Cryptocurrencies in Ukraine

2022: Signed the Law "On Virtual Assets"

On March 16, 2022, President of Ukraine Volodymyr Zelensky signed the law "On Virtual Assets."

• Foreign and Ukrainian crypto exchanges will work legally.
• Banks will open accounts for crypto companies.
• Ukrainians will be able to protect their savings in virtual assets.
• The state guarantees judicial protection of the rights to virtual assets.
• The regulation will be distributed between the NBU and the National Securities and Stock Market Commission.

The law will enter into force after the adoption of amendments to the Tax Code.

2021

Rating of mining equipment suppliers in Ukraine

In 2021, the Zaporizhzhya Ferroalloy Plant, owned by oligarch Igor Kolomoisky, imported cryptocurrency mining equipment worth $18.3 million to Ukraine. This is the highest figure among all companies importing such equipment in Ukraine in 5 years. This was reported in January 2022 by NV.Bisnes, citing data from the Molfar business intelligence agency. More details here.

The New York Times: Why Ukraine will be able to become the cryptocurrency capital of the world

In mid-November 2021, Ukraine is actively betting on cryptocurrencies and this can turn the country's affected economy into a global hotbed of digital financial assets. About this newspaper The New York Times.

The Ministry of Digital Transformation of Ukraine previously announced the country's plans to make itself a leading destination for the cryptocurrency world. In addition to the adoption of a new law on virtual assets, Ukraine plans to actively attract cryptocurrency business using highly competitive tax rates. Companies will pay 5% of profits and will not be subject to value added tax, and individuals will pay 5% with a grace period until the end of 2025.

In early September 2021, the parliament adopted a law on the legalization and regulation of Bitcoin, which was the first step in an ambitious campaign aimed at making cryptocurrency trading prosperous in the country the main one and rebranding the whole country. Data mining centers are designed to strengthen the decision of companies to open their business in Ukraine, since cryptocurrency collection is an energy-intensive business, and cryptocurrency mining consumes an astronomical amount of energy. This is because digital currency is mined, created and traded using massive and very complex digital volumes known as blockchain. Almost an unlimited number of powerful computers can connect to these blockchains.

The New York Times: Why Ukraine will be able to become the cryptocurrency capital of the world

In Ukraine, we have a large personnel reserve and a strong community of blockchain developers. They picked up the cryptocurrency trend faster than people in many other countries, and most importantly, they realized how to build a business based on it. There are not many countries that are friendly to cryptocurrencies, so private companies do not have such a big choice, "said Deputy Minister of Digital Transformation Alexei Bornyakov.

Many of the cryptocurrency companies already operating in Ukraine are legal. There are also blockchain companies that create very complex systems, such as transaction logs, through which cryptocurrencies are moved. There are various fintech companies and support firms. Unfortunately, as The New York Times notes, as of November 2021, many economists and politicians are still deeply suspicious of cryptocurrencies, calling them the currency chosen by money laundering, terrorists, mobsters and ransom extortionists. If investors are going to pour money into these cryptocurrency companies, then the business should be interested in moving. And since mid-2021, investors have been pouring money at great speed, financing all technologies related to blockchain, cryptocurrencies, infrastructure - soared to $7 billion (CB Insights data).

The main problem of the country is that many technological entrepreneurs in Ukraine say that they like the system as it is, and especially they like its shortcomings. This leads to the paradox underlying Ukraine's attempt to rebuild. The country breaks through sunlight and legitimacy for a group of executives who often prefer darkness and the status of quasi-auditors. Ukraine has already attracted some Americans and Britons to the crypto industry and they did not come because they are adherents of the rule of law.

Ukrainians are one of the most avid cryptocurrency users in the world, ranking fourth in the Global Crypto Adoption Index, compiled by Chainalysis. Annually, Ukrainians receive and send cryptocurrency worth $8 billion, and the volume of transactions with it in one day is about $150 million, exceeding the volume of interbank exchanges in fiat currency. The case is not so much in cryptolichoradok, but in the absence of the best options for citizens of the country and foreigners, because banks in Ukraine are so sclerotic that sending or receiving even small amounts of money $50, $300 from another country requires exhausting paper red tape. There is no stock market in Ukraine, and foreign funds are practically inaccessible. For those who want their savings to grow, real estate and cryptocurrencies remain. Although cryptocurrency assets are characterized by strong volatility, the asset is more liquid than, say, an apartment, and has no friction compared to the fiat system, the publication says.

