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Illegal Crypto Mining in Russia Costed Taxpayers $6.6M in Over 3 Years

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Illegal crypto mining operations in the Russian Federation have stolen electricity worth nearly $6.6 million in the last three years. According to state-owned power distributor,  Rossetti, illegal mining farms, compromised power meters and underground mining farms helped illicit cryptocurrency miners to illegally consume 450 million Russian rubles ($6.6 million) worth of electric power from the domestic power providers.

The electricity firm disclosed the figure on its official Telegram channel. The firm has been hunting ‘black mining sites’ that do not have any sort of deal with power companies, but still use the national electricity grid to mine digital currencies without paying. 

According to the firm, black mining sites are usually based in the office of already established businesses including factories where the owners want to earn extra funds. Additional black mining sites include actual food farms, garages, strategic sites in the woods and leased offices.

According to Rossetti, the illegal miners would pull an electric cable to the closest electricity line and develop their own power transformation stations. For instance, in one of the discovered black mining sites; the power transforming station was found underground buried under a public forest; as per the power distributor.

The state-owned power company has discovered 35 illegal mining operations from 20 different regions in Russia since 2017. According to Rossetti, each of those cases have been reported to law enforcement. 

“We closely analyze the consumption patterns looking for anomalies, inspect the power lines and measure the workload of the stations. Sometimes it’s easy to notice a mining farm by visual signs, like when a building has powerful air conditioning devices and fans installed,” said Rossetti. 

Illegal crypto mining has been rampant in Russia

Over the past one year, people have been minting digital currencies illegally in Russia at a nuclear research institute and utilizing the website of a domestic utilities solution provider. On the other hand, Rossetti has been researching on how to utilize the same technology; to discover new ways of using distributed ledgers to effectively amass power consumption data. 

South Korean Officials Proposes Taxing Cryptocurrency Profits

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South Koreans may soon see their cryptocurrency proceeds slashed by the tax man.Earlier this week, South Korean officials in the Ministry of Strategy and Finance proposed taxing profits made through crypto-fiat transactions, including tokens sold by mining firms through ICO offerings. 

The regulator anticipates to submit the complete proposal in July and hand in the tax amendment to the South Korean regular assembly in September, according to a report by a local media outlet by the name Edaily. South Korea has long attempted to settle on a regulatory framework for cryptocurrencies. The proposed amendments could bring much needed clarity in the country’s cryptocurrency industry.

Currently, the South Korean law does not tax the revenue generated from cryptocurrency transactions, unlike the likes of the US, Japan, Germany, and many others who tax profits obtained from cryptocurrency dealings. Moreover, Singapore also exercises a Value added tax (VAT) on digital currency transactions, however, the South Korean officials made it clear they do not intend to go that far.

South Korean officials to tax revenue generated from crypto transactions

The South Korean lawmakers are now looking to invoke the usual ‘taxation where income is located’ rule to cryptocurrency transactions that make a profit. Furthermore, the tax will not apply if the transaction results in a net loss, but will equally tax both South Korean citizens and foreign residents.

Following G20’s recommendations, digital currencies are expected to be classified as assets as opposed to currencies. Nevertheless, not everyone is not okay with the proposed changes and the ability to effectively enforce taxation. According to a researcher at the Korea Local Tax Institute, Young Jeong:

“If you do a P2P transaction without going through an exchange, there is a possibility of avoiding taxation. Even with IP tracking, if there are a large number of targets, administrative costs will increase and it will be difficult to track each day.”

Furthermore, South Korean lawmakers are also suggesting to ban the country’s residents from using decentralized finance (DeFi) products, labeling digital currencies as high-risk assets.

Crypto-Jacking Post Office Head Indicted in Russia

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The Russian police have arrested a crypto-jacking post office head, who used computers in his post office branch to mine digital currencies. According to local reports, the now-former regional post office head used to illegally mine cryptocurrencies while on the job.

The local police started investigations on the former post office chief who managed to use his branch’s computers to obtain digital currencies. in a town of Mineralnye Vody located in the South of Russian.

As per the report by the local news outlet, the SU Investigative Committee of Russia for the Stavropol region; the former regional head allegedly installed specialized hardware on the office’s computer system and mined digital currencies for almost six months. The project set by the crypto-jacking post office head dates back to September 2019.

Crypto-jacking post office head caused damages worth $427.50

Moreover, according to law enforcement, the Federal Postal Service of Stavropol Territory, suffered damages worth over 30,000 Russian rubles ($427.50). The former post office chief will be arraigned for “abuse of power,” as set forth by the law of the Russian territory.

The detectives in charge of the case are still in the evidence collection stage. In addition, the identity of the accused remains anonymous as the local authorities continue with investigations; with the criminal charges not yet filed. 

Cryptocurrency mining suppression in Russia

Furthermore, a similar incident was reported in Russia’s city of Saint Petersburg back in March. The local authorities coordinated an operation to crack down Bitcoin miners in the region; who illegally consume $200,000 worth of electric power every month to run their mining operations.

