Cryptocurrencies vs government regulation: the way these two areas interact
In June 2020, the Virtual Assets Bill was submitted. At that moment, we became one step closer to the digital state and the transformation of the Ukrainian economy. The legal regulation of cryptocurrencies determines the legal status of digital assets, taxation, working conditions of exchanges, etc. With an economically oriented approach to the settlement of virtual assets, the crypto industry is being integrated into the country’s economy.
But Ukraine is not the only one in the path of finding or building that ideal legislative niche for virtual assets. To begin with, we will consider the experience of states to assess the prospects.
Switzerland: the rules for the functioning of the crypto industry are determined by the state regulator — the Financial Markets Monitoring Service (FINMA). Operations with cryptocurrencies, as well as profit from the sale, are taxed. Crypto exchanges and exchangers receive licenses from the financial management of Switzerland for comfortable operation. In 2022, Switzerland plans to implement a tax payment format with the two most popular cryptocurrencies — Bitcoin and Ethereum.
UK: Cryptocurrencies are not considered as a legal payment method here. However, operators of crypto exchanges and electronic wallets were obliged to stick to the rules for identifying customers. In this way, the industry and the legality of operations are controlled. The practice of tracing crypto assets is designed to drive unscrupulous users into underground markets, where they fall within the scope of the law.
Belarus: This is the first country with comprehensive legislation that regulates blockchain and cryptocurrencies. A ‘High Technology Park’ was created in Belarus: a place where one can legally conduct a cryptocurrency business, register exchanges, engage in mining, etc. However, in view of the events of last year in this country, I am not going to judge the realities of dealing with this market.
In Ukraine, subject to the acceptance of the draft law about virtual assets, the market regulator will be the Ministry of Digital Transformation of Ukraine. When providing services related to virtual assets, it is necessary to obtain a license from the relevant regulator — the National Commission for Securities and Stock Market or the National Bank of Ukraine. Legal regulation of cryptocurrencies is also the basis of their legitimacy: it inspires the confidence of investors and entrepreneurs. Indeed, due to such regulation, Ukraine will be within the framework of European legislation. This is our duty as a FATF member country.
Legalization of the virtual asset market in Ukraine will allow bringing operations with virtual assets to the open market, companies specializing in crypto-assets could register a business, officially work with the banking system and attract foreign investment. We can also hope that the Virtual Asset Act will provide a secure ecosystem for international blockchain companies to operate.
The regulation is not intended to limit the space for new developments or transformations in the virtual asset market. Thanks to the legislative framework, we will be able to make cryptocurrencies safer, more understandable for the user, and more stable in the market. The draft law has already been adopted as a basis and presupposes a comprehensive settlement of legal relations arising in connection with the circulation of virtual assets in Ukraine, determination of the rights and obligations of participants in the virtual asset market, principles of state policy in the field of circulation of virtual assets.