Ukraine has experienced too many financial scandals to expect a large influx of executives from large international investment banks with or without favors, but then a cryptocurrency has appeared, which has its own reputation problems. Perhaps it will be an ideal pair..., "said Mikhail [1], founder of Kuna[2]

The President of Ukraine vetoed the law on the legalization of cryptocurrencies

In early October 2021, Ukrainian President Vladimir Zelensky vetoed the law on the legalization of cryptocurrencies. The head of state returned the document to the Verkhovna Rada with his proposals.

It is noted that Zelensky was opposed to the creation of a separate regulator in the virtual asset market. In his opinion, world experience shows that the regulation of cryptocurrency circulation is carried out precisely by regulators of financial markets in order to prevent the appearance of financial pyramids with virtual assets. The President proposed to attribute the functions of regulating the circulation of virtual assets to the competence of the National Commission on Securities and the Stock Market of Ukraine.

President of Ukraine Volodymyr Zelensky vetoed the law on the legalization of cryptocurrencies

The bill adopted in the second reading proposes the creation of a new central executive body - the National Service for Regulating the Circulation of Virtual Assets, which, according to the Ukrainian leader, will cost the budget.

This document defines the basis for state regulation of the circulation of virtual assets. Thus, according to the law, the regulation of the virtual asset market is carried out by various state bodies depending on the type of such assets, including by creating a new body of the central executive power. The creation of a new body, as provided for by this law, will require significant expenses from the state budget, the press service of the President of Ukraine reports.

The bill on the legalization of cryptocurrencies in Ukraine was supported by the majority of deputies. According to the document, market participants will have to pay taxes on income from cryptocurrency, as well as receive legal protection in the courts in case of violation of rights. Its goal is a comprehensive regulation of relations arising in the circulation and conclusion of transactions with the digital currency, as well as ensuring a unified approach to the organization of cryptocurrency trading, noted in the Rada.^[3]

Ukraine took first place in the percentage of the population owning cryptocurrency

Ukraine took first place in the percentage of the population owning cryptocurrency - 12.7% (about 5.6 million Ukrainians saw cryptocurrency). Such data according to the results of 2020 led analysts of the Triple A payment platform in early October 2021. More details here.

Ukraine adopted a law on the legalization of cryptocurrency

On September 8, 2021, the Verkhovna Rada of Ukraine adopted a law legalizing the cryptocurrency market in the country. The initiative was supported by 276 deputies, six parliamentarians spoke out against, 71 people abstained.

After entry into force, the law will apply to legal relations arising in connection with the circulation of virtual assets in Ukraine. It will determine the rights and obligations of participants in the virtual asset market, the principles of state policy in the field of virtual asset turnover.

Ukraine adopted a law on the legalization of cryptocurrency assets

The document provides for the solution of the following problems related to the functioning of cryptocurrency:

• streamlining of regulations for the market of virtual assets, participants;
• determining the legal status of virtual assets as objects of civil rights;
• streamlining civil relations between individuals and legal entities arising from the use of virtual assets;
• determining the legal status of market participants and users in the field of virtual assets;
• establishing basic principles and principles of public policy in the field of virtual assets;
• government regulation and control of the virtual asset market.

The authors of the bill believe that its implementation will help to ensure openness and transparency in the terms of agreements concluded in the virtual asset market and prevent abuse in this market. In addition, the law will contribute to the development of the infrastructure of the virtual asset market, ensuring its openness and efficiency.

According to the Minister of Digital Policy Mikhail Fedorov, the virtual asset market is an additional point for the growth of the digital economy in Ukraine.

The legalization of virtual assets creates the prerequisites for launching this innovative market in Ukraine. Transparent rules of the game will stimulate the influx of investment and the development of innovation. The legal market for virtual assets will strengthen the image of our country as a high-tech state, "he wrote on his Facebook page.[4]

The Ministry of Digital Affairs of Ukraine has created a roadmap for the development of digital assets

In mid-May 2021, the Ministry of Digital Transformation of Ukraine announced the creation of a roadmap for the development of digital assets in the country. The document was the result of the ministry's joint work with other departments, as well as representatives of cryptobusiness.