The crypto mining criminals managed to establish eight stations in different locations  using complex electric metered programs to downplay the actual power consumption; while connecting their cryptocurrency mining equipment to the national grid directly

Digital Mortgage Platform Under Development by Bank of Russia

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The Bank of Russia is reportedly creating a digital mortgage network based on a locally built blockchain platform dubbed Masterchain, as per state-owned media outlet Ria on May 28. According to the first Deputy Governor of the Bank, the blockchain platform has recently begun to support mortgages, which is the cornerstone of the impending platform.

The Russian Central Bank has already sent its proposal for a Digital Mortgage Platform to the Government of Russia and the Federal Service for State Registration, Cadastre, and Cartography (Rosreestr).

In fact, the domestic blockchain platform is the first to be validated by the Federal Security Service or the FSB. Previous reports say that the platform is an approved Ethereum-based blockchain platform built back in 2017 by the FinTech Association, which is under the jurisdiction of the Bank of Russia.

Furthermore, this is not the first time that the country’s blockchain platform has been used for the digital mortgage platform. Approximately two years ago, a Russian-based subsidiary of Raiffeisen Bank International reportedly provided mortgage documents with information on the parties concerned, the amount and duration of the mortgage, the property involved in the Masterchain Decentralized Depositary System (DDS).

Digital mortgage platform signals  Russia is blockchain-friendly

Although the country’s central bank has blockchain-based ambitions, the Russian government has been maleficent towards digital currencies. In fact, the Russian legislature recently proposed a fine of up to 2 million rubles ($27,800); and up to seven years imprisonment for the trading of cryptocurrencies. 

Moreover, Russia’s Sberbank recently purchased 5,000 blockchain-based touchless ATMs. This is another signal that the country is a massive supporter of blockchain technology; although it is opposed to the idea of digital currencies.

Meanwhile, the Duma is getting ready for a bill on Russia’s first cryptocurrency regulation bill. The draft has been pending until last week until a second draft was rolled-out on top of other laws. 

East Asia Stablecoin Suggested by Top Chinese Political Advisors

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On May 21, Chinese officials proposed stablecoin in East Asia during a national session. The regional stablecoin will be backed by four major fiat currencies and facilitate trade between China , Korea and Japan.

A member of the Chinese People’s Political Consultative Conference Shen Nanpeng, who is also a global managing partner at Sequoia Capital, suggested regional cryptocurrency during Thursday’s national session. The crypto would be backed by major fiat currencies such as the Japanese yen, the Chinese yuan, the Hong Kong dollar, and the won Korean won.

East Asia stablecoin to cross-border transactions 

The purpose of the proposed East Asia stablecoin is to ease trade and cross-border settlements in the East Asia region. Moreover, the digital currency would massively cut down the currency conversion expenses, reduce time taken to make cross-border settlements, and most importantly act as a litmus test for other state backed digital currencies.

Additionally, the east Asia stablecoin will also help in economic recovery efforts post coronavirus pandemic, by reviving trading activities as per the proposal. Although such digital currencies are not blockchain-based, they are similar to stablecoins such as Tether and USDC. Same as a stablecoin, a national cryptocurrency must maintain equality with the fiat they are pegged to.

Hong Kong recommended as ideal regional link

Furthermore, the digital currency proposal includes creating a regulatory sandbox and expand the system to Hong Kong as time goes; to refine cross border transactions within the region. The proposal recommends Hong Kong as the  main financial entrance and links mainland China to the other countries in Asia. Per the proposal, 70 percent of trans-boundary  renminbi transactions are processed there.

Hong Kong can make the ideal regulatory zone for the east Asia stablecoin. Hong Kong’s watchdog developed a licensing structure to regulate digital currency transactions and cryptocurrency trading platforms back in November 2019. Currently, the Hong Kong regulator has licensed 12 entities to operate in the metropolitan area.

Dubai’s DIFC, Mashreq Bank launches KYC Blockchain Platform as Blockchain Continues to Develop in the Middle East

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Over the last decade, Blockchain technology has become a major part of the Fintech industry, and the modern banking system is now on the verge of incorporating its innovations into its accounting systems.

Approximately 40 central banks in the financial ecosystem have already taken steps to establish a blockchain platform for their operations, some of them considering issuing digital currencies to the central bank.

Now, according to a recent press release, Dubai International Financial Centre [DIFC] and Mashreq Bank announced the middle east region’s first blockchain sharing platform, that would support licensed enterprises and allow an easy initiation of digital bank accounts. Organizations would be able to open their accounts instantly with the bank with promoting enhance transparency.

DIFC and Mashreq Banks to enable KYC protocols

One of the major focuses of DIFC and Mashreq Bank is to integrate corporate KYC information while holding high standards of customer experience when users are opening their digital accounts.

The introduction of KYC operations suggested that the central institutions were looking forward to storing user data on a decentralized network; thus, third parties may have access to it after the requested permission has been given.

