Bitcoin regulation looks imminent in Ukraine, with the release of its own BitLicense draft. Initial reception has been described as “surprisingly positive” by the country’s Central Bank and financial sector.
Michael Chobanian, founder of the Kuna Bitcoin Agency and the Bitcoin Embassy in Ukraine, presented a report titled “Project for the Development of Bitcoin in Ukraine.” He submitted it at the extended session of the commission on the issue of individual payments board before the National Bank of Ukraine (NBU) held on May 27.
Citing Bitcoin’s potential, as well as investor interest within the country, Chobanian proposed to follow the steps of New York State and introduce a BitLicense. He said it would outline the main terminology, and establish requirements such as compliance with anti-money laundering (AML) and know-your-customer (KYC) laws.
Ukraine’s BitLicense draft in its current form would create a self-regulating organization (SRO) that would issue licenses to businesses dealing in cryptocurrencies. Chobanian explained to Cointelegraph:
“The key difference from New York or any other regulation proposal in the world is who issues the license.”
“We propose a self-regulating organization in the face of Bitcoin Foundation Ukraine,” he continued. “So the rules will be created by the Bitcoin community itself and not by the government. Of course they will be coordinated with the NBU, as we require banks to work with the exchange.”
Under this regulatory scheme, the licensee has an obligation to store information on all transactions — amounts, dates, names, account numbers, and addresses — which should be handed over to the authorities upon request.
Other noteworthy clauses require the licensee:
- To have an internal control system preventing money laundering, in accordance with all existing laws;
- To undergo regular audits by the SRO;
- To appoint a certified specialist as a cyber-security director, responsible for security software and auditing;
- To be part of the fund that guarantees deposits and insures assets in the amount and form as determined by the SRO.
Chobanian also stressed that “no party will have a monopolistic vote right.” The Bitcoin community in the Ukraine will make the SRO “as decentralized as possible in this centralized world.”
When asked why Ukraine needed a BitLicense, Chobanian explained that “there is no legal framework to operate an exchange.” This marginalizes Bitcoin users in the country and creates “limitations when converting to fiat.” Thus the BitLicense will not only establish legitimate exchanges in the country but “most importantly, enable businesses to use crypto in day to day business activities.”
“Secondly we had to lead the legal status development in Ukraine. There is a strong misunderstanding of technology among the government and banks. For them it's easier to ban bitcoin use rather than spend time understanding and developing. That is why the Bitcoin community is taking the initiative. We want to create conditions that would be beneficial to all parties. This will also lead to new investments in Ukraine.”
When asked how much support the draft received from the financial sector, including the NBU, he replied that the reception has been “surprisingly positive.” What’s more interesting is that “one of the directors of the NBU has asked to join our work group,” add Chobanian. “We also have supporters in commercial banks.”
The local Bitcoin community has also been largely receptive to the proposal. “There are of course extreme libertarian supporters, but they are in minority and usually do not engage in any business,” said Chobanian.
Crypto and Remittance Hub
During the hearing before the NBU, Chobanian stressed the need for a regulatory framework, explaining that Ukraine is already one of the leading players in the Bitcoin economy today. He said:
“Kiev is the de facto cryptocurrency hub of Eastern Europe and former Soviet Union countries. We have the largest Bitcoin community in the region. We have the most locations where bitcoin can be bought per capita in the world.”
This sentiment was also echoed by one of the top managers at the NBU, Payment Systems Department Director Natalya Lapko, who stated:
“According to our sources, 40% of all transactions are performed via Bitcoin trading platforms that have Ukrainian roots, and 15% of all mining profits are collected by Ukrainians who are using their computing resources on Bitcoin.”
Ukraine is also the leading recipient of remittance payments, a lucrative market in the crosshairs of many Bitcoin and FinTech startups. According to IFAD and World Bank data, the leading European recipients of remittances are Ukraine (US$7.6 billion) and Poland (US$7.5 billion).
On the other side, the top senders include Russia (US$20.6 billion), UK (US$17.1 billion), Germany (US$14 billion), France (US$10.5 billion) and Italy (US$10.4 billion).
Ukraine’s BitLicense is still a work in progress. Will it generate the same level of controversy as the NY BitLicense, or even motivate some companies to leave, as with ShapeShift in New York?
“We still have a lot to do,” said Chobanian. “We have presented only the draft and key points from the license. There will be feedback from the community and the government that we will take into account.”
Perhaps there is also reason to be optimistic, as the clearly defined regulations should help attract more money into the space, particularly from the traditional banking sector. Joseph Lubin, Ethereum and Consensus co-founder, commented to Cointelegraph:
“It is encouraging to see governing bodies in Canada, New York, Ukraine, Ecuador and various other places adopt decentralizing technologies — even if neutered.”
He continued, “Having a clear and established regulatory framework will certainly move the Bitcoin economy out of the gray market it is currently in.”