Ukraine: The regulatory framework is gradually improving, and the new bill pushes the crypto industry forward


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Ukrainian entrepreneur Sergey Tron explained the new Bitcoin bill in Ukraine and the current opinions of companies and people on Bitcoin.

Original title: “An in-depth understanding of the current situation in Ukraine after the legalization of Bitcoin”
Interviewee: Sergey Tron, Founder of Baiyan Management Company Writing: NIK HOFFMAN
Compiler: Baize Research Institute

On September 10, 2021, Ukraine legalized Bitcoin, making it clear that Bitcoin is a legal asset in the country. After the bill is passed, the court can use it to protect individuals and businesses because it provides tax clarity and formally allows Bitcoin businesses to operate in the country. It also sets some guidelines for how Ukraine will try and regulate Bitcoin in the future.

According to Chainalysis’s data, Ukrainians have ranked fourth in the world in the adoption rate of BTC, and some politicians in the country also hold BTC.

Bitcoin Magazine interviewed Ukrainian entrepreneur and investor Sergey Tron (Sergey Tron), who is also the founder of Ukrainian Baiyan Management Company, a company focused on artificial intelligence, streaming media, blockchain, Internet of Things and energy s company. The reporter had a conversation with Sergey and got an in-depth understanding of what is happening in the country’s Bitcoin sector. In the interview, Sergey explained to us in detail the content of the new bill and what Bitcoin means to citizens, businesses and governments operating in Ukraine.

Q: How does your experience in banking affect your perception of Bitcoin?

Sergey: Initially, I only dealt with the real sectors: energy, banking. However, the deeper into the 21st century, the more clearly I began to understand that the future belongs to technology. I decided to combine classic business with innovative business. Terms such as Bitcoin and blockchain, artificial intelligence, rendering, and cloud computing have appeared in my business vocabulary.

I think there is every reason to believe that in the future, cryptocurrency will enter a new stage of development and become an ordinary currency. People will start to use it to pay for supermarket purchases, taxis and other services.

Question: How did you interact with the politicians who participated in the drafting of the bill?

Sergey: Since our team has a very large influence in the Ukrainian Crypto (encryption) field, we have provided our views to the regulators. My collaborators have held many very useful meetings, and I am happy to note that some of our recommendations have been passed in the final version of the law.

Question: Can you describe the mechanism and terms of this bill’s entry into force?

Sergey: First of all, the new law will allow Crypto companies to work in a clear and understandable legal field. This is an important step because it will eventually lead to the legal existence of the virtual asset market. Thanks to this, Ukraine’s Crypto industry will be able to develop rapidly and dynamically. Market participants and investors will be protected by law and have the ability to make decisions based on open consultations with government agencies and civil society. Finally, a transparent cryptocurrency investment mechanism will begin to operate.

Industry-specific laws are a guarantee that encryption businesses will not become victims of complex misunderstandings of classic legal norms. In fact, it makes the rules transparent and protects the free will of regulators.

There will be a special regulatory agency for the virtual asset market in Ukraine. We must combine a high degree of economic and investment freedom with a high degree of financial security. This is the only way for the Ukrainian crypto industry to become a vibrant, civilized and competitive market.

The main goal of this law is to lay the foundation for a fully operational virtual asset market, where each player has transparent rules of the game.

Governments and members of legislative bodies all over the world understand that blockchain and digital assets will fundamentally change most areas of human life in the next 50 years. Therefore, most developed countries have legalized virtual assets in some form.

In addition, the digital asset market is a powerful driving force for the financial system, with investments amounting to billions of dollars. No one wants to be left behind. Ukraine should not only catch up, but also create new technological and social trends. The legalization of virtual assets is the first step in Ukraine’s proactive position and a strong signal for global virtual asset investors.

Q: What does the new law mean for Bitcoin companies operating in Ukraine and those companies that want to start their business activities?

Sergey: According to the new law, Crypto companies can provide customers with the following services: storage or management of virtual assets, virtual asset keys, exchange, transfer and other services related to digital assets.

Market participants have the right to open bank accounts to settle virtual asset transactions, judicially protect their rights, receive information about their activities from service providers, independently determine the price of cryptocurrency transactions, and protect personal data.