On May 13, 2021, the final session of foresight research of the virtual asset industry in Ukraine was held, within the framework of which the participants of the event formed a vision for the development of virtual asset ecosystems, a roadmap for the development of a new industry in the country and a joint action strategy to optimize the development trajectory of this industry.

The Ministry of Digital Affairs of Ukraine has developed a roadmap for the development of digital assets

An important result of the final session was the development of a roadmap and the crystallization of specified goals for each individual participant in the forsite, says strategic planning expert Valery Pekar. According to him, the community component is a significant aspect of the development of the ecosystem of virtual assets. It is on the efforts of the community that the success of the new industry in Ukraine will depend, he added.

Forsyth brought together a wide range of relevant experts, including blockchain and crypto entrepreneurs, people's deputies, representatives of executive authorities, in particular regulators, the Ministry of Digital Transformation of Ukraine, the National Bank of Ukraine and the National Commission on Securities and Stock Markets.

According to Alexander Bornyakov, Deputy Minister of Digital Transformation for IT Development, a developed ecosystem of virtual assets will benefit business, the state and expand the financial capabilities of citizens.

Providing access to many different modern services and new financial instruments can qualitatively improve the universal standard of living of citizens. Especially given that other financial instruments, for example, stocks, are little developed in our country, Bornyakov said.[5]

2020

Ministry of Digital Affairs: Ukraine leads in the use of cryptocurrencies and is among the top 3 in the blockchain development community

In early September 2020, the Ministry of Digital Transformation of Ukraine announced the country's leadership in the use of cryptocurrencies, as well as its entry into the top three states in terms of the size of the blockchain developer community. In its statement, the agency referred to data from The Chainalysis, an analytical company specializing in blockchain research.

To calculate the index of the use of crypto assets by the population, analysts of The Chainalysis used the following criteria:

• Cost per capita of the cryptocurrency assets to be transferred;
• remnants of crypto assets at addresses (wallets) by Internet users (Ukraine);
• P2P volume of transactions calculated by purchasing power parity;
• volume of retail transactions (up to $10 000) calculated by purchasing power parity.

Ukraine leads in the use of cryptocurrencies

According to the Ministry of Digital Affairs, a large-scale community of blockchain developers is based in Ukraine, and the volume of cashless payments is included in the top 5 of the world rating.

Due to the lack of a stock market, limited access to the world capital market and international transfers, as well as the high threshold for entering the real estate market, virtual assets are gaining popularity among the population of Ukraine, the ministry writes, adding that representatives of the country's small businesses are actively using cryptocurrency for settlements on international marketplaces.

At the same time, the Ministry of Digital Affairs stated that most of the virtual asset market by the beginning of September 2020 is concentrated in the gray zone, "which creates potential risks for both the state and business and users." Having adopted the bill "On Virtual Assets" developed by the department, the ministry expects, lawmakers will help bring cryptocurrency transactions into the legal field.^[6]

Ukraine begins to track cryptocurrency operations with the help of a blockchain company

On July 23, 2020, the Ministry of Digital Transformation of Ukraine announced an agreement with Crystal Blockchain BV, which the department calls one of the world's leading manufacturers of software for monitoring operations with virtual assets. A memorandum was signed aimed at the rapid formation and legalization of cryptocurrency operations in the country. More details here.

Ministry of Energy of Ukraine directs excess electricity to cryptocurrency production

In early May 2020, the Ukrainian Ministry of Energy and Environmental Protection announced the need to use surplus electricity to extract cryptocurrencies. The department gave the corresponding instruction regarding the practical application of such a possibility to the Energoatom state enterprise,  the operator of all existing nuclear power plants  in the country.

We can really transform the "liability" into an "asset." Having a surplus of atomic generation, one of the modern tools for using excess electricity is to direct it to cryptocurrency mining. This not only allows you to maintain a guaranteed load on nuclear power plants, but also allows enterprises to attract additional funds. That is, it opens the way to a fundamentally new economy, new approaches, a new market system  , the Ministry of Economy said in a statement.[7]

In early May 2020, the Ukrainian Ministry of Energy and Environmental Protection announced the need to use surplus electricity to extract cryptocurrencies

Energoatom will have to fulfill the ministry's order by May 8, 2020. The document was signed by the Acting Minister of Energy and Environmental Protection  Olga Buslavets.

