The Law on Virtual Assets regulates cryptocurrency in Ukraine

The draft law “On Virtual Assets (VA)” will be considered before the end of the current session of the Verkhovna Rada of Ukraine.Its final version is significantly different from the previous one.

What changes did the participants in the cryptocurrency market of Ukraine manage to defend and will Bitcoin owners be able to freely exchange BTC for fiat?

The author of the bill answered questions from ForkLog,Head of the Blockchain4Ukraine Inter-Fractional Association, Alexei Zhmerenetsky, Head of the Blockchain4Ukraine Advisory Group, Konstantin Yarmolenko, Juscutum Managing Partner Artem Afyan and Arzinger Partner Ekaterina Oleinik.

ForkLog: In the final draft of the bill, the conceptual apparatus has been significantly reduced: some definitions of “exchange”, “token” and “stablecoin” have disappeared. What is the reason for this?

Blockchain4Ukraine:The reduction in the number of terms is due to ourunderstanding that the market always develops faster than the regulatory framework, and we do not want to include technological definitions in the bill that will simply become outdated by the end of this year.

ForkLog: Why are the definitions of “miner” and “mining” not spelled out in this bill?

Juscutum:This term is not needed for regulatory purposes.The existing provisions are sufficient for mining to receive comfortable tax legislation and not be subject to the risks of double interpretations. We also assumed that mining is not a universal way to obtain VA for the first time.

Blockchain4Ukraine:We are of the opinion that in order to quickly launch mining, it is important to change the classification of this type of economic activity from “Other types of monetary intermediation” to “Data processing...”

ForkLog: How will VA ownership be recorded in the "VA turnover system"?

Juscutum:It depends on the rules of the VA turnover system.These rules implement the code is the law formula. The law has basic rules for determining the status of a VA based on ownership of a private key, but the law also specifies that the rules of the system must be taken into account. This is a flexible and versatile position.

ForkLog: Why aren’t the “legal consequences of disposing” of unsecured VAs, which include Bitcoin, among others?

Juscutum:Unsecured VAs do not have a hardregulation. This is exactly what the specialized community asked for. The legislator does not write the rules by which Bitcoin should be circulated, but only taxes and rules of professional activity in this market.

ForkLog: Why was it decided to drop the clause on the actual whereabouts of the VA?

Juscutum:An attempt to apply the term “location” to VAdoesn't make sense. The bill regulates the rights and obligations of market participants, and the VA is located in a virtual space where the jurisdiction of Ukraine does not directly apply. Linking the VA to the territory is an artificial construct.

Arzinger:This norm caused discussions among participantsworking group and groups of experts throughout the preparation of the bill. On the one hand, it is impossible to establish the actual location of the VA due to the specific nature and form of existence of the VA, on the other hand, this can play a big role for law enforcement.

In some jurisdictions, the location of the VA has been resolved.normatively, since it is necessary to determine the place of consideration of the claim “against property”, and not “against the person”, and the place of enforcement of judgments, respectively.

In our situation, leaving this norm “overboard”, a group of experts proceeded from the fact that:

a) the appeal to the court under the general rules of territorial jurisdiction occurs at the location of the defendant, and not property;
b) with the launch of the VA market, a request may ariseto comprehensively regulate the judicial protection of rights to virtual assets, which will be the subject of a separate law or package of laws that may introduce changes to procedural codes, and the issue of location for these purposes should be resolved in this context.

ForkLog: The word "qualified" has disappeared from the terminology about VA market participants. What is the reason for this? Will this allow access to this activity to a wider circle of people?

Blockchain4Ukraine:The FATF recommendations of June 2019 refer toVASP – virtual assets service providers – so the word “qualified” is not needed. Anyone who does not meet the criteria for VA turnover-related service providers is not one.

ForkLog: According to the bill, an IA exchange is not considered an exchange in their own interests. Explain.

Blockchain4Ukraine:You need to register as a supplier only when there are a number of signs, namely:

1) it should be an entrepreneurial activity (in the FATF classification - as a business);
2) an individual or legal entity must provide this service (in this case, the VA/FIAT or VA/VA exchange service) for third parties.

All others do not fall under the definition of this bill as suppliers and should not be registered with the Ministry of Digital Affairs.

Arzinger:The concept of the bill divides the VA exchange intointerests of third parties as a type of commercial activity and exchange of VA, which is carried out in one’s own interests. In this case, to qualify actions, as we expect, an integrated approach will be used, which involves analyzing the consistency, duration and method of offering/exchanging VA, as well as other factors.

Most importantly, if physical or legala person acquires and sells VA on his own behalf, and in his activity there are no signs of the activity of an “exchanger”, it is not necessary to register as a service provider.

ForkLog: Does the Ministry of Finance get the opportunity to consider cases of violation of the law on the turnover of VA? Will the ministry replace the court?

Blockchain4Ukraine:In this bill, the Ministry of Digital Development is designated as the regulator of the VA market, which means it has the right to consider cases of violation of legislation on the turnover of VA and issue fines for violating the law.

This question will be able to answer in more detail itself.the ministry, because according to the transitional provisions, it is the Ministry of Finance that is preparing the procedure for considering cases on holding liable for violation of this bill.

Juscutum:No, the Ministry of Digital Development operates similarly to the NBU, the Securities Commission and all other regulatory bodies. They issue a fine, which is considered in court.

ForkLog: It is proposed to use a tax-free minimum income of citizens as a basis for calculating fines. What amount is it in the context of this law?

Blockchain4Ukraine:17 hryvnia.

ForkLog: When will penalties for market participants begin to apply?

Blockchain4Ukraine:Collection of fines for failure to comply with the norms of thisThe bill is based on the date of entry into force of the relevant procedure by the Ministry of Digital Development. The ministry has three months to do this from the date of publication of the law.

For violations committed before the introduction of the order, fines will not be levied. This means that each IA market participant will have enough time to study the law and responsibility.

ForkLog: What other important changes, in your opinion, have the bill undergone compared to the previous version? Did the public discussion help?

Blockchain4Ukraine:We are grateful to the experts and market participants who brought their proposals to us as part of the public discussion.

The bill has become more concise: We removed some of the definitions to take into account the very rapid development of technology. Some definitions, for example, the categories of service providers associated with the circulation of VA, have migrated to other articles.

The bill aims to protect investors:it clearly prescribes the disclosure of information by VA issuers in a public offering of VA. This clause is intended to protect Ukrainians who, over the past decades, have become victims of various financial scams and pyramid schemes - from MMM to OneCoin.

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