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Ukraine has become the fifth country in the past few weeks to set the ground rules for digital currencies after El Salvador recognized Bitcoin as legal tender on September 7, just a day before the Ukrainian bill was passed.
On September 8, 2021, the Parliament of Ukraine voted to draft Law No. 3637 on virtual assets, which gives legal status to cryptocurrency and other virtual assets, such as virtual hryvnia and tokens. Entrepreneur Mykola Udianskyi, who has been working in the local market for a long time and has organized several successful startups, including one of the top crypto exchanges Coinsbit and the BTC fork Bitcoin Ultimatum, talks about how this will turn out for the Ukrainian crypto community. According to Udianskyi, the new draft law will boost international trade, since it will allow specialized foreign companies to cooperate with Ukrainian banks and invest in the industry.
“The bill takes into consideration the entire range of virtual assets, not just cryptocurrency, as was done, for example, in a similar law issued last summer by Russian lawmakers,” says Udianskyi. “The bill adopted by the Rada defines the basic concepts associated with virtual assets, which is quite important, because this way, these assets are included in the legal field. On top of that, the bill contains a list of service providers in the field of virtual assets and the procedure for their registration. This makes it easier for serious-minded companies to enter the Ukrainian crypto market. Personally, it would’ve been much easier for me to start my journey as an entrepreneur if such certainty and support was present in the legal field of Ukraine back then”.
The updated draft law was first submitted for public discussion in May 2020 as an addition to the previously adopted law on the implementation of FATF standards for countering money laundering and terrorist financing. Ukrainian crypto enthusiasts and entrepreneurs first met the bill with criticism, but in December, after several changes, it was adopted in the first reading. In June 2021, the updated text of the draft law “On Virtual Assets” was published on the website of the Verkhovna Rada. According to the document, exchanges must receive special permission from the financial regulator, while users of the crypto trading platforms are required to undergo the KYC procedure. The Ministry of Finance of Ukraine stated that the procedure for approving blockchain service providers will be simplified, automated, and remote.
The law defines virtual assets as an intangible good that is an object of civil rights, that is, they are not property. Also, virtual assets are not recognized as a means of payment in the country.
The document also introduces the category of financial VA. Their release is allowed to residents of Ukraine. They can be secured by currency values — in this case, the turnover is regulated by the National Bank (NBU), as well as securities or derivatives – these are regulated by the National Securities and Stock Market Commission (NCCBFR). The law will come into force after the adoption of amendments to the Tax Code concerning the taxation of transactions with virtual assets. However, since this document has not yet been adopted, the law will most likely be enforced no later than a year.
Ukraine has become the fifth country in the past few weeks to set the ground rules for digital currencies after El Salvador recognized Bitcoin as legal tender on September 7, just a day before the Ukrainian bill was passed. The country’s government has established a special fund to ensure the exchange of bitcoin and dollar. Fast-food chains such as Pizza Hut, McDonald’s, and Starbucks in El Salvador immediately began accepting bitcoin as payment.
“I am sure that Ukraine is not the last country that will give a legal status to cryptocurrencies,” Mykola believes. “Of course, Ukraine has not yet gone as far as El Salvador, which accepts Bitcoin as an official form of payment along with US dollars. The new bill just prohibits paying with cryptocurrency for goods and services. However, I think that in the coming years we will see a domino effect, when countries will make cryptocurrency part of their monetary policy one by one, and central banks will begin to purchase bitcoin as a component of their reserves. It is easy and simple to pay with cryptocurrency because there are no limitations to it nor are there high commissions as a percentage of the paid amount. In Bitcoin, you can literally move billions of dollars with one click, in minutes, paying extremely cheap fees for the transfer in comparison to the amount you’d have to pay in a regular transfer.”
The reality of governments beginning to acquire cryptocurrencies for their reserves is already a fact. According to Buybitcoinworldwide, the governments of Ukraine and Bulgaria have purchased 46,531 BTC and 213,519 BTC as reserves, respectively. In total, they have 1.237% of all issued BTC in the world at their disposal.