Blockchain companies now have the opportunity to open bank accounts and accounts in other financial institutions and conduct virtual asset transactions.

Foreign Crypto companies can also be registered in Ukraine and make money in Ukraine. Generally speaking, special permits must be obtained for each individual activity. Therefore, the market receives the basic rules of the game, and Crypto investors will finally be able to leave the gray area.

The law means access to the finances of the classic market. Therefore, the key benefit is that the scope of the Crypto business has expanded and it has taken another step towards mass adoption.

It must be understood that the passed law is a framework document, the beginning of the process, not the completion. With the help of by-laws and other policy documents, it is necessary to make substantive provisions on the virtual asset law. Without this, the Ukrainian Crypto industry will not get the necessary promotion. The ultimate goal is to start a mature mining infrastructure and virtual asset trading.

The “Virtual Asset Law” will only take effect after the specific details of the taxation of virtual asset transactions have been revised. Experts say this process can take up to a year. Of course, all necessary amendments should be accepted as soon as possible.

Question: Can you explain the meaning of this passage with examples in life, “Virtual assets are not a means of payment on Ukrainian territory and cannot be exchanged for property/goods, projects or services”?

Sergey: This means you can’t go to the supermarket to buy food with Bitcoin, or go to the hardware store to buy a washing machine. In addition, you cannot officially exchange virtual assets with real estate or any work. The state does not recognize virtual assets as currency. According to the new law, virtual assets have the status of intangible value and the object of civil rights. That is, you can formally own tokens, dispose of tokens, buy and sell, and use the services of blockchain companies and crypto exchanges. But you can’t pay them like ordinary money.

Similar rules apply to foreign exchange. But this is not a limiting factor, but a space for the operation of payment solutions, which can provide customers with invisible double conversion. Of course, we want to avoid this situation, but the National Bank of Ukraine is worried about the impact of the large-scale introduction of Crypto technology on Ukraine. We believe that after a year of operation, regulators will see that these concerns are unfounded and may discuss the removal of this restriction.

Q: You have worked in the Ukrainian banking industry. Can you describe the market opportunities for Ukrainian Bitcoin companies focusing on customer service for asset management and other financial services?

Sergey: After the bill is passed, Crypto companies can formally provide their services to citizens and legal persons. Currently, there are about 100 companies in Ukraine whose business activities are related to virtual assets, and there are also many start-ups in this area. In the future, the buying and selling of virtual assets will become a common practice like other common types of investment in Ukraine. People will have no reason to fear that virtual assets are a kind of gray assets and bypass the law. We now have a basic document regulating virtual assets, providing legal protection for market participants, and formulating rules for virtual asset transactions. An official regulatory agency will be established soon. It is much easier to work even within the smallest legal framework.

Blockchain and virtual asset type companies are interested in popularizing investment, explaining to Ukrainians what it is, how it works, why it is profitable, and buying and selling virtual assets safely.

Will there be another boom in Bitcoin and cryptocurrency in Ukraine? This depends on whether the country and encryption associations can improve the law, effectively implement and specify their regulations, and continue to legitimize the market based on common sense and international experience. This requires a lot of time and a lot of work. Any erroneous and poorly considered steps, such as strict or opaque tax regulations, may prevent the development of the industry and scare away potential investors.

The new law does not cover or regulate the mining of virtual assets in any way. For example, the digital transformation department believes that virtual asset mining procedures are legal by default, and any claims against mining companies should disappear after the law is passed. In theory, this sounds good, but in real life, the state should establish a real legal mechanism to protect and support the mining industry. Unless the law is violated, law enforcement agencies should not harass honest miners. As in other cases, this is not only a collaborative effort of officials and parliamentarians, but also a collaborative effort of business sector stakeholders and blockchain enthusiasts.

Q: Is there any hope for Ukraine to use Bitcoin as a legal currency, for example in El Salvador? Does the draft bill meet all current needs?

Sergey: Ukraine’s policy on virtual assets is more balanced. The example of El Salvador, to be more precise, this is a large-scale gamble, their decision-making is not transparent, there will be beneficiaries. In my opinion, this type of behavior is more likely to slander virtual currency, rather than beneficial.

