social and economic potential,” Englund said.
Some were also skeptical as to whether Russia would take any real action against bitcoin.
“Every business in Russia also deals in euros and dollars, despite rubles being the only legal currency in Russia,” Tony Gallippi, CEO and Founder of BitPay.com, which has helped online merchants accept more than $100 million in bitcoin payments, told FoxNews.com
Bitcoin is here to stay, Englund argues.
“We have figured out how to send money over the Internet -- this learning is not just going to ‘go away.’ The question is a matter of who and when, not if, will lead the world in this cutting edge technological discovery.”
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