A blockchain-based KYC is also an ideal step forward from the perspective of data security as it abolishes the threat of unauthorized access that often leads to data streaming. Blockchain-based KYC platforms would also enable active surveillance to keep track of day-to-day transaction activity and spot malicious transactions.

At press time, the blockchain platform was live and, according to the report all UAE-based banks and corporations had access to the platform.

After the announcement, Arif Amiri, CEO of DIFC Bank stated,

 “As the leading financial center in the MEASA region, we take great pride in continuously enhancing and evolving the DIFC ecosystem in order to provide a world-class environment for our partners and community to conduct business. As we enter a new period of growth and expansion, our core focus on FinTech and blockchain are major steps on our journey towards transforming the future of finance.”

Major Banks entering the Blockchain space

Central banks are no longer in a position to prevent the emergence of the blockchain and the resulting rise of digital assets. Although not all banks were considering the integration of blockchain in order to compete with decentralized assets, some major banks were experimenting with the technology of issuing CBDC.

Central institutions around the world have been researching and setting up a task force to understand the functionality of the digital dollar and the use of blockchain technology. The financial ecosystem is moving into a digitized space at a fast rate and Libra’s proposed announcement for a stablecoin backed with the U.S dollar turned several heads in the space.

The discussions over a CBDC picked up pace after China’s People Bank of China voiced its support for blockchain in 2019. As a result, other banks followed suit as well, as recently Bank of England, Bank of Japan, European Central Bank, Bank of Canada and Sweden’s Central Bank banded together to initiate their own research about central bank digital currencies.

The financial and technological space has risen to the benefits of blockchain in the past decade, and over the next 10 years, the development with regards to this technology will probably facilitate involvement in various industries around the globe.

Blockchain Crime Syndicates – Is Crypto a Den of Thieves?

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Cryptocurrencies have provided significant benefits to individuals and organizations alike. Innovators are finding even better ways to implement these new inventions. A study by Statistica estimates that there were at least 42 million blockchain wallets by September 2019.

However, behind the underlying benefits of digital currencies and the blockchain, is a sinister threat of terrorists and criminal rings. All taking advantage of the technology to drive illicit activities. 

The Massachusetts Institute of Technology (MIT) collaborated with Blockchain analytics firm Elliptic, to identify patterns of illegal bitcoin usage. MIT’s IBM Watson AI Lab implemented machine learning technology to detect criminal activities on the blockchain.

The 2019 dataset study established that 2% of bitcoin transactions that year were illicit. Meanwhile, this dataset was based on approximately 200,000 bitcoin nodes with a sum valuation of $6 billion. Notwithstanding, 77% of the remaining 98% was unclassified -; while 21% of it was lawful.

A 2015 Europol report identified the use of bitcoin in the majority of high profile criminal investigations. In the European Union alone, over 40% of illegal transactions involved a bitcoin transaction. Moreover, Europol director Rob Wainwright stated that 4% of criminal proceeds in the EU were funneled through digital currencies in 2018.

The director noted that Europol was anticipating the figure to increase given the privacy and credibility afforded by cryptocurrencies. He added that at least $5.5 billion were laundered through illegal cryptocurrency transactions.

Although blockchain transactions are not impossible to track down, they make it really difficult for authorities to establish identification information. Verification of transactions on the chain takes place through mining. The blockchain records each piece of the transaction. Unfortunately, all the data has no direct links to any identifiable information such as names and physical addresses. Hence making blockchain transactions anonymous and complex to track down. 

This is not a new situation. Terrorists running funding campaigns and payments through cryptocurrencies dates as far as 2014. Islamic State fighters in Syria were facilitating small purchases and international transactions using digital currencies. Reports have emerged of terrorist groups lobbying for funding in cryptocurrency through Telegram and Whatsapp groups. 

Wainwright told the BBC during an interview, that even if authorities could track down and identify criminals behind illicit transactions. It’s difficult to freeze the funds unlike from a traditional banking scenario. 

It is not only terrorist groups using blockchains to conduct illegal activities. Pornography firms and drug syndicates are using technology to their advantage. A Wales drug dealer was sentenced to eight years of prison in 2018, for running a fentanyl drug store.

The store operated mainly in Bitcoin. While most of these activities take place through bitcoin, authorities have also established the use of privacy coins Monero, Zcash, and Telecoin. These privacy coins take privacy a notch high in the concealment of identification information. Making it even more difficult for authorities to track down the transactions. 

Following PayPal banning Pornhub from its services, the pornography side turned to cryptocurrencies for payment. Last year in October, law enforcement arrested hundreds linked to a South Korean dark web child pornography site that sold explicit videos through cryptocurrencies. 

“Welcome to Video” as was the name of the site relied on bitcoins to sell user access to about 250,000 pornographic videos portraying child pornography operations. 

US and Britain authorities described the site as the largest pornography website in the world. Officials reported they had rescued at least 23 underage victims in Britain, Spain and the US actively using the website.