Amid the war against Russia, Ukraine has legalised the crypto sector. President Volodymyr Zelensky signed a law to this effect on March 16, 2022. "From now on, foreign and Ukrainian cryptocurrency exchanges will operate legally and banks will open accounts for crypto companies. It is an important step towards the development of the VA (virtual asset) market in Ukraine,” the Ministry of Digital Transformation of Ukraine tweeted.
Pavel Kravchenko, a blockchain expert based in Ukraine, told Outlook Money, “This is the first law out of many needed. It defines crypto, digital assets and (their) roles in the market. This law was made to structure the approach to currently gray market activities. After the war with Russia ends, there will be many changes. So far, the president has removed many taxes and made uniform 2 per cent tax on the turnover.”
The Digital Transformation Ministry noted in its press statement that the new market will be regulated by the National Securities and Stock Market Commission. Ukraine’s Ministry of Finance is also working actively to amend the tax and civil codes to fully launch the market for virtual assets.
In its analysis, Center for Strategic and International Studies (CSIS) has found that cryptocurrencies provide Russian and Ukrainian people a store of value and a medium of exchange that could reduce the humanitarian costs of the sanctions and war. Crypto is also an important medium for donations to the Ukrainian government that complements Western aid, it stated.
The Ukrainian government began publicly soliciting crypto donations online on February 26 with Bitcoin and Tether. Later, the Ukrainian government said that it had expanded its capacity to accept over 70 forms of cryptocurrencies. The country’s largest crypto exchange, Kuna, helped organise this effort. As per the CSIS report, till March 9, the Ukrainian government claimed to have raised nearly $100 million from crypto donations.
Non-fungible tokens (NFTs) are also playing a crucial role in raising funds. Recently, a Ukrainian flag NFT sold for $6.5 million in Ethereum.
Several crypto exchanges are helping Ukraine in terms of cryptocurrencies. Binance, a global cryptocurrency exchange, donated $10 million to help the humanitarian crisis in Ukraine. Earlier, FTX, a Bahamas-based cryptocurrency exchange, had announced that it will give $25 to each Ukrainian on its platform. The head of decentralised platform TRON DAO, Justin Sun, has donated $200,000.
The changes being brought about in Ukraine are also an indication of things to come in other countries as well. Ajeet Khurana, a crypto expert, says, “The Ukrainian situation has highlighted some of the lacunae of the present form of fiat currency. This will accelerate interest in a decentralised digital medium of exchange."
The developments in Ukraine regarding virtual assets have implications on two fronts, says London-based Mehdi Sunderji, who has over 20 years of experience in the investment industry. “First, the Ukrainian government has now received millions in donations in crypto and they can utilise these funds accordingly. Second, access to traditional banking for the people of Ukraine has gone or become severely restricted, and crypto has been a saving grace for them to access any funds,” he added.
Several taxation related developments around virtual assets are taking place in India, too. The income tax department of India is examining high-value crypto transactions of 700 investors and non-payment of taxes. Earlier, during the winter session of Parliament, Finance Minister Nirmala Sitharaman had introduced 30 per cent tax on Virtual Digital Assets such as cryptocurrencies. Apart from this, there will be 1 per cent tax deducted at source (TDS) on any payment made in relation to transfer of virtual digital assets.
Sharat Chandra, vice-president of research and analytics at EarthID, believes that the steps the Ukrainian government is taking will help India also in formulating a regulatory framework. “India can no longer afford to dilly-dally on crypto. An innovation-friendly crypto regulation will position India as a leader in the web3.0 era,” he said. The Russia-Ukraine conflict has exposed the faultlines of the traditional finance world and forced countries to make up their mind on crypto regulations. “The perils of the weaponisation of financial infrastructure are driving many countries to rethink virtual assets,” says Chandra.
Recently, Dubai introduced its first virtual asset regulations. With this, Dubai has joined the list of regions-- such as Singapore, the US, the UK, and El Salvador, where regulations on cryptocurrencies have been rolled out. Sheikh Mohammed Bin Rashid, the ruler of Dubai, announced on Twitter that the emirate has enacted its first law governing virtual assets and has also formed an independent regulator to regulate the cryptocurrency sector.
Purushottam Anand, advocate and founder of law firm Crypto Legal, says legalising crypto is very different from making cryptocurrencies like Bitcoin legal tender. “Legalising refers to making it legal to engage in different activities like buying, selling, minting or trading cryptocurrencies, while making it a legal tender would mean that cryptocurrencies will be required to be accepted by everyone when it is offered as payment,” he said.