In Ukraine, the draft bill has been drafted for more than two years. This is an open process. The state organized a special hearing with market participants and leading economists. All of this is a great process of gaining speed and power, and it is this movement that can make a qualitative change in the national infrastructure.

Q: Currently, Bitcoin constitutes a potential driver of innovation in the country. Does Ukraine recognize this opportunity and seek to benefit from it?

Sergey: Ukraine once tried to enter the field of blockchain technology. But until now, these are fairly early moves.

Although the authorities have sent some positive signals, especially the passage of the virtual asset law, the development of the blockchain industry has not yet been included in the priority list. The country continues to deal with this issue in an inertial manner, and this approach will not let us go too far. We should not stop there. It is necessary to ensure that the virtual asset law takes effect as soon as possible, and immediately formulate new specifications, regulations and concepts in order to start a mature mining industry and virtual asset market as soon as possible. It is necessary to establish communication between virtual assets and specialized agencies.

my country has huge potential and has the ability to create the most favorable conditions to become a paradise for virtual asset investors, thereby earning billions of profits. More importantly, positive changes will affect all Ukrainians without exception. Encryption companies at home and abroad will all pay taxes. These funds can then be invested in the development of infrastructure, medicine, social fields, and increased pensions and social welfare. But this requires the joint efforts of not only business and professional associations, but also a clear strategy and political will of the country. In the world, there are many successful cases of virtual currency legalization and the attraction of international Crypto giants. For example, the experience of a country called “Oriental Switzerland” like Kazakhstan is worthy of attention.

Q: How does the government view the potential of Bitcoin mining and utilization of energy in Ukraine?

Sergey: This question is closely related to the technical characteristics of the Ukrainian energy system. It’s no secret that Ukraine has a huge surplus in power generation. Today, we have 55GW of total installed capacity of power plants, of which only 20GW is actively used, even during peak electricity consumption.

The reason for this imbalance is obvious. This is caused by the decline in industrial production. Unfortunately, we have been witnessing this decline since 1991. Last year, the energy system set a counter-record: from 1991 to 2021, power generation and electricity consumption fell by more than half (from 300 billion kWh per year to 143 billion kWh).

Nuclear power plants in Ukraine occupy a special place in the Ukrainian energy system. Dealing with nuclear industrial complexes has accumulated some complex tasks that have led to inefficient operation of nuclear power plants. The main obstacles are: the decline in industrial production has led to low electricity consumption in Ukraine; and the inability to sell electricity to the ENTSO-E energy system, therefore, to the European Union The state’s sale of nuclear power has also been hindered; reduced investment in station modernization; an increase in uncontrolled RES in the power system; nuclear power accounts for a high share of Ukraine’s total energy (over 50%), leading to a basic part of the power system overflow.

These characteristics have brought catastrophic consequences to nuclear power plants: the share of renewable energy has increased, and at the same time the power generation of TPP is forced to increase to ensure daily balance, while the decline in consumption has caused the share of nuclear power plants to shift from the power system.

The question now is, how to get out of this dilemma? Industrial development is not a quick decision. It requires a lot of investment and various resources.

Considering the status quo of Ukraine’s energy system, especially the problem of surplus power generation from nuclear power plants and the lack of an effective sales mechanism, we believe that there is an option to solve it.

Implementing power supply solutions for data processing centers directly from nuclear power will ensure stable and mutually beneficial cooperation conditions for all parties; nuclear power plants will have more opportunities to sell products at competitive prices that are guaranteed and resolved in time; data centers will have guaranteed, Reliable power supply; Ukraine’s energy system will offload a fundamental part of the market, creating more opportunities for daily balance.

Question: Will Ukraine adopt tax cuts or incentives to stimulate investors and attract capital into the country?

Sergey: As I have already mentioned, Ukraine’s position is more deliberate. And more structure. Tax rates are under discussion, similar to other investment assets-5% of net positions. The operations of certain virtual asset exchanges are exempt from taxation. It looks very attractive.

Q: Will Ukraine increase citizens’ awareness of Bitcoin and explain why they need Bitcoin and how to use it?

Sergey: As far as I know, the digital transformation department is launching a special campaign. Therefore, the state will do its best in education. In addition, in Ukraine, there is a very strong Crypto community, which is also actively participating in the popularization of virtual currencies.

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