The Russian State Duma has adopted the controversial 'Digital Economy National Program' bill in April 2019, aiming to isolate the Russian segment of the internet (Runet) from the global web and create a 'sovereign' cyberspace. The law still requires approval from the Federation Council and President Putin's signature, but with over two-thirds of deputies voting in favor, the political will to pass and implement the law is strong.
Key Provisions of the Law
The new legislation introduces a system that channels Russian internet traffic through government-controlled routing points. It grants unlimited powers to the telecom watchdog Roskomnadzor, allowing it to cut off non-compliant internet service providers. Roskomnadzor will establish a monitoring center to detect threats and issue instructions, and will also create and maintain a national domain name system (DNS). The law aims to ensure that online data transfers between Russian citizens, businesses, and organizations occur within the country rather than routed internationally. Russia, threatened by Western sanctions over alleged cyber attacks, wants to build its own DNS system that remains operational even if links to foreign servers are interrupted. The Runet law is scheduled to take effect in November 2019, with rules governing Russian domains and cryptographic protection of information expected by January 1, 2021.
Costs and Controversy
The bill has drawn criticism from various sectors of Russian society, largely due to its estimated implementation cost of 30 billion rubles (nearly $500 million). There are also strong suspicions that Moscow intends to use the system for censorship, drawing comparisons to China's Great Firewall. Protests have been held against the law. Roskomsvoboda, an organization fighting internet censorship, voiced serious concerns. Its leader Artem Kozlyuk stated: 'We oppose the adoption of this absurd legal act. Lawmakers assess external threats inadequately without defining them or prescribing counteractions.' Kozlyuk believes Russian internet infrastructure will become more centralized, increasing cyber risks. 'Any decentralized system is always more robust against external influences, but the initiators of the bill are unwilling to realize that,' he added. The activist noted that legal texts are unclear and sponsors aim to put everything under government control—from domain names and cryptography to traffic filtering and routing—creating economic, technical, and legal threats. The government's working group on IT and communications estimates annual maintenance costs for the sovereign Runet will reach 134 billion rubles (over $2 billion). If these expenses fall on telecom operators, internet costs for Russians will rise. Connection could become slower and more prone to failure due to filtering equipment. There is also a risk of monopolizing the internet services market, and regional shutdowns and disconnections will likely become more common. However, Kozlyuk believes it would be very hard to completely disable access to the rest of the internet in Russia. The effectiveness of the blockade depends on internet providers' readiness to resist censorship. 'Many VPN services have already refused to redirect traffic to Roskomnadzor, which is encouraging,' he said.
Impact on the Crypto Industry
The Runet law is likely to negatively affect cryptocurrency businesses in Russia, some of which have already started looking for more favorable regulatory climates. Russian lawmakers have been postponing adoption of a package of bills regulating digital financial assets since last year, expecting final approval in spring 2019. 'Currently, cryptocurrencies in our country are in a gray zone and crypto portals are often prosecuted. But we have cases where our lawyers successfully challenged illegal blocking,' Kozlyuk remarked. Nevertheless, prosecutors continue to approach Russian courts requesting the prohibition of one platform or another. 'In such conditions, it's difficult to provide these services, and Russian developers have been looking toward other markets where there are fewer risks and authorities show more positive interest in this space,' Kozlyuk concluded. The isolation law adds another layer of uncertainty and cost for crypto businesses operating in Russia, potentially accelerating the exodus of talent and innovation. The final outcome will depend on the law's implementation and the resistance from internet providers and civil society.