What Ukraine is aiming to achieve by legalising cryptocurrencies

Earlier this month, the Ukrainian government led by President Volodymyr Zelensky announced that it would soon be legalising cryptocurrencies in the country.

The Eastern European country is throwing its hat into the blockchain ring, but what is it aiming to achieve? Can Ukraine really become a cryptocurrency hub? Let’s take a closer look.

Volodymyr Zelensky wants to accelerate blockchain in Ukraine

With a young and forward-thinking president at the helm, supported by the Ukrainian Ministry of Digital Transformation, the country is looking to accelerate the use of blockchain technology and adoption within its borders, including cryptocurrencies.

To be clear, cryptocurrencies in Ukraine are not illegal, but they currently have no legal status whatsoever. This creates a grey area and a missed opportunity for the government to collect revenue.

Now, the government plans to give them legal status and create a favourable framework for blockchain companies to work in. This would be similar to a Swiss-style Crypto Valley.

The plans are comprehensive and go way beyond merely giving cryptocurrencies a legal status in Ukraine. The leader of Zelensky’s digital electoral campaign Mikhail Fyodorov stated that the government intended to deploy blockchain throughout state structures and beyond.

It seems that the climate in this conflicted country is ready for progressive change. The government is backed by a team of blockchain experts from Switzerland, representatives from the Ministry of Digital Transformation, the non-government Better Regulation Delivery Office (BRDO), and several businesses and entrepreneurs across the country. “Blockchain4Ukraine” is also intended to bring together lawmakers from different political factions.

Zelensky intends to roll out blockchain initiatives in Ukraine. He also wants to set a global example of how to correctly implement and regulate the technology. Additionally, he’s keen to create transparency and remove corruption from industry and politics. One of the pillars of his campaign was his stance against corruption and his pledge to stamp it out.

The Kyiv Post reported in December of last year that Ukraine loses a staggering $8.6 billion annually due to mismanagement and corruption. Implementing distributed ledger technologies across the supply chain and recording transactions on the blockchain could be extremely efficient in this area.

Blockchain in public services

President Volodymyr Zelensky is serious about using blockchain to optimise public services. In fact, last month, his deputy prime minister Mikhail Fedorov spoke at length to Russian publication Pravda about Ukraine’s plans for creating digital IDs for its citizens. This would also include digital driving licenses.

Considering Zelensky’s determined stance on corruption, it’s not unrealistic to expect that Ukraine may also look at blockchain technology when it comes to voting. This type of system could encourage greater turnout. It could also reduce the scope for voter fraud and rigged elections.

Encouraging foreign direct investment

The president clearly understands that to push the Ukrainian economy forward, foreign direct investment would be tremendously helpful. Despite a deteriorating economic outlook at the beginning of this year, with many investors scared off by instability and uncertainty, things are starting to turn around.

In fact, Ukraine recently moved up seven places in the Doing Business 2020 Ratings by the World Bank.

Moreover, the president tweeted this Tuesday about not missing out on the opportunity to invest in Ukraine at the Mariupol #InvestinUkraine conference.

If Ukraine can manage to attract blockchain entrepreneurs to the country thanks to progressive legislation and a low cost of living, this could help to stimulate the local economy further.

Is regulation the arch-enemy of innovation?

The Ukrainian government’s pledge will not excite everybody in the cryptocurrency community. There are plenty who argue that regulation is the enemy of innovation. They claim KYC and AML have no place in individual financial sovereignty. On top of that, it puts many would-be blockchain start-ups out of business because of the high cost.

However, the wider view seems to be that for cryptocurrencies and blockchain technology to thrive and be integrated into the global economy, they must be subject to adequate legislation.

This latest move means that Ukrainians who earn or trade cryptocurrencies will also have to start paying tax on them. The digital transformation minister announced last month that:

“Cryptocurrency users should leave the grey zone and start paying taxes.”

This will create a further revenue stream for the Ukrainian government but won’t go down well among those who enjoyed the fiscal leniency of the “grey zone”.

Final thoughts

Switzerland has seen great success from its progressive approach to blockchain regulation. The alpine nation has produced several blockchain unicorns from Dfinity to Bitmain, as well as hundreds of blockchain start-ups incorporating there, including the Libra Association.

However, Ukraine is hardly Switzerland. The country may have moved up on the World Bank report, but with ongoing tensions and internal struggles, it remains to be seen whether investors will take the risk.