To work out regulatory and technical issues regarding the possibility of implementing cryptocurrency mining projects in order to provide additional markets for electricity produced by nuclear power plants,  the order says.

Energoatom has already developed a pilot project to connect consumers of the data center with a capacity of up to 1000 MW to electric networks, with the allocation of the first stage of 30 MW, in the satellite city of Zaporizhzhya NPP Energodar.

The initiative of the Ministry of Energy was criticized by the deputy from "The servant of the people" Geo Leros. According to him, Olga Buslavets wants to "put the cheap energy of a nuclear power plant under the tail at least so as not to infringe on the interests of its sponsors and directly invites Energoatom to mine cryptocurrency, and sell expensive energy to industry!"

Ukraine has established a procedure for declaring cryptocurrencies

In early March 2020, Ukraine established a procedure for declaring cryptocurrencies. In accordance with rules published by the National Agency for the Prevention of Corruption (NAPC), taxpayers must indicate digital assets as intangible property, similar to intellectual property or licenses for the extraction of natural resources.

The document should include the name of the asset, the date of the last cryptocurrency transaction. Since cryptocurrency is an intangible asset, the owner needs to report it to the relevant authorities, indicating the number and total value of a certain type of tokens owned by the declaring entity or member of his family on the last day of the reporting period, the guide says.

In early March 2020, the procedure for declaring cryptocurrencies was established in Ukraine

It also states that the value of digital currencies should be indicated in terms of their value in hryvnias at the rate of the National Bank of Ukraine.

NAPK borrowed the definition of cryptocurrencies from the international Group for the Development of Financial Measures against Money Laundering (FATF). FATF calls cryptocurrencies virtual currencies with the ability to store, invest, trade and transfer in digital format, while such assets do not have the status of a legalized means of payment in any jurisdiction.

Although these explanations about the declaration of cryptocurrencies were given only in early March 2020, digital assets appear in the declarations of Ukrainian officials  since 2016. Then, for example, people's deputy Dmitry Golubov declared  4376 bitcoins, estimating them at the time of drafting the document at 125 million hryvnias (about $5 million).

In accordance with the procedure for declaring cryptocurrencies, which was established in early March 2020, the taxpayer is obliged to call this asset (bitcoin, ether, etc.), the date of purchase and the amount of currency on the last day of the tax period.^[8]

Tracking suspicious cryptocurrency transactions from $1200

At the end of January 2020, the Ukrainian Financial Service announced that it was beginning to track cryptocurrency transactions worth more than $1,200. The new measures are designed to strengthen the fight against money laundering in Ukraine in accordance with the latest recommendations of the Financial Action Task Force on cryptocurrency transactions. For the first time in Ukraine, the law on combating money laundering includes cryptocurrency as an asset to be monitored. The threshold value for starting the verification process is 30,000 hryvnia or $1200.

If the transaction appears suspicious to the payment service provider, the company is obliged to inform the financial observer, the State Financial Monitoring Service. This organization can block suspicious transactions and even confiscate cryptocurrency when suspected of an illegal transaction. The civil service has access to analytical software that allows you to investigate the origin of crypto assets and their use.

The Ukrainian Financial Service announced that it intends to track cryptocurrency transactions worth more than $1,200

Cryptocurrency as an asset class has not yet been defined by the legislation of Ukraine. It is expected that a working group with the participation of several national agencies will develop a new regulation for crypto assets in Ukraine by April 2020. A bill proposing a 5% tax on cryptocurrency income has already been submitted for consideration.

There are no official statistics on the volume of cryptocurrencies circulating in Ukraine, but the government believes that this volume is "quite high," although most of the money laundering in the country is still carried out through cash.

I think that our criminals and corrupt officials are quite conservative and still keep funds mainly in the form of cash, "said Oksana Makarova, head of the country's Ministry of Finance. - Therefore, in the legalization of cryptocurrencies, I see an opportunity for the development of this industry in our country, and not a threat[9].

Ukraine

• Economy of Ukraine
• Ukraine IT Market
• Information security in Ukraine
• Cybercrime and cyber conflict: Ukraine
• Public procurement of IT (Ukraine)
• Cellular communications (Ukrainian market)
• Cell phones (market of Ukraine)
• Internet (market of Ukraine)
• Electronic payment systems in Ukraine
• IPTV (Ukraine market)

Notes