In an incredible set of events, the Government of Ukraine has passed a law that legalizes Bitcoin and other cryptocurrencies.
The law, which was voted mostly in favor, grants legal status to virtual assets. The law not only grants users the right to operate cryptocurrencies but also defines the clear rights and duties of all market participants.
In early October, Volodymyr Zelensky, President of Ukraine, had vetoed the bill to be sent back for changes. The President believed that the introduced bill requires changes, does not, yet, create complete legal mechanisms needed for the implementation, and does not meet constitutional requirements for legal definition. An amended version was passed on the 17th of February, 2022.
The Ukrainian Parliament, Verkhovna Rada, passed two IT-related bills, the first (No. 3637) authorized virtual assets, and the second (No. 2655) established a legal framework for cloud service provision and deployment in government organizations.
The law on virtual assets was passed by the People’s Deputies with the president’s proposals, and the National Securities Commission was named as the regulator. It received 272 votes while requiring only 226.
The National Commission for Securities and the Stock Market, as well as the National Bank, are in charge of regulating the virtual asset market. The adopted law, according to Mikhail Fedorov, the head of the Ministry of Digital Development, will allow Ukraine to start a legal market for virtual assets.
In its second reading, the Verkhovna Rada also approved the law on cloud services as a whole. The bill’s purpose, according to the explanatory note, is to create conditions for the processing and protection of data when using cloud computing technology, as well as providing cloud services and determining the specifics of public authorities’ use of cloud services, as well as more efficient use of public resources through the introduction of new technologies.
Mikhail Fedorov said,
“Cloud technologies will reduce corruption risks for equipment purchases, significantly reduce budget expenditures, and most importantly, accelerate the introduction of innovations in government bodies.”
According to him, the new law will hasten the entry in Ukraine of the world’s top cloud service providers – Microsoft, AWS, and Google Cloud – and encourage the construction of data centers.
The Ministry of Digital Development has previously said that it planned to expand the market for “virtual assets.” According to the Ministry of Digital Development authorities, this will reinforce Ukraine’s position as an innovative digital country in Eastern Europe’s financial sector.
Framework of the earlier bill
The Ukrainian Parliament passed draft Law No. 3637 “On Virtual Assets” (the “Draft Law”) on September 8, 2021, which establishes a basic regulatory framework for all virtual assets in Ukraine. Under the draught law, both Ukrainian and non-resident enterprises can offer crypto-related services under Ukrainian law.
The phrase “crypto asset” is not used in the Draft Law; instead, the term “virtual asset” (the “VA”) is used to cover any sort of crypto asset.
The important point to note is that the Draft Law defines a VA as merely an asset that cannot be used as a payment instrument or traded for other assets, products, or services. Virtual assets are divided into two categories in the draught law: secured and unsecured virtual assets.
A secured VA is an asset that verifies property or non-property rights, such as the right of claim on other objects, and is secured by fiat currency, securities, or any sort of offline asset. Stable coins (such as USDT, BUSD, and others), liquidity provider tokens, and securities are examples of this sort of asset.
All other sorts of cryptocurrencies and crypto-based assets, such as non-stable coins (Bitcoin, Ethereum, and so on), non-fungible tokens, and so on, are classified as unsecured VAs.
Ownership of VA, according to the Draft Law, entails the right to free possession, management, and use of VA, as well as the key to such VA.
Political situation in Ukraine
With tension building along its border with Russia, Ukraine might not want to take a risk of missing out. With Russia recently on board to accept cryptocurrencies, Ukraine cannot afford to miss out. Cryptocurrencies have played an important role in funding Ukraine’s war efforts along the border.
Elliptic, a blockchain analytics business, revealed that Ukrainians are increasingly using cryptocurrency funds to counter Russian pressure. Bitcoin has become a popular alternative funding option, allowing international donors to avoid financial institutions that reject payments to these organizations.