Russia is developing a system to identify cryptocurrency mining, and tax breaks may be coming soon

Russian authorities are reportedly preparing a decree to regulate cryptocurrency mining, which would include a “special system” to detect it, two years of tax breaks for miners, energy quotas, and special tariffs.

System for detecting mining

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

“There will be a special system that will detect the activity of miners - based on the current loss structure and network traffic, in conjunction with the amount of cryptocurrency miners publish on cryptocurrency exchanges and the capacity of their mining equipment.”

According to the publication, two people familiar with the matter have confirmed that the content of the communication is included in the mining regulation being prepared by the Ministry of Communications. The decree will be submitted to the State Duma on February 1.

This is not the first time Russia has prepared to develop a system to identify miners. In October last year, Anatoly Aksakov, chairman of the State Duma Committee on Financial Markets, said it would be possible to use power loss to track cryptocurrency miners.

The feasibility of this tracing method

Ria Novosti reports that the Energy Ministry believes that “from a technical point of view this is possible, but in the process it is necessary to understand whether the above processes and activities are economically viable.” “Perhaps it would be worthwhile to monitor miners who can provide large nodes on an industrial scale,” the Energy Ministry explained.

“The main question is how authorities can detect accounts of consumers who earn cryptocurrency, rather than those who watch TV or heat their homes,” the expert told the news outlet, before adding:

“It’s very difficult to track whether a consumer is mining cryptocurrency at home or downloading a movie.”

"It is also very difficult to detect miners based on the relative energy consumption and Internet traffic," explains Andrei Koptelov, director of the Center for Economic Research at Synergy University. "It is difficult to distinguish whether the power consumption is from a mining farm or from home heating, and the private virtual networks used allow you to encrypt the Internet traffic."

Tax holidays, energy quotas and special tariffs

While stressing that cryptocurrency mining will be taxed, RBC reported that the Ministry of Communications is considering providing special benefits to miners:

“For those involved, miners will be given a two-year tax holiday, during which they will be required to keep accounts. After this they will be obliged to pay taxes, but they will not have to pay VAT.”

However, deputy finance minister Alexei Moiseev told reporters last week that his department "does not see the need to provide a tax holiday for miners," Ria Novasti reported.

In addition, the news media reported that the Ministry of Communications also plans to provide miners with "energy quotas and special tariffs."

A representative of the Ministry of Energy attended a meeting organized by the Ministry of Communications last week to discuss the regulation of mining in Russia. The Ministry of Energy said that no one has yet been able to explain why special tariffs are being offered to miners. The press service of the ministry stressed that “in the Russian Federation, current tariffs should be the lowest among all countries in the world, which already makes Russian computing facilities very attractive.”