Ukraine's new crypto law could turn it into a trading hub. Some prefer to stay in the shade
The Ukrainian parliament passed a law in September that will legalize and regulate the sector and restrict cryptocurrencies, which are now considered non-monetary assets. Ultimately, it will allow crypto companies to trade and pay taxes legally.
The law - which is expected to be passed before the end of the year after it was sent back to parliament for amendment by President Volodymyr Zelenskyj - does not allow the use of crypto in exchange for goods and services.
Still, it will be the first step towards a crypto-inclusive future, Deputy Minister for Digital Transformation Oleksandr Bornyakov told Euronews Next.
“The crypto business is global and we want to be part of this world economy. However, in order to be part of the global economy, you have to follow common rules, ”said Bornjakov, referring to how Ukraine has anti-money laundering agencies such as the Financial Action Task Force (FATF).
However, Ukrainian crypto companies thrive without regulation. According to an analysis by the software company Chainalysis, Ukraine was among the top ten countries that made the most money from Bitcoin trading in 2020. It is also home to several blockchain companies.
Bornyakov says his ministry had Ukrainian companies and traders in mind when drafting the law and believes the industry will benefit from it; firstly because the law allows crypto companies to open bank accounts in Ukraine, but mostly because it creates trust in the Ukrainian crypto market.
"We want to be trustworthy and we want our banking system to be trustworthy," said Bornjakov.
"We want the government agencies or regulators of the European Union to trust our licenses so that Ukrainian companies can attract investment or these people from the European Union become customers of their platform or their company."
Corruption risks
If the law is passed, crypto trading companies will need to obtain a license and report their financial activities to a regulator. Alex Momot, CEO and co-founder of the blockchain company Remme in Ukraine, sees both dangers and advantages in the new legislation.
"It will be good and important for the local actors in Ukraine if there is a way to connect to the banking system," said Momot.
"But I also have concerns. I'm not sure if politicians understand the full potential of the Ukrainian crypto sector, and passing a law will open the door for them to do something bad later."
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| Oleksandr Bornyakov, Ukraine's Deputy Minister for Digital Transformation. |
Momot believes that the many blockchain companies and crypto traders in Ukraine can and will quickly move to other countries like Portugal or Dubai to do their business. The Ukrainian government would have to be very careful not to deter them.
"Usually everyone in Ukraine doesn't want government regulation because no regulation is usually better," said Momot, referring to the long history of corruption in Ukraine and the judiciary system that is viewed as biased.
"But on the other hand, having a connection to the banking sector and some simple rules is important, but it will hurt local actors if it gets too much."
Michael Chobanian, founder of the Blockchain Association of Ukraine and Kuna, one of Eastern Europe's first crypto exchanges, told Euronews Next that the law could result in several companies leaving the country.
"I don't have that much against the law," said Chobanian.
“But the problem is that laws in Ukraine don't really work. Given the general situation in Ukraine, I fear that the crypto industry after the passage of the law because of the corrupt courts, the corrupt police and the problems with the tax officials.
"This law could open to corruption".
Chobanian argues that the sector is doing pretty well on its own right now. Companies usually pay the low business tax of 5 percent and point out that people who use cryptocurrencies for money laundering can already be prosecuted under Ukrainian law.
"In Ukraine, people are already going to jail for money laundering, so I don't see any need for anything new," said Chobanian.
"It will be good if we can work with the banking sector, but they don't like crypto so it may not change anything. I see more risks than profits."
Crypto regulation is required
Professor Philipp Sandner from the Frankfurt School Blockchain Center argues in a paper that cryptocurrencies offer several advantages for developing countries.
For example, it can help accelerate growth when alternative financing becomes available.
Bornyakov sees many opportunities for the crypto business in Ukraine and believes that regulation will benefit the crypto industry in many ways in the long run.
First of all, Ukraine has seen a surge in imports and exports through cryptocurrencies, making it difficult to be transparent. Second, unregulated crypto trading could potentially disrupt Ukraine's financial system, he argues, and third, the sector would not be viable if the country did not implement international regulations.
"I can’t see why the law will be a danger to crypto businesses," said Bornyakov.
"It will be easy to get a license, so if you are doing everything legit and transparent, you will have nothing to fear. I have spoken to several managers and owners, and I do not believe that we will see many companies move from here".
Bornyakov also predicts that most countries will eventually develop a way to regulate cryptocurrencies and that it is better for Ukraine to move along. The hope is that the new law will create a solid legal foundation for such companies which will prevent illegal raids on crypto businesses by law enforcement, seeking out bribes.
"The fact is that you cannot stop or prevent people from trading cryptocurrencies, and if a certain number of people use it, you, as a government, will have to respond," said Bornyakov.
"In Ukraine, we cannot just ignore the fact that many Ukrainians use crypto, so we need to find a way to regulate the sector and make it prosper".
He further argues that the law will be the first step towards a future where cryptocurrencies will be used as payment for goods and services in Ukraine in the next decade or beyond.
For example, next year, he says, it will be possible to use central bank digital currency, or CBDC, as legal tender in Ukraine, and the law is required for the sector as a whole.
Chobanian, on the other hand, is unsure whether this crypto-oriented future will ever come.
"I'm not sure if cryptocurrencies will ever be allowed to be used in stores in Ukraine. The National Bank of Ukraine has made it very clear that the only legal tender is the hryvnia [the local currency in Ukraine]," said Chobanian.
"I think the Minister and Deputy Minister for Digital Transformation are good guys and have good visions, so I am not worried about them ... But Ukraine is an unstable country, so who will be the next minister?"
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