Banning bitcoin and legalizing mining: peculiarities of cryptocurrency regulation in Kazakhstan

06/09/2020

Karolina Salinger

At the end of April the lower houseParliament of Kazakhstan approved in the second reading a number of amendments to legislation affecting the areas of blockchain, digital assets and mining.

Now the bill “On Amendments andadditions to some legislative acts of the Republic of Kazakhstan on the regulation of digital technologies” is being considered by the Senate — upper house of parliament. As ForkLog was told by the Association for the Development of Blockchain and Data Center Industry of Kazakhstan, it could be accepted as early as June.

The document itself is an impressivea list of many amendments to the codes and laws of Kazakhstan and covers various areas of application of digital technologies — from robots to biometric data processing.

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According to the amendments,digital assets(CA) are recognized as property and are not financial instruments. They cannot act as a means of payment.

TA are divided intosecured and unsecured... The first group includes digital tokens, which the bill defines as a means of accounting, exchange and certification of property rights.

The right to target audience is “certified by a record in the blockchain by the person issuing the digital asset on a distributed data platform.”

Legislators used this term to designate«a platform, the components of which are interconnected by given algorithms, are located on different network nodes, may have one or more owners, and may also have different levels of data identity».

The procedure for the release and turnover of secured target audiences is determined by the Committee for Information Security of the Ministry of Digital Development, Innovation and Aerospace Industry of Kazakhstan.

Bitcoin and other cryptocurrencies, according to the bill, are classified as unsecured securities. Theirrelease and circulation on the territory of Kazakhstan is prohibited«except for cases provided for by law».

«However, the exceptions themselves in the bill are notare given. Therefore, it is impossible to say for sure whether this is a complete ban [of cryptocurrencies] or not», — Leila Makhmetova, advisor to the GRATA law firm, told ForkLog.

According to the senior coordinator forthe legislative work of the Association of Blockchain and Data Center Industry in Kazakhstan Madi Sakena, the exception, most likely, is the Astana International Financial Center (AIFC), on the territory of which a special legal regime operates.

«The bill aims to resolveissue in general jurisdiction: to consolidate the legal status, to give legal qualification to digital assets, to consolidate the approach in which for the time being the circulation of cryptocurrencies will be possible within the jurisdiction of the AIFC. That is, crypto exchanges, ICOs, and services related to cryptocurrencies will be possible within the AIFC», — he stated in a comment for ForkLog.

At the same time, the legislation allows AIFC residents to provide services not only to residents of Kazakhstan, he noted.

The measures of responsibility for the release and circulation of cryptocurrencies are not spelled out in the draft law.

«Perhaps appropriate changes and additions will be made to criminal and administrative legislation in the future», — Makhmetova noted.

MiningThe bill defines it as a process of computational operations, «providing confirmation of the integrity of data blocks in information objects through the blockchain».

Legislators justified the need to regulate the mining of cryptocurrencies as follows:

«Today, mining farms around the world produce unsecured digital assets (cryptocurrencies), which can lead to threats to the economy of any country».

The document secures the miners' ownership of the «mined» digital assets. At the same time, they will be required to inform the authorities about their activities.

The amendments do not contain provisions directly related to taxation of miners.

«Since mining is defined astechnological process, the developers of the bill note that it is separated from the issues of turnover of cryptocurrencies and taxation of income from their sale, explaining that the income itself from the sale of mined cryptocurrencies arises when they are exchanged/sold on specialized exchanges, converted into fiat money», & #8212; emphasized Diana Dostanova, senior lawyer at Egen Gregory.

In addition to mining and digital assets, the bill establishes the definitionblockchainas «information and communicationtechnology that ensures the immutability of information in a distributed data platform, based on a chain of interconnected data blocks, specified integrity confirmation algorithms and encryption tools.

Lawyers still find it difficult to predict howThe proposed changes will affect Bitcoin owners and cryptocurrency companies. According to Leyla Makhmetova, for now we can only say that their activities «will acquire the necessary, albeit minimal, legislative basis».

In May, bills regulating the cryptoindustry were presented in Russia and Ukraine.

Russian draft law «On digitalcurrency» in its current version, it recognizes cryptocurrencies as property and completely prohibits their issuance and organization of circulation in the country. Administrative and criminal liability is also introduced for violating the rules for working with digital assets.

Ukrainian bill «On virtualassets» defines them as property, divides them into secured and unsecured tokens, involves the registration of service providers, but does not contain prohibitions on working with cryptocurrencies.

The Kazakh document, just like in Russia, introduces a ban on the issuance and circulation of Bitcoin in the country, but also implies exceptions.

In addition, it legalizes mining, while the Russian bill actually prohibits it, and in the Ukrainian this type of activity is not affected.

In this regard, the Kazakhstan version of regulationin its current form it looks like a compromise and general — Unlike the Russian and Ukrainian bills, the document is not aimed exclusively at the cryptocurrency industry.

«At the moment, the main goal of the legislator isis to regulate social relations related to the use and implementation of digital technologies», — emphasized Leyla Makhmetova.