There are a variety of legal positions regarding cryptocurrencies, depending on where they are located. Some countries adopt strict regulations or blanket prohibitions, while others choose to embrace crypto more liberally.
The government of Ukraine seems to favor legalized crypto operations in the country, which is the second path. The Ukraine’s positive attitude towards cryptocurrency contrasts sharply with Russia, where officials have enacted regulatory roadblocks that prohibit the ownership or use of digital currency.
Although Ukraine has passed laws to regulate and recognize crypto, its central bank is currently working on its national digital currency. Projects involving central bank digital currency (CBDC), have been very popular around the world, often in response to the rise of cryptocurrencies.
Anti-crypto regulations have been passed by some countries, such as Nigeria and China with CBDC plans. International financial institutions such as the Bank for International Settlements, have called for countries to adopt CBDCs in order to stop the spread of “private” cryptocurrencies.
Draft law regarding virtual assets
Cointelegraph reported earlier in September that the Ukrainian Parliament had adopted the draft law “On Virtual Assets.” This legal action officially recognized cryptocurrency in Ukraine.
According to a September 8th release by Ukraine’s Ministry of Digital Transformation, the draft law was based upon the Financial Action Task Force (FATF) crypto regulatory standards. The new regulations require compliance with Anti-Money Laundering protocols.
Oleksandr Birthyakov (deputy minister of the Ministry of Digital Transformation Ukraine) commented on the passage of the bill. He said that regulation by the government was necessary for the growth and maturation of any emerging industry.
“Establishing an international virtual assets policy in Ukraine will allow for the creation of legal space for VASPs from other countries to register their businesses. This is especially relevant considering Ukraine’s huge potential in virtual assets. There is an obvious need for crypto adoption in Ukraine.”
The implementation of crypto regulatory policies in Ukraine will be the responsibility of Bornyakov’s Ministry of Digital Transformation. In collaboration with the central banking, the Ministry of Digital Transformation will monitor the circulation of cryptocurrency in the country.
Lucia della Ventura (legal and compliance manager at Ledgermatic), spoke to Cointelegraph about legalizing crypto in Ukraine. She stated that the bill was designed to create a safe space for Bitcoin and other cryptocurrency introductions in Ukraine. There is a legal definition of cryptocurrency now and rules that govern their use.
According to della Ventura the bill’s passage will provide legal certainty for cryptocurrency companies in Ukraine.
“With the approval of parliament, this law is now fully protected for individuals and businesses. The bill clarifies financial issues and allows cryptocurrency companies to legally operate in the country.
Legalized cryptocurrency trading in Ukraine
The draft law was passed in its second reading by the Ukrainian lawmakers. This effectively launched the legalization and regulation of Ukraine’s crypto market.
Access to banking services may encourage foreign crypto businesses to establish shop in Ukraine. This is a situation Mykhailo Fedorov (vice prime minister of Ukraine) said could make Ukraine a center for blockchain and cryptocurrency technology.
The Digital Transformation announcement stated that “Soon, foreign services related to virtual assets will be able operate in our jurisdiction.”
Bornyakov claims that banks will be able to interact with crypto-related businesses, which will provide new opportunities for Ukrainians, particularly in the field of digital finance. According to the September 8 announcement, the deputy minister of Ukraine’s Ministry of Digital Transformation said that legalizing crypto would be a powerful incentive for the country to develop its cryptocurrency sector.
Bornyakov stated that he believes the market for virtual assets can help jumpstart a Ukrainian digital economy.
“The Ukrainian virtual assets market is well-developed, and even global in scale. The development of the virtual assets sector is a top priority for the Ukrainian government. We are determined to establish a favorable regulatory and tax environment for crypto-related business in Ukraine.
Legal foreign crypto exchanges could be a positive in attracting investment from abroad to Ukraine’s digital economy. Ukraine’s recognition and acceptance of digital assets may encourage cryptocurrency companies to relocate to the country, thanks to stricter regulations in many jurisdictions.
Related: Illegal crypto-exchanges are shut down by Ukraine’s State Security
VASPs who want to establish a presence here under the new regulatory framework will need to disclose information about their ownership structures. Only owners with “impeccable business records” will be permitted to operate crypto-based businesses in Ukraine.
The Security Service of Ukraine closed down a network of crypto exchanges that were believed to have been involved in illegal financial transactions since 2021. These platforms were said to have funneled funds from Russian payment processors like Yandex, WebMoney, and Qiwi.
The Ukrainian authorities want these VASPs also to establish internal financial monitoring protocols in order to ensure compliance with Anti-Money Laundering policy. The central bank also expressed its support for fair crypto regulations.
The National Bank of Ukraine (NBU) made an official statement stating that the central bank of the country will be focusing on crypto regulations. The document also acknowledged the potential benefits of cryptocurrencies, especially in the payment market.
The NBU stated that it will monitor the risks of the rapid growth of digital currencies in the country, with a particular focus on stablecoins, as parliament has recognized cryptocurrencies. Stablecoins are now under intense regulatory scrutiny in many countries including the United States.
Bitcoin: No middle ground
Government attitudes toward Bitcoin (BTC), and crypto generally seem to shift toward absolutes — either for or against — with nuanced positions that are in danger of being extinct as far as state actors. Although not as important as El Salvador’s Bitcoin Law (El Salvador), Ukraine’s legalization of cryptocurrencies placed it in a small number of countries that have passed laws to encourage digital currency adoption within their borders.
The move to legalize cryptocurrency comes as a departure from other countries that have active digital currency projects. China has been a long-standing country that enforces strict crypto-control policies. It banned trading and token fundraises, but Beijing seems to have upped its efforts to crack down on cryptocurrency once its digital Yuan project entered public testing phases.
On numerous occasions, the People’s Bank of China has said that its digital currency electronic payments project is a response to privately issued cryptocurrencies. The PBoC has joined the chorus against the potential for the Facebook-backed Diem project, which could upend the sovereign monetary policy control protocols.
The rapid disappearance of middle-ground crypto-related regulations is a sign that countries are falling into one or the other extremes when it comes to dealing in cryptocurrencies. El Salvador’s adoption and legalization of Bitcoin is being cited as an example for countries throughout Central and South America.
In September, Cuba’s central bank enacted crypto regulations. The new licensing regime allows cryptocurrencies to be used in Cuba for commercial and investment transactions.
Related:Ukrainian ministry considering digital currency pilot for staff salaries
The Ministry of Digital Transformation in Ukraine is currently looking into possible use cases for the digital Hryvnia CBDC. Fedorov already argued that the CBDC could be used to pay salaries for staff at the ministry.
In August, the country’s vice-prime minister said that the CBDC would benefit from using digital hryvnia for wages to pay government workers. Fedorov stated that such a pilot program would allow for a controlled use of the digital currency, and it would be a better option than a public beta launch. If this move is successful, Ukraine will join China and other countries that use the payment of workers to test CBDC deployment.
Industry groups and other allied bodies are working together to improve communication on these important issues, despite the fact that policymakers from both the government and international financial regulatory institutions have expressed anti-crypto sentiments. To help regulators and lawmakers better understand cryptocurrency, it is common for blockchain organizations publish policy toolkits.
Critics say that the heavy-handed approach to crypto police will lead to digital innovation being stifled, leading to companies moving their business elsewhere. It is possible that countries like Ukraine, which have adopted more liberal regulatory policies, may benefit from the restrictive crypto laws passed by Europe and the United States.