How will Internet isolation in Russia affect cryptocurrency? Opinions of experts

In April, the State Duma of the Russian Federation and the Council of the Federation approved a draft law on “Ensuring Safe and Sustainable Operation” of the Internet in Russia – better known as the law on the sovereign Internet. The authors of the bill, senators Andrei Klishas, Lyudmila Bokova, and LDPR deputy Andrei Lugovoi, argue that his goal is to protect the Russian Internet from international cyber threats.

Opponents of the bill believe that in this way power only tightens the screws and stifles freedom. Together with the experts we will understand how the sovereign Runet will be implemented from a technical point of view and how the adoption of the draft law will affect the Russian crypto-community.

The essence of the bill on sovereign runet

According to the authors, the bill should protect Russia from external cyber threats, and no one is going to simply disconnect Russians from the global Internet. But if we are deprived of access to external services or a cyber attack happens, the Russian Internet will be able to work independently (in isolation) from the worldwide network. Nobody knows from what threats the authorities intend to protect the country's Internet, the bill does not say so.

For the execution of the bill, you will need special equipment for filtering traffic and blocking prohibited resources (DPI), which all operators will have to install. The devices will determine the source of traffic and, if necessary, restrict “access to resources with prohibited information not only by network addresses, but also by prohibiting the passage of passing traffic”, that is, blocking any network resources. What will be this equipment and how the whole system will work is still unknown.

The equipment will function only when an external threat. In this case, the management of the entire runet will go to Roskomnadzor, which will turn on and off access to foreign servers and sites. When there are no threats, providers will be able to use their own equipment. The state should compensate the costs for it – they will spend up to 30 billion rubles for this one-time and tens of billions of rubles every year for compensation in case of a network disruption. In this case, for the providers, owners of technological networks and other key players on the Internet market, exercises are provided for acquiring “practical skills”.

To manage the entire system, a new body will be created within Roskomnadzor – the Center for Monitoring and Management of a Public Communication Network. He will seek out threats, lead the crypto-defense and give instructions to operators through special means of communication. In order to make the runet even more autonomous, Roskomnadzor will create a national domain name system, in which national cryptography will be the main one, which is mandatory for public procurement sites and public services.

The bill should allow Roskomnadzor to quickly and easily block sites and entire traffic channels and even isolate the Internet. He could have done so before, but now the whole process is more difficult (you need to contact the provider), and the locks themselves are less precise. The law has not been passed yet – the president has to sign it. With a positive decision, it will enter into force on November 1, 2019, and the rules on the national system of domain names and domestic cryptography will become mandatory from January 1, 2020.

What is wrong with the bill?

The concept of the bill, its feasibility, as well as technical implementation, raise questions of almost all experts and market players. It seems that lawmakers are not very well versed in how the modern Internet works. For example, the bill was criticized by experts of the Svyaz and IT working group of the Expert Council under the Government of the Russian Federation. Former employees of the Ministry of Communications and Mass Media, insiders of the newspaper Novoye Vremya, called the bill “wasted money” and called for “not to worry that something will work out”.

The main claims to the bill :

• The reason for its creation is incomprehensible. Why make the whole sovereign RuNet, which is not in danger? If the authorities believe that some important sites are vulnerable, it would be much easier and cheaper to work on their security. The same applies to the development of a national domain system – it is not clear why it is needed. Boris Yedidin, a member of the Commission for the Legal Support of the Digital Economy at the Moscow Branch of the Russian Association of Lawyers and an expert at the Internet Development Institute, believes that in general the logic of the legislator is to be able to track all Internet traffic in the Russian segment of the network.
• It is not clear who will compensate businesses for losses that may result in blockages. The bill provides that blocking will bring difficulties and losses to users and businesses, but who will be responsible for them is unclear. The text only says that these will not be telecom operators. But the state is also unlikely to shell out – no one thought to compensate for the damage caused by the blocking of Telegram. And runtime downtime is lost billions of rubles a day.
• Huge spending. The implementation of the project, according to various estimates, will cost about 30 billion rubles one-time and tens of billions of rubles every year.
• It is not clear exactly how the bill will be implemented. The provisions of the draft law in today's edition are very streamlined – any interpretation can be tailored to them. “If there is no clear wording, then the law can in any case be implemented and even report on its successful implementation,” said Dmitry Litsentov, director of TD Gallery, ironically.

Anastasia Rastorgueva, a lawyer, Ph.D., managing partner of the Barshchevsky and Partners Moscow Bar Association, also noted that so far there are no technical provisions in the bill. It only contains a reference to the fact that the rules will be approved by the Government of the Russian Federation.

Yevgeny Druzhinin, a leading expert in information security at CROC IT, noted that it is possible to technically protect Runet (the only question is the cost of these solutions), but you cannot disconnect a whole country from the Internet – you can only restrict network traffic to resources located on its territory, subject to the availability of appropriate technical means.

