Ukraine legalizes bitcoin: Here's why it could galvanize the beleaguered country

The bigger the risk, the bigger the reward.

This seems to be the motivation for Ukraine's government, which this week passed a new law to officially legalize Bitcoin, in addition to other cryptocurrencies, according to the country's official website. Crucially, the new law makes virtual assets 100 percent legal. People in Ukraine can operate cryptocurrencies and exercise clearly defined rights, with concrete duties for everyone engaged in the crypto market.

The timing demands a closer look: in the last few weeks, the U.S. and some European countries have cautioned there may be imminent military action from Russia reportedly to move into eastern Ukraine. During this escalating crisis, Ukraine's currency has seen its value drop precipitously: The hryvnia has fallen in value to $0.035.

While the U.S. government has financed Ukraine to help keep its economy afloat, the former constituent republic of the Soviet Union has seen foreign investment pulled back. The uncertainty has caused many to turn to cryptocurrency donations and investments. 

Bitcoin and other cryptocurrencies have exhibited volatility since their creation. The new law might give bitcoin investors a way to shore up a sinking economy. It remains to be seen if the crypto legalization will ultimately help or hurt the people of Ukraine.

Ukraine hopes to attract leading cloud computing servicers with bitcoin business

The law in Ukraine was initially presented in September 2021. Still, the country's president, Volodymyr Zelensky, vetoed the bill — arguing for more changes to ensure a more comprehensive legal framework to meet the nation's constitutional requirements for an effective law, according to Watcher News. The law was subsequently resubmitted with amendments and passed this week.

Ukraine's National Commission for Securities and the Stock Market and its National Bank are both creating regulations for the virtual asset market. And, under the new law, the country can finally launch a legal market that includes virtual assets.

"Cloud technologies will reduce corruption risks"

"Cloud technologies will reduce corruption risks for equipment purchases, significantly reduce budget expenditures, and most importantly, accelerate the introduction of innovations in government bodies," said Mikhail Fedorov, head of Ukraine's Ministry of Digital Transformation, in a statement.

The overarching aim, according to Fedorov, is to move the country closer to qualifying for the most powerful cloud service providers: Google Cloud, Amazon Web Services, and Microsoft.

But not everyone thinks crypto can — or should — serve as the new trump card to save Ukraine's limping economy. 

Last July, plans were already underway for a bitcoin mining facility near Zaporizhzhia Nuclear Power Plant, near Ukraine's Russian border. The goal is for the new crypto plant to draw power from the nuclear plant.

Crypto donations are funneling into Ukraine's struggling government

The plan for Ukraine is to become a global attraction for cryptocurrency businesses, offering competitive tax rates. This will involve firms paying 5 percent of their profits without a value-added tax. Individual asset owners will pay 5 percent and enjoy a grace period that lasts until the end of 2025.

"We have a big talent pool and a strong blockchain developer community in Ukraine," said Alex Bornyakov, the country's deputy minister of digital transformation, in a Foreign Policy report.

And in the last several months, Ukraine has received massive bitcoin donations from volunteer and hacking groups. Notably, some of these donations have gone directly to support government forces, at levels exceeding $550,000 in cryptocurrency in 2021, according to a recent report released by the blockchain researcher, Elliptic.

Cryptocurrency has become a critical source of funding for volunteer groups supporting Ukraine's government as tensions between it and Russia increased with troops near the shared border. Russia continues to deny an impending attack.

The new bitcoin law could leave out Ukraine's people

But during this crisis, cryptocurrencies have served as a convenient means of raising money in Ukraine from anonymous donors — a feature of trading on the blockchain.

"Cryptocurrency has proved to be a robust and growing alternative (to traditional currency) — especially when it comes to donations from other countries," reads the report from Elliptic.

With Ukraine already close to defaulting its loans, the inflow of funds via anonymous bitcoin is a welcome relief for Ukraine's President Zelenskiy, who fears the government could lose control and collapse.

The crisis continues — With investor confidence in Ukraine low, its people may not reap the benefits of cryptocurrency funds sent directly to the government.

Some are attempting to take matters into their own hands: In July 2021, Ukrainian police seized roughly 9,000 game consoles and computers in an illegal cryptocurrency mining scheme. The operation had stolen up to $259,300 in electricity every month.