The adoption of Bitcoin could be Ukraine’s biggest geopolitical move to usher in a prosperous future.
Bitcoin, among other cryptocurrencies, could soon be used legally in Ukraine once President Volodymyr Zelenskyi signed the law passed by the Ukrainian parliament on September 8, pending the transition to a fully digitized economy and considering Bitcoin as legal tender. The legislation will help determine how Ukraine will regulate the cryptocurrency market in the future, and it will officially allow Bitcoin companies to operate within the country.
Since the creation of Bitcoin in 2009, cryptocurrencies have moved from being a marginal issue and little-known technology to being a productive financial tool that has excited the public and plays a bigger role in and reshaped our global economy. The cryptocurrency economy is the next trillion dollar opportunity and is still in the early stages of innovation.
The Ukrainian government, or rather the Ukrainian public, understands this opportunity and, with the latest legislation, is promoting social progress in the direction of the necessary steps to participate in this economic growth. Ukrainian officials have reportedly traveled to El Salvador to meet officials there, as the country has already adopted Bitcoin as legal tender, with the potential to learn more about how to implement it.
Bitcoin is a currency that is only exchanged in the digital world and is intended to be completely decentralized by the government. This allows users to monitor and approve transactions on the blockchain – a decentralized public ledger – which is a growing list of records that cannot be changed. These online open ledgers eliminate the need for a trusted intermediary such as a bank.
Drafting pro-bitcoin legislation is an important step for the booming cryptocurrency industry, which is a reflection of Ukraine’s public opinion. Cryptocurrencies are popular in the country and it is estimated that over 5.5 million people, 12.7% of the total population of Ukraine, currently own some form of cryptocurrency worldwide, according to the Triple A payment platform as of September 2020.
Bitcoin mining has an interesting impact on Ukraine’s energy sector as Ukraine produces almost half of its electricity through 15 nuclear reactors. The Ukrainian Ministry of Energy argued that Bitcoin mining “is a contemporary and efficient way to use excess energy”. The Department of Energy has sought innovative solutions to address energy waste and improve efficiency as the sector is plagued by inefficiencies and financial losses.
The bitcoin mining industry is an ideal partner to use up excess electricity from nuclear reactors by taking excess electricity and using it for bitcoin mining. This would help maintain the need for power generation while also helping to attract new investment funds for the Ukrainian nuclear power plants. This opportunity positions the Ukrainian government as a strong base for the entire mining network. It will help provide clean and sustainable bitcoin mining as well as a market-based solution to the inefficiencies of the energy sector.
The financial implications are enormous. The state-owned company that operates the country’s nuclear power plants, NAEC Energoatom, posted losses of over $ 170 million in 2020. Bitcoin mining is giving the Ukrainian energy sector some life to get out of this financial black hole. The mining project is already in the game as Energoatom has “agreed a deal to provide power to mining operators from Bitfury’s crypto-mining division”. As a result, the Ukrainian government could mine bitcoin and keep it in its reserves, or deposit it into an account for each citizen, or sell the bitcoin to increase the national GDP.
Ukrainians made around $ 400 million bitcoin investments in 2020, making Ukraine bitcoin investors some of the richest in the world. The bitcoin craze in Ukraine is not just limited to the public, but has also been embraced by Ukrainian officials and large sections of the government. Ukrainian civil servants said they owned over $ 2.6 billion worth of bitcoins in early 2021, noting that “most cryptocurrency owners work in city councils, the Ministry of Defense and the National Police”.
According to the World Bank, almost 10% of Ukraine’s GDP in 2020 came from personal transfers to Ukraine. Many Ukrainians have emigrated and continue to send money home to their families by paying exorbitant transfer fees through traditional banking methods. Bitcoin changed everything, however. It gives Ukrainians a faster and cheaper way to send money across borders without the need for a bank or service to act as a middleman.
Prior to the days of Bitcoin, the bank or service would exchange the money, transfer the money to the recipient’s country, and then convert the money back to the local currency. However, a study by the World Bank found that fees averaged around 6.38% of the amount sent.
Worse than the fees, the Ukrainian public has very little confidence in the Ukrainian banking system due to severe corruption. Several large banks have collapsed, the Ukrainian government has declared more than 90 banks insolvent, and many people have lost money to the ongoing banking scandals. In 2016, the government stepped in to nationalize PrivatBank, which made up 20 percent of Ukraine’s banking sector, after the government discovered more than $ 5 billion was missing from its books. The Ukrainian banking sector is widely considered to be dysfunctional and is dominated by corrupt oligarchs.
After Russia’s invasion of Ukraine in 2014, the Ukrainian economy took a dive and the national currency, the hryvnia, lost 70% of its value against the dollar. This further undermined the public’s savings and purchasing power. Now, the average person with smaller savings will often hide their money at home rather than bothering to keep it in a bank.
Even before this shameful pattern of behavior, the Ukrainian banking sector did not develop as it did in the West after the collapse of the Soviet Union. The process of transferring money was problematic due to a lack of infrastructure. Unscrupulous methods were then developed using financial instruments such as vouchers and exchanges, which enabled extensive money laundering programs and questionable business practices.
Given the high levels of corruption in the government, business, and banking sectors, the illegitimate seizure of assets by corrupt politicians, and the collapse of several prominent Ukraine banks, it is only reasonable that the decentralized nature of Bitcoin appeals to people. Ukrainians have turned to Bitcoin to protect their wealth. The young, innovative population is excited about the future and is ready to leave the scandalous and broken system behind. The desire for change is great and the Bitcoin prospects for Ukraine are enormous.
A supportive framework from the Ukrainian government for the digital assets space will allow more businesses to grow in this space, fund state taxes and drive further innovation as Bitcoin adoption will only increase. With high adoption rates and the promotion of Bitcoin-friendly legislation by the state, Ukraine has the chance to become one of the world’s leading Bitcoin hubs. This opportunity should not be wasted.
This is a guest post by David Kirichenko. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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