Russia plans to implement a ban on cryptocurrency mining in territories of Ukraine currently under its control.

Russia has announced a major shift in its approach to cryptocurrency mining, with plans to ban mining operations in certain regions, including the territories of Ukraine that are under Russian control, as well as parts of Siberia and the North Caucasus. This decision was made in response to growing concerns about energy shortages and the need for efficient electricity management during the upcoming heating season. The news came after a meeting convened by Deputy Prime Minister of Russia, Alexander Novak, with senior officials to discuss how the country would address the issue of energy consumption, particularly in relation to crypto mining, which has become increasingly energy-intensive.

The mining ban will be enforced in several key regions. Among the affected areas are Donetsk, Luhansk, Zaporizhizhia, and Kherson, which are currently occupied by Russian forces. Additionally, in Siberian regions such as Irkutsk, Buryatia, and Zabaikalsky, mining operations will be restricted seasonally. The seasonal restrictions are set to begin on December 1, 2024, and will last until March 15, 2025. However, these seasonal bans will not be temporary: the restrictions will remain in effect annually, from November 15 to March 15, continuing until 2031. In contrast, the North Caucasus and the occupied Ukrainian territories will see a complete and indefinite halt to cryptocurrency mining, starting in December 2024 and continuing until March 2031.

The move comes after President Vladimir Putin signed a new crypto regulation bill into law on November 1, 2024, which includes provisions for strict oversight of crypto mining activities. The new legislation creates a framework for regulating the cryptocurrency industry while tackling energy consumption concerns. Under the regulations, mining will be allowed, but only with close regulatory supervision. Domestic cryptocurrency transactions are also banned in an effort to stabilize Russia’s economic landscape.

One of the key motivations behind these restrictions is the significant energy demand associated with cryptocurrency mining. Russia, as the second-largest global mining hub after the United States, consumes around 16 billion kilowatt-hours of electricity annually for mining operations—approximately 1.5% of its total energy consumption. In fact, mining-related energy use tripled in 2023, according to data from Statista, further compounding concerns about the strain on the country’s energy resources.

In response to the growing energy demands, Russia has also revised its tax regulations on cryptocurrency. The new rules stipulate that income earned from cryptocurrency mining will be taxed according to the market value of the crypto at the time it is received, with operational expenses allowed to be deducted. This tax framework will operate under a securities tax structure, with a personal income tax rate set at a maximum of 15%. However, cryptocurrency transactions will not be subject to value-added tax (VAT).

Alongside these measures, Russia is also moving toward the creation of a national cryptocurrency exchange. The government plans to set up these exchanges in Moscow and St. Petersburg, offering a regulated environment for digital asset trading. This is part of Russia’s broader approach to digital assets, aiming to foster innovation while controlling and managing their impact on the economy and energy resources.

The decision to ban mining in Russian-occupied Ukrainian territories signals a further consolidation of control over local resources by Russian authorities, adding to the already tense geopolitical situation. With this move, Russia is trying to balance its ambitions to be a global leader in cryptocurrency while addressing the mounting concerns about energy consumption and economic stability. However, as these new regulations are implemented, there is likely to be growing scrutiny from both domestic and international stakeholders on how they will impact the broader cryptocurrency ecosystem, and whether Russia’s ambitious plans for digital assets will succeed in the long term.