What does this mean for the Russian Internet?

There is no question of any complete blocking of the Internet. Sovereign runet will be different from the Chinese firewall – at least for now. A simple user will be able to open any sites, as before. But everyone can feel some changes.

• There will be more failures. If the implementation of the bill starts, no one can guarantee that everything will work properly.
• Locks will be more. They will be more targeted, blocking VPN will become easier.

“From the moment of the full implementation of the legislative initiative and its technical implementation in Russia, it will be possible to disable individual services. Now it is very difficult to do this, but in the future, when the restriction technology is fully functional, it will become easier , ”said Alexey Korolyuk, CEO of the hosting provider and domain registrar REG.RU.

• To bypass the lock will become much more difficult. Now Roskomnadzor will be able to block websites independently, without waiting for the operators to do it.
• The Internet may become slower. Part of the traffic will not pass through the optimal paths and filtering gateways, but by orders of Roskomnadzor, which may affect performance.
• The Internet may become more expensive. Providers' costs for providing a new system are likely to fall on ordinary users.

What does the sovereign Internet mean for the Russian crypto community?

The draft law does not deal specifically with the crypto industry. Cryptocurrencies are not a priority for monitoring authorities. The task of the law is to protect Russia's digital sovereignty (to give Roskomnadzor more powers to block).

The bill offers no new technical solutions for tracking crypto transfers or blockchains . Therefore, you should not be afraid of blocking cryptocurrency. However, the law can touch the crypto market tangentially, like any other business in runet.

The overall level of control in the network is increasing, the mood of the legislators is changeable – all these are superfluous reasons for choosing not a Russian jurisdiction for work.

“Insulation always negatively affects economic growth, since the beginning of 2019 we have seen an incredible migration of blockchain and crypto startups to the nearest countries of northern Europe – Latvia, Lithuania and Estonia, and the adoption of the bill will only strengthen this trend ,” said Alexey Pospekhov, a representative MISSION company.

With the adoption of the bill, the state will get more opportunities to manage traffic, and therefore, fight with what he does not like. Theoretically, if mining or blockchain is considered illegal, then the state will have more opportunities for technical control of them, for example, for blocking thematic resources.

Alexey Korolyuk said that blocking transactions and affecting the blockchain, of course, will not work, because the blockchain is a distributed system with a large number of entry points and infrastructure intersections within the network itself. However, disabling individual sites or ports where any technological solutions operate is a simple and quite feasible task.

Fear blocking specific cryptocurrency is not worth it. Alexander Bespalov, a member of the board of the National Association of Blockchain, noted that the use of DPI-equipment with the appropriate software provided for by the draft law theoretically allows you to track any traffic, including crypto-transactions.

However, it is very difficult to prohibit, track and block transactions of a particular cryptocurrency, as users can use different information transfer protocols, services and cryptographic cards .

“For example, you can simply use an online wallet like Blockchain.com or MyEtherWallet, and, in fact, it will be normal https traffic, it is very difficult to extract crypto transactions from it and it is unlikely to be effective without extreme necessity. Moreover, it is theoretically impossible to achieve complete blocking – there are always workarounds: from VPN to remote terminals, which cannot be completely blocked , ”said Alexander Bespalov.

“From the point of view of the crypto market, the law does not change much at all: it’s already technically enough to track crypto transfers or somehow“ infringe upon ”rights and freedoms in this area if there is an appropriate court decision ,” said Valery Petrov, vice president Rakib market development and regulation.

Viktor Argonov, an analyst at investment company EXANTE, suggested that a sovereign runet could have positive consequences for the domestic crypto market:

“For example, the law may be aimed at creating a fully-fledged domestic cryptographic market, where domestic crypto burgers, mining companies and others are legalized. Like the law of the sovereign Internet, the law on cryptocurrency can be another example of a kind of import substitution. Whether such a substitution is real in practice is a difficult question. ”

Is preparing for a digital iron curtain?

Not yet, worry about crypto assets is also not worth it. All the experts noted that no Russian firewall does not threaten us – our situation is completely different, and the Internet infrastructure in Russia and China is developing in fundamentally different ways.

The proposed bill, by the way, is not as restrictive as it could be: it does not introduce a single provider, the right to access the Internet for ordinary people and outright censorship. As a result, the authorities will not be able to control all incoming and outgoing traffic, but will only have more opportunities for point blocking.

“The alarm about this bill on the part of the advocates of Internet independence seems somewhat exaggerated. Against the background of the restrictions that exist today not only in China, but also in such world economic centers as the United States, Europe, India, Russian legislation will still remain very liberal in this regard , ”said Valery Petrov, vice-president of RACIB.

The fate of the cryptocurrency market is determined by the adoption of other bills – “On digital financial assets” and “On crowdfunding”, which is planned for the summer of 2019 . They will determine by what rules the participants of the crypto market will work and whether they should worry about their assets.

Publication date 04/26/2019
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