According to research released by Chainalysis earlier this fall, Ukraine is ranked the world leader in the 2020 Global Crypto Acceptance Ranking. Nonetheless, cryptocurrencies remain in the market a grey region. The Ukrainian authorities have been trying since 2014 to enact crypto-laws that would turn the country into competing competence for operating crypto-related enterprises, but their attempts have yielded no results. Finally, the Ukrainian government tabled a recent bill on digital assets just a few months ago to legitimize the industry, and this time it will do better.
The fintech policy of the central bank or NBU in Ukraine promised that cryptocurrencies would legalize the bank’s operations. The paper says crypto assets will join the legislative area entirely by 2025, and a transparent framework that will enable them to work on the market will be developed.
In late 2019, the first moves were made on this route. Since then, parliamentarians have also passed a law on enforcing the Financial Action Task Force’s principles in the fight against money laundering and terrorist funding. The criteria include the definition of digital content, among other aspects.
A clear action strategy and delegate roles tend to be outlined in the current proposal. It notes the primary regulator explicitly for managing and tracking operations of active crypto properties is the Governmental Minister of Digital Transformation. The department decided to work with the blockchain analytics company Crystal Blockchain BV, founded by the Bitfury Community, to monitor suspicious crypto transactions.
The proposed bill is not supposed to accept digital properties as a form of payment. It is defined more as an intangible possession, a kind of property lawyer except for payment capable of carrying out any activity.
The paper developers aimed to advise on all fields of crypto assets ranging from initial coin offerings through the initial (though late) trading deals to secure coins and other likely tokenized assets. Not just that but all privileges and criteria relevant to digital custodians, including exchanges, multi-signature wallets, and any entity currently functioning and flourishing in the crypto world, are clarified by the new legislation.
In light of the rapid growth of crypto-approval in Ukraine, particularly in decentralized funding and autonomous entity infrastructure, it is essential to point out the gap between these two current legislation fields. The ability to control the work of decentralized independent organizations, or DAOs, is exciting.
However, if the latest Ukrainian rules do not protect DAO features, voting privileges granted to users determining a DAO could be deemed unconstitutional. This highlights the importance of developing law mechanisms like voting on protocol governance.
Digital assets for new opportunities
As the idea of a protected digital asset is now defined well, the bill sponsors are interested in the creation of tokenized ecosystems, which can also involve tokenized shares under the control of a government body, the National Securities & Stock Exchange Commission, which also has the power to control digital asset transactions.
Bonds would be the most exciting program. As Ukraine plays an active role in issuing government bonds, the critical investment instrument open to Ukrainians is many brokers and banks that market them to their customers as a substitute for deposits.
As the NBU is the protector of government bond assets, this agency may also engage in litigation if these bonds are tokenized. This will allow infrastructure schemes to be developed, thereby allowing the securities market to be revitalized and made more open and available.
While this bill is waiting for a vote, it is the first move in rendering Ukraine a successful crypto-business country and at least a conducive atmosphere for domestic growth. Due to the current regulatory conditions, legal entities whose digital assets are now based may open bank accounts and function freely in the sharing and/or issue of digital assets.
Strategic growth in the fintech industry by the NBU also implies the development of national infrastructure programs and the prospect of opening a tokenized securities market. The regulator will issue the digital currency known as e-hryvnia by 2025, according to the paper. This concept is still in the “On Payment Services” bill, which about today’s digital properties is considered a legal tender for the CBDC.
Suppose the regulatory structure for virtual assets in Ukraine is not updated. In that case, several business businesses will leave the region, according to the report published in May 2019 by the Association of Ukrainians Blockchain.
While Ukraine has a vibrant blockchain culture, companies don’t have the economic benefit of their company since they’re not officially registered in Ukraine, said Max Demyanyuk, the Ministry of Digital Transformation’s expert virtual asset growth.
There is no regulatory mechanism to allow cryptocurrency businesses to run, accept loans, and draw investment with Ukraine’s banking system.
