Posted on February 28, 2022 6:16 am
Did Ukraine unknowingly equip Russia with economic weapons with the legalization of cryptocurrencies? This is at least what President Volodymyr Zelensky’s government wants after the final adoption of a bill that legalizes and regulates the possession and use of cryptocurrencies or “virtual assets” including “cryptocurrencies.”
Therefore, following El Salvador, Cuba, or Germany, Ukraine will be the latest country to adopt legislation governing the use of cryptocurrencies such as Bitcoin and Ethereum.
Completed a few days before Russia’s invasion, this legislative initiative defines what constitutes virtual assets and allows owners to legally declare and exchange them, thereby making cryptocurrency exchange platforms and their users. Aims to fill the legal gaps that have been operating so far, and by setting specific protection against fraud.
Withdrawals are limited to € 3,000 per day
With the introduction of martial law, last Thursday the Central Bank of Ukraine limited the amount of money that can be withdrawn daily from a bank account to 100,000 hryvnia, or just under 3,000 euros. We also ordered e-commerce issuers such as PayPal to stop replenishing their wallets.
Ukraine is already in the top five countries in the use of cryptocurrencies. Today we have taken a step further. Adopted the Parliamentary Act on Virtual Assets. This will legalize crypto exchanges and cryptocurrencies and allow Ukrainians to protect their assets from potential misuse and fraud.
— Mykhailo (@FedorovMykhailo) February 17, 2022
Companies trading in cryptocurrencies must obtain a license and report their activities to the US Securities and Exchange Commission. In the context of war, this new law will enable, among other things, to support the national economy thanks to Bitcoin donations, while avoiding Russia’s obstacles. Large cryptocurrency donations have already been made in the last few weeks.
5% tax on profits
In the long run, the law allows these platforms to legally execute transactions and pay taxes. According to the government, this new law is the first step needed to attract foreign businesses. This is an option that is clearly unthinkable at this stage. “Technology companies and investors who want to attract must be able to find a regulated environment to do. Their activities.” Oleksandr Bornyakov, Deputy Minister for Digital Transformation, explains.
To attract crypto companies, Ukraine also relies on a competitive tax rate of about 5% on profits. In addition, they are not subject to VAT. According to Bornyakov, the new law and the accompanying changes in tax law should be able to attract foreign investors, weaken the underground economy and, in particular, fill the national treasury.
Excessive nuclear energy to “mine”
To do this, the Ukrainian government has also used surplus energy from the country’s nuclear power plants to “mining” or “mining” cryptocurrencies, creating new cryptocurrency units and verifying cryptocurrencies. Will be promoted. Transactions are passed in the protocol. This energy-intensive computer process requires significant electrical resources to perform the complex calculations it depends on.
Commissioning of a nuclear power plant-powered mining center in Ukraine, including Europe’s most powerful Zaporizhia, has meant a significant financial plunge for the country, with public company Energoatom to surpass more than $ 170 million in 2020. Recorded a loss. To this effect, it has already been done by some European companies.
Transactions of $ 150- $ 200 million per day
This legislative initiative also stems from the rapid spread of the use of cryptocurrencies in the country in recent years. Ukraine, which has an estimated 5.5 million users, or 12.7% of the population, ranks fourth in the ranking of countries that use cryptocurrencies, second only to Vietnam. , India and Pakistan.
A significant portion of the population uses cryptocurrencies in their daily lives. This is one of the reasons why this bill was drafted.
Oleksandr Bornyakov, Deputy Minister of Digital Transformation
The average daily volume of cryptocurrency transactions there ranges from $ 150 million to $ 200 million, exceeding the volume of fiat exchanges. “Despite the lack of regulation, a significant portion of the population has already adopted cryptocurrencies and uses them in their daily lives,” confirms Bornyakov. This is one of the reasons why this bill was drafted. »»
However, given the economic and political challenges facing Ukraine, the adoption of cryptocurrencies by Ukrainians is not surprising. Financial system and traditional investment.
According to the Corruption Perceptions Index (CPI) released by NGO Transparency International, Ukraine was the most corrupt country in Europe in 2021 after its neighbor Russia.
Ukrainians do not trust banks, governments, or even the national currency, hryvnia.
Michael Chobanian, creator of Kuna, the first cryptocurrency exchange in Eastern Europe
Safe, direct and anonymous, like cash
Chobanian, a liberal and enthusiastic promoter of “Kryptos”, which he considers to be a miraculous cure for national illness, believes the bill violates the spirit of cryptocurrencies and their use. Masu: “Ukraine is a country of cash and cryptocurrencies can be seen as an extension of this system: secure, direct, anonymous. »»
According to a 2018 study by the Faculty of Law at Oxford University, one-quarter of Bitcoin users and nearly half (44%) of transactions made using this cryptocurrency are associated with illegal activity. ..
“We know that certain criminal activities are being carried out on our platform,” recognizes Michael Chobanian. However, there is a dedicated team to tackle this issue. According to the founder, Kuna employees can detect suspicious transactions and suspend their responsible accounts within hours.
But Chobanian wants to get things in sight. “Criminal activity is part of every economy and he claims to be sunk in an armchair. The challenge is to limit the proportion of this illegal activity in the economy as a whole. Exceeding certain thresholds. Should not grow, but cannot be completely eliminated. »»
Practical, Volodymyr Zelensky himself admitted during his recent business trip to Silicon Valley that his country had become the “magnet” of cryptocurrency fraud in Europe. But the Ukrainian president believes the bill represents a step in the right direction. “One of the growth vectors of Ukraine’s digital economy is the development of legal and innovative markets for virtual assets,” he declared.
There is a risk that legalization of cryptocurrencies will lead to more corruption and deregulation.
PhD in Katarzyna Ciupa, Specialist in Economics and Cryptocurrencies
439 million euros laundered in Ukraine in 2020
According to National Financial Monitoring Service statistics, the amount of money laundering in the country is constantly increasing. It reached € 439 million in 2020 and € 103 million in 2018.