The fate of cryptocurrency in the CIS – ups and downs and prospects

Today, there is a rapid development of cryptoeconomics and blockchain technologies all over the world. The volume of this market is estimated at hundreds of billions of dollars. Every day new streams of funds from investors are pouring into it. This situation cannot but have an impact on the global economy. If even 7 years ago state regulators did not pay attention to operations with cryptocurrency, today, on the contrary, they are trying to urgently drive the cryptosphere into the legal framework.

Legal substantiation is necessary not only for state accounting and control over the origin and movement of funds received with the help of cryptocurrency, but also for big business. Institutional investors tend to be conservative. First of all, they are not interested in the absolute amount of profit, but in the transparency of its receipt and compliance with the law.

What is the reason for such urgency in the development of national rules for the treatment of cryptocurrency? How did these processes take place in the CIS? What prospects are there for crypto enthusiasts here? In this article, we will try to answer these questions.

What is the importance of legislative recognition of cryptocurrencies?

What is a cryptocurrency? Is it money or a commodity, a means of payment or an instrument of exchange? Tax as on products or tax at the rate of investment? National regulators have not yet developed a unified position on these issues. Actually, what can we talk about if even the legislative definitions of cryptocurrencies have not been approved in most countries! And without this, it is impossible to talk about any taxation or protection of investors in the cryptocurrency sphere of the economy.

On the one hand, the cryptocurrency appeared as an alternative to government money: anonymous, decentralized, with a high speed of transactions and very low commissions. On the other hand, the lack of control over crypto transactions contributes to the use of this type of money to finance criminal activities, as well as tax evasion or fraudulent investment schemes.

Therefore, the states are faced with the task of finding the golden mean in which cryptocurrencies, with all their advantages and disadvantages, will harmoniously fit into the existing economic system.

The reaction of the CIS states to the problem of legalization of the cryptosphere

They could not ignore the problem of regulating cryptocurrencies and the governments of the countries of the former USSR. These states are in the TOP 10 countries in terms of the number of residents who own crypto assets. Despite such a significant number of investors, the approach to the issue of crypto regulation by government agencies is not always positive.

Russia

For the first time, the official reaction to the crypto market in the Russian Federation was voiced by the Russian Central Bank back in 2014. And this reaction can hardly be called positive:

• In particular, Deputy Finance Minister Alexei Moiseev announced plans to adopt a bill in 2015 that would criminalize the use of virtual currencies in Russia. Fortunately, this law was never passed.
• In 2016, the rhetoric took a 180° turn. The Investigative Committee of the Russian Federation initially promises to introduce criminal liability for operations with cryptocurrency, but is reconsidering its decision. Then rumors begin to circulate about the start of work on the national cryptocurrency, and they want to equate the rest of the “coins” with foreign currencies.
• In 2017, the Ministry of Finance and the Central Bank of the Russian Federation are talking about plans to prepare a bill designed to regulate the circulation of cryptocurrencies in the country. In optimistic circles, they are talking about the legalization of crypto in Russia as early as 2018.
• The Arbitration Court of Appeal, by its decision, defines cryptocurrency as “property”. A draft law “On Digital Financial Assets” appears, introducing the concepts of “digital law” and “digital money” into official circulation. After the adoption of this law by the State Duma at the end of 2018, it turned out that the concept of “cryptocurrency” was excluded from it.
• During 2019–2020 there was a heated discussion of amendments to the law “On Digital Financial Assets (DFA)”. And finally, on July 22, 2020, it was adopted by the State Duma in the third reading. It defines the concept of cryptocurrency as “a set of electronic data located in an information database that can be used as a means of payment, but are not the monetary units of other states.” It is also prohibited to use cryptocurrencies to pay for goods and services in Russia.

The same draft law explains the difference between DFA and cryptocurrencies: in relation to the former, there is a certain person who has certain obligations to the owners of the asset, and in relation to cryptocurrencies, there is no such person. A number of other concepts – for example, “mining” and “token” – were removed from the final version of the law.

