scorecardresearchWill other countries follow Ukraine's lead and legalise cryptocurrency?
Ukraine has raised over $100 million in crypto to fund its war efforts

Will other countries follow Ukraine's lead and legalise cryptocurrency?

Updated: 24 Mar 2022, 08:23 AM IST

With its growing popularity, some countries have considered it a legal means of transaction, and some companies have even started accepting payment in Bitcoin.

Cryptocurrencies have played a crucial part in the battle in Ukraine, assisting the government in raising millions of money to resist the Russian invasion.

The country has raised over $60 million in crypto to fund its war efforts. This includes everything from crypto tokens to non-fungible tokens (NFTs) to support the Ukraine military, displaced families, children caught in the middle of conflict and other areas, Business insider reported.

While this is small compared with the billions in aid from western governments and the IMF, Bornyakov said crypto had become an essential tool of war, allowing flexibility and speed.

Ukraine DAO has raised more than $6.7 million in support of Ukraine’s army by selling 10,000 non-fungible tokens (NFTs) of the Ukrainian flag.

Why has Ukraine legalised cryptocurrency?

Ukrainians have been one of the most active retail users of cryptocurrencies, and there had been discussions in the country earlier to legalise these digital assets, but the latest trigger has been Russia’s military action in Ukraine.

A report by TechCrunch said that with the new law in place, Ukraine’s first crypto exchange, Kuna, will no longer be limited to helping the country spend the donations directly with crypto-friendly suppliers, but help convert crypto to much-needed fiat. It added that the country has also partnered with the Bahamas-based exchange FTX to convert crypto contributions to Ukraine’s war effort into fiat for deposit at the National Bank of Ukraine.

Incidentally, an earlier law to legalise cryptocurrencies was passed by the Ukrainian parliament back in September as well, but was vetoed by Zelenskyy saying the country couldn’t afford a new regulatory body.

Ukraine central bank suspended electronic cash transfers at the start of the invasion for citizens, from withdrawing foreign currency for many types of transactions. Trading on the Ukrainian crypto platform Kuna reached its highest level since May 2021.

The Role of Crypto In Ukraine During The War

In its analysis, Center for Strategic and International Studies (CSIS) has found that cryptocurrencies provide Russian and Ukrainian people a store of value and a medium of exchange that could reduce the humanitarian costs of the sanctions and war. Crypto is also an important medium for donations to the Ukrainian government that complements Western aid, it stated.

The Ukrainian government began publicly soliciting crypto donations online on February 26 with Bitcoin and Tether(Crypto Currency). Later, the Ukrainian government said that it had expanded its capacity to accept over 70 forms of cryptocurrencies.

Non-fungible tokens (NFTs) are also playing a crucial role in raising funds. Recently, a Ukrainian flag NFT sold for $6.5 million in Ethereum.

Several crypto exchanges are helping Ukraine in terms of cryptocurrencies. Binance, a global cryptocurrency exchange, donated $10 million to help the humanitarian crisis in Ukraine. Earlier, FTX

A Bahamas-based cryptocurrency exchange had announced that it will give $25 to each Ukrainian on its platform. The head of decentralised platform TRON DAO, Justin Sun, has donated $200,000.

Which Countries have legalized Crypto?

With its growing popularity, some countries have considered it a legal means of transaction, and some companies have even started accepting payment in Bitcoin.

One of the main reasons many governments are concerned about the use of Bitcoin in their countries is the anonymity of the transactions and how hard it is to track them.

El Salvador: This is the first country to declare Bitcoin as a legal tender after President Nayib Bukele received approval from Congress to adopt it as a form of payment

United States: Since 2013, the United States Financial Crimes Enforcement Network has been giving guidance about Bitcoin. The US treasury has described Bitcoin as a convertible currency that people can use in place of the US dollar.

The European Union: The EU identifies cryptocurrencies as crypto-asses, making it legal to trade and use Bitcoin. However, the currency regulatory within the EU has announced that any activities involving crypto-assets are not in their control.

Other countries like France, Denmark, Germany, Iceland, Spain, Mexico, the United Kingdom, and Japan also consider Bitcoin transactions legal and have developed regulations around its use and trade.

The total number of bitcoins has been capped at 21 million.
The total number of bitcoins has been capped at 21 million.

Changes Taking Place In India

In the Union Budget for 2022-23 presented last month, the Centre proposed a 30 per cent tax on virtual assets, including cryptocurrencies, effectively legitimising trading of private cryptocurrencies and non-fungible tokens.

This was broadly in line with the Centre’s plans to have a fiat digital currency, while disallowing use of private virtual coins as legal tender.

The government is also separately working on a law to regulate private cryptocurrencies, while the Reserve Bank of India is planning to launch the pilot of its CBDC — the Digital Rupee — this year.

Like many other jurisdictions, India is also faced with the question of who would regulate cryptocurrencies in the country — the central bank, the securities watchdog, or a new regulatory body.

Bitcoin maybe isn’t digital gold

One of the big arguments that crypto proponents have long made is that cryptocurrencies have the potential to act as “digital gold.” That means that, unlike fiat currencies, bitcoin can’t be diluted because there’s only going to ever be a set number of bitcoin, and that investing in cryptocurrencies is a way to diversify your portfolio in the face of volatility.

Theoretically, that’s supposed to mean that bitcoin is a way to hedge against inflation, or that if the stock market crashes, bitcoin won’t. This theory hasn’t entirely proven to be true.

Crypto has shown itself to be super volatile, and it often moves with stocks. The current conflict has highlighted crypto’s volatility.

Bitcoin fell when Russia invaded Ukraine, as did the S&P 500 — it didn’t act differently from major US stocks. And as the S&P 500 rebounded later in the week, so did bitcoin.

“That’s removing the perception that people had that cryptocurrencies could be used as a hedging asset against these kinds of macroeconomic conditions,” said Hugh Harsono, a digital currency researcher.

First Published: 24 Mar 2022, 08:23 AM IST