At a time when China and the U.S. are pushing anti-crypto regulation, Ukraine is doing the opposite – opening the door to the most innovative and important technologies of the 21st century.
America is passing an infrastructure law that also includes important changes in the way cryptocurrency is handled. The wording of the bill is not just an informed and well-meaning piece of cryptocurrency legislation, but an attempt to regulate the cryptocurrency industry to death. It seeks to make every intermediary of cryptocurrency transfers or transactions a “broker,” responsible for strict KYC (Know Your Customer) compliance as well as tax reporting. This might be acceptable if the definition applied only to centralized cryptocurrency exchanges and companies, but the decentralized nature of cryptocurrencies means that the miners, validators, or stackers who run the network also fall into this category, making them legally responsible for facilitating transactions for people they know nothing about and have no way of knowing. While this bill format is unlikely to become law, it shows either a complete lack of understanding of how crypto works, or an intention to regulate crypto to death and send all crypto-related business overseas – possibly both.
A similar story happened in China, where the government took tough action against miners, exchanges, and general use of cryptocurrencies, in part perhaps in an attempt to monopolize China’s own centralized digital yuan and leave no room for more decentralized alternatives. This has led to a mass exodus abroad of miners, developers, and exchanges, which will also follow in the U.S. if their anti-cryptocurrency law is passed. Nevertheless, government protection of banking monopolies is a futile attempt, the future of not only money, but also data protection, private property and other bureaucratic issues will be based on decentralized blockchain technology. With this in mind, the departure of business and talent in the crypto industry from the two economic superpowers means only that it presents a huge opportunity for a country that is neither short-sighted nor constrained by the banking lobby, but instead is willing to take risks to secure a place for itself as an industry leader in the future.
No other country has made as much progress in terms of positive cryptocurrency adoption over the past few years as Ukraine. Much has been said about the movement in South America in countries such as El Salvador and Paraguay, where Bitcoin is becoming legal tender, but while the economic arguments are reasonable, the plan lacks depth and does not take into account how cryptocurrency can be used with benefits for a population that is generally not very tech-savvy. Much of the rhetoric in South America is political in nature as a form of opposition to the U.S. dollar and its influence in the region.
In Ukraine, it is quite different; there is a well-structured plan developed by its own ministry, the Ministry of Digital Transformation, a rare example of how expanding state branches can be useful. The plan here is not only to officially allow cryptocurrency payments, although this is something they are working on, but also to start educational programs on blockchain and virtual assets as early as school class, up to university level courses on decentralized finance, as well as education on this field for politicians. This alone, if implemented, would already make Ukraine the first country to receive government support for education on blockchain and decentralized finance.
Education is the foundation necessary for any new technology to flourish and benefit society, just as it did with computers and the Internet. Blockchain may yet prove just as big, if not bigger, in addition to the financial revolution, it will change the way the entire bureaucracy works. In Ukraine, it has already begun with the Dia app, which can store user identification documents and offer services such as driver’s license renewals and address registration, all with the goal of making bureaucracy digital and paperless.
By educating the public about cryptography technology, apps like Dia can become a full-fledged form of digital identity combined with blockchain. When something is simply digital but convenient and paperless, it can still be copied, hacked or manipulated. With blockchain or distributed ledger technology, the owner has a cryptographic key that, like a physical key, locks (encrypts) the digital data so that only someone with the right key can unlock (decrypt) it, making it incredibly secure, un-copiable and unverifiable. This allows a digital identity to be as unique as its corresponding physical identity, which means that a digital identity is just as difficult to forge or copy as a physical identity is to clone.
A digital identity can use its unique cryptographic key as a signature, just as a physical signature is used as a unique form of proof of identity – this would mean the ability to vote digitally securely, less reliance on third parties such as notaries and a verifiable certificate of ownership. There have been recent scandals about alleged voting irregularities in the U.S., and more and more people distrust the democratic process when it is run by voting machines with simple software that can be easily manipulated and cannot be verified.
In countries with rudimentary paper-based record keeping such as Russia, property raids using forged notarized documents are still a very common way to steal land, real estate or businesses. Digital identification, where all documents are stored encrypted and cannot be altered, tampered with or copied, makes voting and private property verifiable, secure and impossible for fraud.
This is the future we are heading into, and while America and China continue to reject innovation in cryptography and other former Soviet countries such as Russia continue the old ways of tedious and insecure bureaucratic bookkeeping, Ukraine can capitalize on this moment and lead the way to a secure and reliable age of digital property and decentralized finance.