Already in early August, Sberbank of the Russian Federation announced that it was preparing to issue its own stablecoin, pegged in value to the ruble. This became possible just thanks to the adoption of the law “On CFA”.

Ukraine

At first, the National Bank of Ukraine was wary of cryptocurrencies, taking a wait-and-see attitude. It was officially reported that this department does not recognize virtual currencies – neither as electronic money, nor as electronic surrogates, nor as legal means of payment. Their use in this capacity was not recommended, but it was not directly prohibited.

In the following years, several attempts were made to legally define a cryptocurrency asset class:

• as a program code capable of acting as a medium of exchange;
• as a digital representation of value based on mathematical calculations.

In March 2020, the result of government discussions on the regulation of cryptocurrencies in Ukraine was the determination of the procedure for declaring “coins” as intangible assets. Later, the Ministry of Energy even suggested using excess electricity for mining.

At the end of July 2020, it became known about an agreement between the Ministry of Digital Development of Ukraine and the world’s leading developer of analytical software – Crystal Blockchain BV. Options are being considered for the creation and implementation of tools for tracking and controlling cryptocurrency transactions in the country.

In the meantime, financial institutions are recommended to independently keep records of such transactions based on FATF standards. Banks should carry out the identification of cryptocurrency accounts and the identities of their owners in transactions in excess of UAH 30,000. Particular attention should be paid to transactions in the amount of more than 400 thousand hryvnia, requiring the sender and recipient to provide information about the origin of funds and the purpose of the transfer.

Belarus

Belarus, of all the republics of the former USSR, has advanced furthest in the official recognition and legislative regulation of the cryptocurrency market. Back in 2018, the result of the work of a special commission (it included representatives of the National Bank, the Financial Monitoring Department of the State Control Committee and international experts) was the adoption of legislative acts necessary for the legalization of cryptocurrencies.

Thus, according to the decree “On the Development of the Digital Economy”, exchange activities, cryptocurrency operators, operations with tokens, mining, blockchain applications, etc. are allowed.

For the territory of the High-Tech Park, conditions have been developed for the supervision and licensing of the activities of cryptocurrency companies. Particular attention is paid to monitoring compliance with the FATF and KYC / AML laws, as well as the protection of personal information. The requirements for holding an ICO, for operators of cryptoplatforms, and for the personnel of these companies have been stipulated.

Other countries of the former USSR

Other republics of the former USSR are also striving to legally regulate the cryptocurrency market. True, this happens at different speeds and for different purposes. Thus, Kazakhstan intends to speed up the development of a national cryptocurrency so that any citizen can fully control the movement of budget funds, thus counteracting corruption.

Estonia, on the contrary, is tightening cryptocurrency legislation. In 2019, the cost of obtaining a license to work with cryptocurrency increased 10 times – up to € 3,300. An additional requirement was also introduced for the applicant for registration in the country – to make it easier for Estonian regulatory authorities to oversee its activities.

Based on the results of recertification and verification for compliance with new conditions in June 2020, the licenses of 500 cryptocurrency companies were revoked. About half of the 900 remaining companies may also lose their license – if they do not eliminate the comments recorded during the audit.

Tajikistan, Lithuania and Latvia are not yet active in the field of regulation of crypto assets. Although, from time to time, there is information about the work in this direction.

What to expect next?

In the future, it is possible to predict the intensification of the efforts of state regulators in the legalization of the crypto market. Studying the experience of other countries, analyzing the existing legislation, they will continue to work to eliminate the identified shortcomings.

Ignoring the problems associated with the circulation of cryptocurrencies will provoke the withdrawal of this business into the shadows, its criminalization. On the other hand, the principle of overtightening the screws contradicts the very idea of ​​cryptocurrency as a decentralized and anonymous payment system.

The search for the “golden mean” is the most important task of the state in the issue of legalization of crypto assets and operations with them. Moreover, functional examples of successful integration of cryptoeconomics into the financial system of some countries already exist.