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.
The latter appears to be the case in Ukraine, with the government encouraging legalized crypto operations within the country. Ukraine’s apparent positive stance on cryptocurrencies contrasts sharply with neighboring Russia, where officials are putting regulatory roadblocks in the way of digital currency ownership and use.
While Ukraine passes legislation to recognize and regulate cryptocurrency, the country’s central bank is developing its own national digital currency. Central bank digital currency (CBDC) projects have grown in popularity around the world, frequently in response to the proliferation of cryptocurrencies.
Some countries with CBDC plans, such as China and Nigeria, have been known to pass anti-crypto regulations. Global financial institutions such as the Bank for International Settlements have also urged governments to use CBDCs to combat the spread of “private” cryptocurrencies.
Legislation on virtual assets in the works
ULTCOIN365 reported earlier this month that the Ukrainian Parliament had approved a draft law titled “On Virtual Assets.” The legislative action meant that cryptocurrency was now officially recognized in the country.
According to a press release issued by Ukraine’s Ministry of Digital Transformation on September 8, the draft law passed by the legislature was based on the Financial Action Task Force’s crypto regulatory standards (FATF). As a result, the new regulations’ guidelines require adherence to anti-money laundering protocols.
Oleksandr Bornyakov, deputy minister of Ukraine’s Ministry of Digital Transformation, told ULTCOIN365 that government regulation was a necessary step in the growth and maturity of any emerging industry, adding:
“Creating a virtual assets policy in Ukraine will allow for the creation of a legal space for Ukrainian and international VASPs to officially register their businesses.” This is also significant in light of Ukraine’s enormous potential as one of the leading countries in the field of virtual assets. As a result, there is a clear need for cryptocurrency adoption in Ukraine.”
Bornyakov’s ministry will be in charge of enforcing the crypto regulatory policies throughout Ukraine. In collaboration with the central bank, the Ministry of Digital Transformation will also assist in monitoring the circulation of cryptocurrencies within the country.
In an interview with ULTCOIN365, Lucia della Ventura, legal and compliance manager at treasury technology specialist Ledgermatic, commented on the legalization of cryptocurrency in Ukraine, saying, “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 now have a legal definition, with rules that determine t
According to della Ventura, the bill’s passage will provide legal certainty for cryptocurrency companies in Ukraine, adding:
“With parliament’s approval of this law, individuals and businesses are adequately protected, as the bill clarifies financial aspects and officially allows cryptocurrency companies to operate in the country.”
Ukraine has legalized cryptocurrency trading.
With the passage of the draft law in only its second reading, Ukrainian lawmakers have effectively launched the legalization of the country’s crypto market, which had previously existed in a regulatory “gray area.” Because cryptocurrencies are now recognized, exchanges and other virtual asset service providers (VASP) can now establish banking relationships with Ukrainian commercial banks.
Access to banking services could encourage foreign crypto businesses to set up shop in Ukraine, a situation that Mykhailo Fedorov, Ukraine’s vice prime minister and head of the Ministry of Digital Transformation, believes could help transform the country into a cryptocurrency and blockchain technology hub.
“Soon, foreign and Ukrainian services related to the circulation of virtual assets, particularly cryptocurrency exchanges, will be able to operate legally in our jurisdiction,” according to the Digital Transformation announcement.
Banks interacting with crypto businesses, according to Bornyakov, will open up new opportunities for Ukrainians, particularly in the digital finance sector. According to the announcement made on September 8, the deputy minister of Ukraine’s Ministry of Digital Transformation stated that legalizing cryptocurrency will serve as a “powerful incentive” to further develop the country’s cryptocurrency space.
“We believe that the virtual assets market can kickstart the Ukrainian digital economy,” Bornyakov told ULTCOIN365, adding:
“On a global scale, the Ukrainian virtual asset market is already quite well-developed and large. The development of the virtual assets industry is one of the top priorities of the Ukrainian government. As a result, we are working hard to create a truly favorable regulatory and tax framework for conducting cryptocurrency business in Ukraine.”
Foreign cryptocurrency exchanges that operate legally in Ukraine may also be a net positive for attracting foreign investment into the country’s digital economy. With stricter regulatory guidelines emerging in a number of jurisdictions, Ukraine’s recognition of digital assets may encourage cryptocurrency businesses to relocate to 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 funneling funds from banned Russian payment processors such as Yandex, WebMoney, and Qiwi.
Ukrainian authorities also want these VASPs to develop internal financial monitoring protocols to ensure compliance with anti-money laundering policies. The central bank has also stated its intention to promote equitable cryptocurrency regulations in the country.
The National Bank of Ukraine (NBU) announced plans to focus on cryptocurrency regulations in an official statement. The NBU recognized the promising opportunities provided by cryptocurrencies, particularly in the payments market, as part of the document.
With the recognition of cryptocurrencies by parliament, the NBU stated that it would monitor the risks associated with the rapid proliferation of digital currencies in the country, with a particular focus on stablecoins. Indeed, stablecoins have come under intense regulatory scrutiny in a number of countries, including the United States.
Bitcoin: There is no middle ground.
Governments’ attitudes toward Bitcoin (BTC) and cryptocurrency in general appear to be shifting toward 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 legalization 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 legalize 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, such as prohibiting trading and token fundraises in 2017, Beijing appears to have upped the ante on its cryptocurrency crackdown once its digital yuan project entered public testing phases.
On numerous occasions, the People’s Bank of China (PBoC) has stated 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 of the potential for the Facebook-backed Diem project to disrupt 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 licensing 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 is successful, Ukraine will join China in using the payment of government employees 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 organizations are increasingly publishing policy toolkits to help lawmakers and regulators better understand the cryptocurrency 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.