Is it worth while implementing blockchain reforms in Ukraine or not?

Blockchain is not only a crypto currency, but also technology that can be used to protect public registry data from fraud;  it is so-called tokenization of assets – the ability to mark property rights using a data encryption system (cryptocodes);  implementation of anti-money laundering standards and the like.

If you do not delve into the technical intricacies, the very principle of blockchain sounds quite simple.  It can be imagined as an accounting book that is available to every participant in the event and is constantly updated.  In fact, you can write any event in this book – from crypto currency transactions to Bitcoin, Etherum, etc, pending the results of the presidential election or data identification.

The blockchain’s point is that the pages of this book are simultaneously stored by all users of the network, constantly updated and referenced on the old pages.  And if someone tries to cheat the system by tearing or pasting a page into a book, then the system will immediately turn to tens of thousands of other versions of this book and identify irregularities in the block structure.

You should also pay attention to the notion – so-called tokenization that is an extremely exotic tool and not only for Ukraine.  Tokenization is the process of converting the rights to any type of asset into a digital token blockchain.  Developing understandable standards for translating real-world assets into digital ones is of interest to all participants in the global market.  This interest is growing rapidly, as tokenization provides the benefits of distributed registry technologies, free and secure access to the crypto currency market while maintaining all the characteristics of the asset, and it is also an easy way for every Ukrainian to obtain legal funding for their startups.  It offers tremendous opportunities in terms of economic impact and, at the same time, requires extensive legal work.

The crypto currency market already exists in Ukraine and according to “Citigroup” (the 4th largest US bank), it equals 2.5 billion US $ or 2.5% of GDP.  However, today, this market is in the shadow economy and needs to be legalized through legislative regulation.

First first of all, you need to rebuild large systems with a large  number of participants to implement blockchain.  Each system seeks to preserve its properties and structure, resisting changes.  So it’s easier to start implementing blockchain in a small way.  As is the case with the Swedish government, which is slowly converting the land cadastral register to blockchain.

Conditions should be created for the crypto currency market to emerge from the shadow as well as its development, providing for preferential taxation or tax breaks.  However, the issue of introducing a categorical terminology-related terminology into the Ukrainian legislation is of paramount importance.

Thus, according to the conclusion made by the Better Regulation Delivery Office (BRDO), which analyzed the sphere of virtual assets – crypto currencies and created the “Green Book”, which outlines the current state of affairs in this area.  On the basis of this document the concept of regulation of this sphere has been developed and two bills have been developed: tax and on legalization ones. ”

Undoubtedly, blockchain shall be implemented in areas where it will be effective.  For example, such processes as hash coding know-how should be applied to all state registries, as it will ensure reliable protection of data on every Ukrainian entered in the registers from unauthorized changes.  The use of blockchain in the public sector is a very innovative approach, which is not only a technological breakthrough, but also a rather powerful mechanism for combating corruption and fraud and has huge investment potential.  This will be a powerful signal for investors who want to protect their property rights and resources here.  However, all issues need to be carefully considered and legislated.  We are waiting for changes to come….

-Daria Vasina, attorney at Dynasty Law Firm.

Publications 7 November, 2019

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