The legal status of cryptocurrencies remains a mix of regulatory positions, depending on the jurisdiction being considered. While some countries are moving towards blanket bans or strict regulations, others choose to take a more open approach to cryptocurrencies.
For Ukraine, the latter path appears to be the case, and the government encourages legalized crypto operations within the country. Ukraine’s seemingly positive stance on cryptocurrencies also contrasts with neighboring Russia, where officials are enacting regulatory hurdles against owning and using digital currencies.
While Ukraine enacts laws to recognize and regulate cryptocurrencies, the country’s central bank is also working on its own national digital currency. Central bank digital currency (CBDC) projects have become quite popular around the world, often in response to the proliferation of cryptocurrencies.
Some countries like China and Nigeria with CBDC plans are known to pass anti-crypto regulations. Global financial organizations like the Bank for International Settlements have also called on nations to use CBDCs to suppress the spread of “private” cryptocurrencies.
Bill on virtual assets
In early September, Cointelegraph reported that the Parliament of Ukraine approved the bill on virtual assets. “The legislative action meant the official recognition of the cryptocurrency in the country.
According to a statement from Ukraine’s Ministry of Digital Transformation on September 8, the bill passed by the legislature was based on crypto regulation standards set by the Financial Action Task Force (FATF). As such, the guidelines contained in the new regulations require compliance with anti-money laundering protocols.
Commenting on the passage of the bill, Oleksandr Bornyakov, Deputy Minister of Ukraine’s Ministry of Digital Transformation, told Cointelegraph that government regulation was a necessary step in the growth and maturity of any emerging industry, adding:
“The establishment of a virtual asset policy in Ukraine will allow the creation of a legal space for Ukrainian and international VASPs to officially register their businesses. This is also relevant in view of the fact that Ukraine’s potential as one of the leading countries in the field of virtual assets is enormous. Therefore, there is a clear need for crypto adoption in Ukraine. “
Bornyakov’s ministry will be tasked with implementing crypto regulatory policies in Ukraine. The Ministry of Digital Transformation will also help monitor the circulation of cryptocurrencies within the country in collaboration with the central bank.
In a conversation with Cointelegraph, Lucia della Ventura, legal and compliance manager at treasury technology specialist Ledgermatic, commented on the legalization of cryptocurrencies in Ukraine, stating: “The main purpose of the Ukraine bill is to provide a space safe for the introduction of Bitcoin and other cryptocurrencies in the country, which now have a legal definition, with rules that determine their use ”.
According to della Ventura, passing the bill will provide legal certainty for crypto companies in Ukraine, adding:
“With the green light from parliament for this law, individuals and businesses are adequately protected as the bill provides further clarification on financial aspects and officially allows cryptocurrency companies to operate within the country.”
Cryptocurrency trading legalized in Ukraine
With the passage of the bill in only its second reading, lawmakers in Ukraine have effectively pushed for the legalization of the country’s cryptocurrency market, which previously existed within a regulatory “gray zone.” By recognizing cryptocurrencies, exchanges and other Virtual Asset Service Providers (VASPs) can now establish banking relationships with commercial banks in Ukraine.
Access to banking services could incentivize foreign cryptocurrency companies to establish themselves in Ukraine, a situation that Mykhailo Fedorov, Ukraine’s deputy prime minister and head of the Ministry of Digital Transformation, said could help transform the country into a hub for innovation. cryptocurrency and blockchain technology. .
“Soon, foreign and Ukrainian services related to the circulation of virtual assets, in particular crypto exchanges, will be able to officially operate in our jurisdiction,” the Digital Transformation announcement stated.
According to Bornyakov, banks that interact with crypto companies will open up new opportunities for the Ukrainian people, especially in the digital finance sector. As cited in the September 8 announcement, the deputy minister of Ukraine’s Ministry of Digital Transformation stated that the legalization of cryptocurrencies will serve as a “powerful incentive” to further develop the country’s cryptocurrency space.
