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In contrast to Russia, Ukraine has passed legislation that will facilitate the adoption of cryptocurrencies within the country.
Depending on the jurisdiction, the legal status of cryptocurrencies remains a jumbled mess of regulatory positions. While some countries adopt blanket prohibitions or stringent regulations, others prefer a more open approach to cryptocurrency.
For Ukraine, the latter path appears to be the case, with the government encouraging legalized crypto operations within the country. Ukraine’s seemingly positive stance on cryptocurrencies also stands in stark contrast with neighboring Russia where officials are enacting regulatory roadblocks against the ownership and use of digital currencies.
While Ukraine enacts laws to recognize and regulate crypto, the country’s central bank is also working on its own national digital currency. Central bank digital currency (CBDC) projects have become quite popular across the globe, often as a response to the proliferation of cryptocurrencies.
Some countries such as China and Nigeria with CBDC plans have been known to pass anti-crypto regulations. Global financial organizations like the Bank for International Settlements have also clamored for nations to use CBDCs to suppress the spread of “private” cryptocurrencies.
Draft law on virtual assets
Earlier in September, Cointelegraph reported that the Ukrainian Parliament adopted the draft law “On Virtual Assets.” The legislative action meant official recognition of cryptocurrency in the country.
According to a release by Ukraine’s Ministry of Digital Transformation on Sept. 8, the draft law passed by the legislature was based on the crypto regulatory standards set by the Financial Action Task Force (FATF). As such, the guidelines contained in the new regulations mandate compliance with Anti-Money Laundering protocols.
Commenting on the passage of the draft bill, Oleksandr Bornyakov, deputy minister of the Ministry of Digital Transformation Ukraine, told Cointelegraph that government regulation was a necessary step in the growth and maturity of any emerging industry, adding:
“Establishing a virtual assets policy in Ukraine will enable 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 huge. So, there is a clear need for crypto adoption in Ukraine.”
Bornyakov’s ministry will be tasked with implementing the crypto regulatory policies across Ukraine. The Ministry of Digital Transformation will also help to 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 crypto in Ukraine, stating, “The main purpose of the Ukraine bill is to provide a secure space for the introduction of Bitcoin and other cryptocurrencies in the country, which have a legal definition now, with rules that determine their use.”
According to della Ventura, passing the bill will offer legal certainty for crypto companies in Ukraine, adding:
“With parliament’s green light for this law, individuals and companies are adequately protected as the bill provides more clarifications on financial aspects and officially allows cryptocurrency companies to operate within the country.”
Legalized crypto trading in Ukraine
With the passage of the draft law in only its second reading, lawmakers in Ukraine have effectively kickstarted the legalization of the country’s crypto market, which had previously existed within a regulatory “gray area.” By recognizing cryptocurrencies, exchanges and other virtual asset service providers (VASP) can now establish banking relationships with commercial banks in Ukraine.
Access to banking services could incentivize foreign crypto businesses to set up shop in Ukraine, a situation that Mykhailo Fedorov, vice prime minister of Ukraine and head of the Ministry of Digital Transformation, said could help transform the country into a hub for 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 interacting with crypto businesses will open up new opportunities for the Ukrainian people, especially in the digital finance sector. As quoted in the Sept. 8 announcement, the deputy minister of Ukraine’s Ministry of Digital Transformation stated that the legalization of crypto will serve as a “powerful incentive” for further develop the country’s cryptocurrency space.
“We believe that the virtual assets market can jumpstart a digital economy in Ukraine,” Bornyakov told Cointelegraph, adding:
“The Ukrainian virtual asset market is already quite well-developed and large even on a global scale. Developing the virtual assets industry is among the Ukrainian government’s top priorities. Therefore, we strive to create a truly favorable regulatory and tax framework for conducting crypto business in Ukraine.”
Foreign crypto exchanges operating legally in Ukraine could also be a net positive for attracting overseas investment into the country’s digital economy. With stricter regulatory guidelines emerging in several jurisdictions, Ukraine’s recognition of digital assets could drive cryptocurrency businesses to move into the country.
VASPs seeking to establish a presence in Ukraine under the new regulatory framework will reportedly be required to disclose information about their ownership structures. Only owners with a “impeccable business reputation” will be permitted to operate crypto-based businesses in the country.
Since the beginning of 2021, the Security Service of Ukraine has shut down a network of clandestine crypto exchanges believed to be involved in illegal financial activities. According to reports, these platforms were funnelling funds from banned Russian payment processors such as Yandex, WebMoney, and Qiwi.
Ukrainian authorities are also keen for these VASPs to create internal financial monitoring protocols as a way of ensuring compliance with Anti-Money Laundering policies. The central bank has also stated its commitment to promoting fair crypto regulations 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 provided by cryptocurrencies especially in the payments market.
With parliament recognizing 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. Indeed, stablecoins have become a subject of significant regulatory scrutiny in many countries, including the United States.
Bitcoin: No middle ground
Governments’ attitudes towards Bitcoin (BTC) and cryptocurrency in general appear to be shifting towards absolutes — for or against — with nuanced positions on the verge of extinction as far as state actors are concerned. While not in the same league as El Salvador’s Bitcoin Law, Ukraine’s legalisation of cryptocurrencies places the country among a small group of countries passing legislation to encourage digital currency adoption within its borders.
With Ukraine’s central bank also reportedly planning to issue a CBDC, the move to legalise cryptocurrencies deviates from the regulatory path taken by other countries with active sovereign digital currency projects. While China has long enacted strict crypto-control policies, banning trading and token fundraises back in 2017, Beijing seemingly upped the ante on its cryptocurrency crackdown once its digital yuan project began entering public testing 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 upend sovereign monetary policy control protocols.
Middle-ground crypto-related regulations appear to be vanishing, with countries falling into one of two extreme categories when it comes to dealing with cryptocurrencies. El Salvador’s adoption of Bitcoin as legal tender has already been cited as an inspiration for other Central and South American countries to follow suit.
Earlier this month, the country’s central bank enacted crypto regulations, which went into effect. As a result, cryptocurrencies can now be used in Cuba for investments and commercial transactions, with exchanges and other VASPs subject to a new licencing regime.
The Ministry of Digital Transformation in Ukraine is already investigating potential early use cases for the digital hryvnia CBDC. Fedorov has already made the case for the proposed CBDC to be used to pay ministry staff salaries.
The country’s vice prime minister stated in August that using the digital hryvnia to pay government workers’ wages would be a suitable pilot scheme for the CBDC. Fedorov believes that such a testing path would provide a more controlled use case for the digital currency and a more appropriate pilot scheme than a public beta rollout. If the move does pull through, Ukraine will join the likes of China in using the payment of government workers as a testing ground for CBDC deployment.
With policymakers in both the government and international financial regulatory establishments expressing anti-crypto sentiments, industry groups and allied bodies are working to improve dialogue on the critical issues. Blockchain organisations are increasingly publishing policy toolkits to help lawmakers and regulators better understand the crypto industry.
Critics of the perceived heavy-handed approach to crypto policing argue that such measures will stifle digital innovation, forcing businesses to relocate. Countries such as Ukraine, which are enacting more equitable regulatory policies, may benefit from the restrictive crypto laws enacted by the United States and Europe.