Ukraine remains at the forefront of crypto industry despite overall economic hardship caused by the unprovoked Russian military aggression. According to the recent 2022 Global Crypto Adoption Index revealed by Chainalysis, Ukraine has the highest crypto adoption rate in Europe and ranks third globally.
Ukraine started to actively embrace cryptocurrencies several years ago and still maintains high positions in various charts. The country is a home for developers of a number of blockchain startups and exchanges, such as Kuna and WhiteBit.
The war which broke out in early 2022 accelerated the crypto use dramatically. Under the leadership of the Ministry of Digital Transformation, the country announced that it starts to accept donations in Bitcoin, Ethereum, and Thether. The result was fascinating – in just two days Ukraine managed to raise about $12 mln worth of crypto, and now this figure exceeds $120 mln.
Being a crypto-friendly country, it is unsurprising that Ukraine made a move to formally legalise cryptocurrencies and set the rules for their commercial use. In March 2022 the President of Ukraine signed the Act “On Virtual Assets” (“Act”), which was passed by the Parliament of Ukraine back in 2020. The Act is not yet in force though. It will become effective once the Parliament adopts the set of amendments to the Tax Code, which are already in a pipeline.
Here comes a brief overview of what the Act effectively means for crypto industry:
Cryptocurrencies are recognised as intangible assets that may be freely kept or disposed of. Nonetheless, you still cannot use cryptocurrencies to pay for goods and services in Ukraine.
Since the legal status of cryptocurrencies is now clear, the ownership right to them may be protected by the courts and law enforcement.
The Act lays the foundations of cryptocurrency market infrastructure and distinguishes the following cryptocurrency services:
- Cryptocurrency wallets (custodians or administrators of cryptocurrencies or private keys);
- Services for transfer of cryptocurrency; and
- Brokerage (intermediary services).
Cryptocurrency services providers will have to obtain a special permit for carrying out each of the above activities. The SEC of Ukraine is designated to be the industry regulator – the authority will grant permits and oversee the market.
No connection to Russia whatsoever – cryptocurrency services providers may not have russian beneficiaries, management, and russian entities in the corporate structure.
The Act introduces massive amendments to the existing AML legislation in terms of handling cryptocurrency transactions.
It is clear that these developments may give rise to rapid growth of crypto industry in Ukraine. As distinct from many other countries, Ukraine is about to have a clear set of game rules approved by the state. This would enable major industry players to consider the launch of local presence in Ukraine avoiding the risks of running a business in the grey area.
Ukrainian authorities are already exploring how to better cope with numerous legal issues related to cryptocurrency fraud and tracing dissipated crypto assets. To this end, the local Asset Tracing and Management Agency in cooperation with the Cyber Police Department developed the Guidelines for Tracing Cryptocurrencies in Criminal Investigations. Such efforts are overall very helpful for the lawyers and other industry specialists because of the gradually increasing number of criminal cases involving various types of crypto fraud. Moreover, the Asset Tracing and Management Agency has already set up cooperation with Binance in order to facilitate information exchange regarding the wallets mixed up in illicit activities and their further freeze. Without any doubt, we will see further developments in this sphere soon.
By Andriy Fortunenko, Counsel, Avellum