“We believe that the virtual asset market can drive a digital economy in Ukraine,” Bornyakov told Cointelegraph, adding:
“Ukraine’s virtual asset market is already quite developed and large even on a global scale. The development of the virtual asset industry is one of the top priorities of the Ukrainian government. Therefore, we are striving to create a truly favorable regulatory and tax framework for conducting crypto business in Ukraine. “
Foreign cryptocurrency exchanges that operate legally in Ukraine could also be a net benefit in attracting foreign investment to the country’s digital economy. With the emergence of stricter regulatory guidelines in various jurisdictions, Ukraine’s recognition of digital assets could spur crypto companies to move to the country.
VASPs seeking to establish a presence in Ukraine under the new regulatory paradigm will reportedly have to provide information on their ownership structures. In fact, only owners with an “impeccable business reputation” will be able to run crypto-based businesses in the country.
In August, the Security Service of Ukraine shut down a network of underground crypto exchanges believed to have been involved in illegal financial activities since early 2021. These platforms were reportedly funneling funds from banned Russian payment processors such as Yandex, WebMoney. and Qiwi.
The Ukrainian authorities are also interested in these VASPs creating internal financial supervision protocols as a way to ensure compliance with anti-money laundering policies. The central bank has also expressed its commitment to Promoting fair regulations on crypto in the country..
In an official statement from the National Bank of Ukraine (NBU), the country’s central bank stated plans to focus on crypto regulations. As part of the document, the NBU recognized the promising opportunities that cryptocurrencies provide, especially in the payments market.
Since parliament recognizes cryptocurrencies, the NBU said it would monitor the risks associated with the rapid proliferation of digital currencies in the country with a special focus on stablecoins. In fact, stablecoins have become a subject of significant regulatory scrutiny in many countries, including the United States.
Bitcoin: no middle ground
The attitude shown towards Bitcoin (BTC) and crypto in general by governments appears to be shifting towards absolutes, for or against, with nuanced endangered positions when it comes to state actors. While not in the same category as El Salvador’s Bitcoin Law, the legalization of cryptocurrencies in Ukraine placed the country in a small group of nations that passed laws to encourage the adoption of digital currencies within their borders.
With the central bank of Ukraine also supposedly planning to issue a CBDC, the move to legalize cryptocurrencies offers a deviation from the regulatory path taken by other nations with active sovereign digital currency projects. While China has long enacted strict crypto control policies, banning trade and token fundraising in 2017, Beijing apparently upped the ante on its crackdown on cryptocurrencies once its digital yuan project started to enter the cryptocurrencies. public test phases.
The People’s Bank of China (PBoC) has stated on numerous occasions that its digital currency electronic payment project is a direct response to privately issued cryptocurrencies. Indeed, the PBoC joined the chorus of central bankers who warned against the potential of the Facebook-backed Diem project to change sovereign monetary policy control protocols.
Regulations related to middle ground crypto seem to be fading fast, with nations falling into one of two extreme categories when it comes to dealing with cryptocurrencies. El Salvador’s adoption of Bitcoin as legal tender is already touted as the inspiration for other Central and South American countries to follow a similar course of action.
In early September, Cuba’s crypto regulations promulgated by the country’s central bank. came into force. Therefore, cryptocurrencies can now be used for investments and business transactions in Cuba, and exchanges and other VASPs are subject to a new licensing regime.
In Ukraine, the country’s Ministry of Digital Transformation is already analyzing possible early use cases for the CBDC of digital hryvnia. Fedorov has already made the case for the proposed CBDC to be used to pay the salaries of ministry staff.
In August, the country’s deputy prime minister declared that using the digital hryvnia to pay the salaries of government workers would be a suitable pilot scheme for the CBDC. According to Fedorov, such a test path would provide a controlled use case for the digital currency and a more suitable pilot scheme rather than a public beta implementation. If the move goes through, Ukraine will join countries like China in using government worker pay as a testing ground for CBDC implementation.
With lawmakers in both government and international financial regulatory establishments supporting anti-crypto sentiments, industry groups and allied bodies are also working to foster better dialogues on the important issues. It has become common for blockchain organizations to publish policy toolkits to help legislators and regulators better understand the cryptocurrency industry.
Critics of the perceived heavy-handed approach to surveillance of cryptocurrencies say such measures will stifle digital innovation, which forces companies to relocate their businesses elsewhere. Countries like Ukraine that are enacting fairer regulatory policies can benefit from restrictive crypto laws enacted by the United States and Europe.