Cryptocurrency Adoption in Ukraine: A New Season of House of Cards

Written By: Kenichi Yamaguchi | July 8 2021

According to a new report from the blockchain analysis company Chainalysis, developing countries are promoting the adoption of retail encryption, while Ukraine is in the lead. In its Global Cryptocurrency Adoption Index released on Tuesday, Chainalysis stated that Ukraine, Russia, and Venezuela are the top three countries adopting cryptocurrencies. The index is part of the company’s upcoming report on global trends in the use of cryptocurrencies. According to the Chainalysis ranking, the United States and China continue to provide the highest transaction volume, but excluding the largest holders of “whale” cryptocurrencies, Ukraine, Russia, and Venezuela are the most active retail users of digital currencies. It is closely followed by China, Kenya, and the United States.

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Of these three countries, Ukraine may be the most surprising leader because the country has largely gone unnoticed by the global crypto community. The country is located in Eastern Europe, has a population of 42 million, economically unstable, and its citizens are tech-savvy, which is obviously a good way to use encryption. The Ministry of Digital Transformation of Ukraine stated that there are several reasons for the popularity of cryptocurrencies among Ukrainians: the huge community of blockchain developers and the general population who knows the technology, cumbersome import and export trading regulations, and the country’s lack of stock markets. In a blog post, all of this encourages people to try digital assets.

Chobanyan believes that Ukraine also has many retail cryptocurrency investors. He said that Kuna sees approximately $800,000 in retail cryptocurrency transactions every day. Given the popularity of exchanges such as Binance and EXMO and the country’s many over-the-counter cash dealers, this is only a small part of the overall retail volume. Retail investors are interested in cryptocurrencies because Ukraine does not have many other passive income and savings options. The economy is small and there is no national stock market. Chobanyan said that banks often fail and that investment in real estate is too expensive for most people. On the other hand, Crypto has a low entry barrier, easier compliance requirements, and is safer than simply holding cash. Alex Bornyakov, Deputy Minister of Digital Transformation of Ukraine, believes that the most active crypto users in the country are people, not companies. “They use cryptocurrency for small investments and transactions,” he explained.

In addition to questions about investors, Ukraine is betting heavily on cryptocurrencies. In a document called Virtual Assets of Ukraine, the Ministry of Digital Transformation listed how Ukraine plans to become the preferred destination in the world of cryptocurrencies. In addition to passing the new virtual assets law (first reading in the Ukrainian parliament in December last year), Ukraine also plans to actively attract cryptocurrency companies through a very competitive tax rate. Companies will pay 5% of profits and no value-added tax will be applied, while individuals will pay a grace period of 5% until the end of 2025. “We have a great talent pool and a strong developer community of blockchain in Ukraine, “Alex Bornyakov, Deputy Minister of Digital Transformation told me. “They embraced the cryptocurrency trend faster than people in many other countries and figured out how to build a business around it.” According to the government, Ukraine has so far owned about 100 companies in the field of cryptocurrencies, although the legislation has not. it has still been completely overcome. According to a new report from cybersecurity company Hacken and the Ukrainian Venture Capital and Private Equity Association, between July 2019 and June 2020, $ 8.2 billion in cryptocurrencies flowed from Ukraine, and $ 8 billion in funds flowed in the country. The country’s average daily cryptocurrency trading volume is now equivalent to 150 million to 200 million US dollars. 

 “Once we pass the legislation, Ukraine will become one of the most popular cryptocurrency destinations in the world,” Bornyakov said. “There are not many crypto-friendly countries, so companies will go to those that are crypto-friendly.” He calculated that when the legislation is in effect, Ukraine may become home to some 2,000 cryptocurrency companies. The Data Mining Center aims to ensure the safety of the company’s decision to establish itself in Ukraine because collecting cryptocurrency is a very energy-intensive business. Cryptocurrency mining consumes astronomical amounts of energy. This is because these digital currencies are mined, created, and traded using a large and complex digital ledger called blockchain. An almost unlimited number of high-performance computers can be connected to these blockchains. 

As the Financial Times reported last month, “The latest Bitcoin Power Consumption Index calculation from the University of Cambridge shows that Bitcoin mining consumes 133.68 terawatt-hours of electricity each year. … This makes it slightly higher than Sweden, which will consume 131.8T ​​Wh in 2020 and slightly lower than Malaysia with 147.21TWh. “This situation worries even the first cryptocurrency adopter, Elon Musk. He recently announced that Tesla will no longer accept Bitcoin as payment for his cars. Considering that Tesla owns approximately $ 1.5 billion in Bitcoin, this was a notable turning point. Musk’s withdrawal caused the cryptocurrency market to plummet by nearly 370 billion US dollars. 

Governments, academics, and even Musk believe that cryptocurrencies are too dangerous for the planet. Is it a good idea to invest in them structurally? Switzerland? Zug thinks so. Starting in February this year, individuals and companies in the state can use cryptocurrency to pay taxes. Due to its cryptocurrency-friendly rules, this state nicknamed “Crypto Valley” has become a hotbed of cryptocurrency businesses. Last September, this small state with a population of 129,000 had 439 well-known cryptocurrency companies. “Attracting cryptocurrency companies is a smart move for Zug and Ukraine,” said Katarzyna Ciupa, a cryptocurrency researcher and PhD. He told me, a candidate for finance and blockchain technology at the Warsaw School of Economics. “Encryption is the technology of the future, and it will continue to exist.”