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Ukraine has adopted a law legalising cryptocurrencies after its usage has helped the country hold up its defences against Russian aggression.
Since the invasion of Ukraine started on February 24, G7 countries have imposed a number of financial measures on Russia, such as freezing foreign assets of the Russian central bank, imposing sanctions on a number of entities and oligarchs close to President Vladimir Putin, and cutting off some of the country’s largest banks from the SWIFT international messaging system.
Although not crippling, these measures have been causing significant harm to Russia, with hundreds of billions of dollars being frozen by Western governments.
In assessing the impact, the cryptocurrency market has gone under the spotlight, with some worried that the alternative payment system could be used by oligarchs and the Russian government to evade these sanctions.
Although there has been a lot of talk about whether it is possible for a G20 economy such as Russia to switch overnight to a digital asset that it was planning to ban not that long ago, little attention has been given on the potential impact it could have on helping Ukraine’s national defence.
Since the war started, the country has received approximately $100m in cryptocurrency donations, which has helped the country to defend itself against Russia’s invasion. It is not just the injection of important and much needed funds, it is also because the money has reached its destination within seconds.
Last Monday (March 14), the Ministry of Digital Transformation of Ukraine announced it had launched an official website called Aid For Ukraine to raise funds via crypto, which has already recorded the receipt of donations for a value of $56m.
“You can use crypto for good and you can use crypto for bad. It depends on who uses it and how he uses it,” Michael Chobanian, president of the Blockchain Association of Ukraine, said at a US Congressional hearing last Thursday (March 17).
Traditional humanitarian aid and wire transfers can take one to three days to reach a Ukrainian account; however, crypto donations are received and could be used instantly to buy helmets, ammunition or send money to sieged cities, Chobanian explained.
Cryptocurrencies also have the advantage of including populations that are often outside the traditional financial system, Chobanian added.
Ukrainians who wish to buy goods in foreign currency but are unable to do so due to temporary restrictions announced on the first day of the attack can also rely on digital assets to carry out transactions.
A few days after launching the crypto donation site (March 16), the Ministry of Digital Transformation announced Ukrainian President Volodymyr Zelenskyy had signed the virtual assets act into law.
The law creates a clear regulatory framework for the cryptocurrency market, including registration requirements, and anti-money laundering (AML) and know your customer (KYC) rules.
It also lays out the legal status, classification and ownership of virtual assets, and allows banks to open accounts for foreign and Ukrainian crypto exchanges.
Zelenskyy vetoed a previous version of the law last October on the ground that it would have set up a new body to supervise virtual assets, requiring significant expenditure from the state budget.
The signed act gives the National Commission on Securities and Stock Market the sole authority to regulate the virtual assets market.
The law will help Ukraine embrace cryptocurrencies. “It will be the technology that we can use to rebuild our country," Chobanian said.
The Ministry of Finance is currently working on the amendment of the tax and civil codes of Ukraine to incorporate changes related to virtual assets. The virtual asset act will come into effect together with these amendments.
Ukraine has traditionally been a crypto-friendly country. According to the Chainalysis 2021 global crypto adoption index, which aims to highlight the countries with the greatest cryptocurrency adoption by ordinary people focused on transaction-based use cases rather than trading and speculation, Ukraine was ranked fourth globally behind only Vietnam, India and Pakistan.
