Russia's central bank has proposed a ban on cryptocurrency use and mining on Russian soil, citing threats to financial stability, citizens' well-being, and the country's monetary policy sovereignty.

For years, Russia has argued that cryptocurrencies could be used to launder money or fund terrorism. It eventually granted them legal status in 2020, but prohibited them from being used as a form of payment.

In a report released on Thursday, the central bank stated that speculative demand was primarily responsible for cryptocurrencies' rapid growth, and that they exhibited characteristics of a financial pyramid, warning of potential market bubbles that could jeopardise financial stability and citizens.

The bank proposed prohibiting financial institutions from conducting any cryptocurrency transactions and suggested that mechanisms be developed to prevent transactions involving the purchase or sale of cryptocurrencies for fiat currencies.

Cryptocurrency exchanges are among those targeted by the proposed ban. Binance, a cryptocurrency exchange, stated that it was committed to working with regulators and hoped that the publication of the report would spark discussion with the central bank about protecting the interests of Russian crypto users.

According to Elizaveta Danilova, head of the central bank's financial stability department, restrictions on cryptocurrency ownership are not in the works.

According to the bank, Russians are active cryptocurrency users with an annual transaction volume of approximately $US5 billion ($6.9 billion).

The Chinese government is cracking down on cryptocurrencies.

The central bank stated that it would collaborate with regulators in countries where crypto exchanges are registered to collect data on Russian clients' operations.

It referred to steps taken by other countries, such as China, to limit cryptocurrency activity.

In September, China stepped up its anti-cryptocurrency crackdown with a blanket ban on all crypto transactions and mining, causing bitcoin and other major coins to plummet and putting pressure on crypto and blockchain-related stocks.

"At this time, there are no plans to ban cryptocurrencies, as China has done," Ms Danilova said.

"The method we proposed will suffice."

Joseph Edwards, head of financial strategy at cryptocurrency firm Solrise Group, downplayed the significance of the report, saying that no one outside of Russia would be concerned.

"Moscow, like Beijing, is constantly rattling its sabre over 'crypto bans,' but Russia has never been a pillar of any facet of the industry in the same way that China has been at times," he said.

The mining of digital currencies

Russia is the world's third-largest bitcoin miner, trailing only the United States and Kazakhstan, though the latter may see a miner exodus due to concerns about tightening regulations following unrest earlier this month.

According to the Bank of Russia, cryptocurrency mining is causing energy consumption issues.

Bitcoin and other cryptocurrencies are "mined" by powerful computers competing against other computers connected to a global network to solve complex mathematical puzzles. The process consumes a lot of energy and is frequently run on fossil fuels.

"The best solution is to ban cryptocurrency mining in Russia," the bank stated.

In August, Russia accounted for 11.2% of the global "hashrate," which is the amount of computing power used by computers connected to the bitcoin network.

BitRiver, a Moscow-based company that operates data centres in Siberia that house bitcoin miners, stated that it does not believe a complete crypto ban is likely, and that it expects a balanced position to emerge after different ministries discuss the proposals.

The central bank, which intends to issue its own digital rouble, has stated that the spread of crypto assets would limit monetary policy sovereignty, with higher interest rates required to keep inflation under control.

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