Thousands of Ukrainians exchange, using or producing crypto-currency are part of the local blockchain culture. According to Demyanyuk, everyone would benefit from new rules.
Ukrainian firms and startups might sell cryptocurrency to raise capital in the form of so-called “tokens.” Tokens are like bonds, but they aren’t always safe in a business for those who purchase them.
This financing form is known as the ICO (first coin offering). It functions as an alternative to the conventional IPO (first public bid) when an undertaking sells its inventories.
While 75% of these coin deals have proved to be scams, honest businesses will still use them as a financial weapon.
For example, Rentberry has raised $30 million in Ukrainian real estate startups by selling their “Berry” tokens. Those who have purchased berries will use them on the Rentberry website to buy services for the startup.
Without amending the Tax Code, the Government of Ukraine cannot only create a new law to control virtual properties. Under the proposed regulations, Ukrainians incur a 5% tax on any money received from investing in cryptocurrencies.
The Law on financial regulation, adopted by the Ukrainian Parliament on 28 April, allows individuals to invest in cryptocurrencies or deal with them to divulge their personal information.
This legislation is intended to deter money laundering. Still, the Ukrainians who use digital cash are worried that the new laws enable the Ukrainian government to monitor anonymous and untraceable cryptocurrency transfers — one of the key reasons why digital cash is so common in the first place.
Crackdown on the privacy
According to industry analysts, acceptance of Crypto-Money is crucial to the emerging market, but the implementation of too many rules could shun inventions and place pressure on companies.
Cryptocurrency from the beginning was encrypted, anonymously, and decentralized. No one regulated it, and nobody could possess or manufacture it by solving complicated mathematical equations with powerful computers.
The anonymity allowed to use of digital money to fund terrorism, legalize illegal properties, and purchase drugs or weapons. That provided space for fraud.
But fans say the cryptocurrency is fantastic as well. According to Stanislav Podyachev, managing partner at the consultancy BlockchainLab, the currency liberalizes the economy, as neither government nor banks can regulate how people use their money.
The transition to digital money also eliminates the amount of money expended — a key factor of the shadow economy of Ukraine, contributing 30% of the country’s gross domestic product in 2019, according to Ukrainia’s Economic Department. Cryptocurrency is also an important tool to fight corruption because it cannot cheat a machine.’
However, analysts are worried about the government’s blockchain strategy. If the government starts to restrict the blockchain market and controls the use of conventional money at present, digital money is regulated fairly, and the experts say that there is no right to use it.
Uncertainties and terrorism
Cryptocurrencies globally are worth $327 billion on the market. Corporations use them as a financial instrument, and governments don’t like them since they cannot handle dealings of a physically non-existent currency that doesn’t belong to either country.
Moreover, there is no way to figure them out. For instance, China considers bitcoin rather than money as a virtual commodity, while in Canada, it is an intangible asset.
The Central Bank of Ukraine is both unsure and neutral about virtual money — not banning citizens from using bitcoin, but rather at their own expense since the government would not shield them.
Experts also believe that there is no control, which opens doors for misuse of power.
Though the Ukrainian law enforcement agencies do not have any crypto-monetarily law, they consider the virtual money to be a fraud and carry out business raids.
According to Tim Karpinsky, operations chief of the Ukrainian cyber alliance, Ukrainian law enforcement authorities may also suspect cryptocurrency owners of funding the terrorist attack and prosecute it.
Given the secret nature of crypto-monetary transactions, policymakers can barely demonstrate that this threatens state security. Still, they nevertheless find means of applying leverage and confiscating equipment to the crypto-monetary industry.
But who is right and wrong is not always clear since the cryptocurrency industry is grey and risky, said Karpinsky.
“Cybercrime groups are very active in Ukraine and Russia,” Karpinsky said.
This was all about the lead that Ukraine is taking to lead Eastern Europe.