Mariia Mazokha, 110i, KNEU
Issues of regulation and taxation of transactions with smart contracts have not been actively discussed by the international community for the first year. After all, it is the legal uncertainty in the sphere of crypto and blockchain that is a serious threat to world financial stability. Undoubtedly, the world situation on the blockchain field is extremely interesting to study, but I would be interested to share with your ideas precisely about the possibility of introducing smart contracts into the Ukrainian legal system.
This year I was lucky to get acquainted with Natalia Drick, head of the Blockchain Association of Ukraine and to attend her lecture on the prospect of developing smart contracts, crypto in Ukraine and the legal brain of their use. Thanks to that meeting, I was interested in the topic and now I can share my own thoughts on it.
So. What actions does Ukraine need to take to predeterminate the legal scope of smart contracts?
1. Defining the role of crypto as an indelible part of the blockchain is in the lines of state influence.
It is necessary to give crypto status. Whether it’s property, security or means of payment. To date, none of the existing objects of civil turnover meets the criteria of the essence of crypto. Therefore, Ukraine needs to create new regulations that meet the requirements of the industry.
2. Changing the approach to crypto regulation in Ukraine.
The exchange and turnover of crypto should not be regulated or licensed until they are used as a financial instrument. Since the mining of crypto is no different from the development of any program code, this activity cannot be classified as “other monetary mediation,” accordingly it should not be regulated or licensed.
3. Decentralization of the smart contract environment.
In fact, Ukraine should work to create a publicly accessible platform for creating smart contracts and providing access to unlimited actions on them within the legal certainty of this sphere. As an example of such foreign platforms: Ethereum, Codius, Counterparty.
Of the bills already drafted, the nearest to these principles is the Law of Ukraine “On Amendments to the Tax Code of Ukraine Concerning Taxation of Transactions with Virtual Assets” on the initiative of Ukrainian politician Alexey Mushak. This bill can be considered a compromise between the interests of the State and the business community. The bill proposes the temporary application of the tax rate of 5% on profit from transactions with virtual assets for legal entities.
There is no doubt that the future is actually behind smart contracts. They provide guarantees of the impossibility of falsifying contracts or breaking into their coding system. Moreover, it is not only a reliable and transparent common register but also a provision to avoid misunderstandings in the joint work of the parties to the contract. I am firmly confident in the need for our state to create an extensive network of conditions for the functioning of the smart contract system and am glad that the Blockchain Ukraine Association is actively working to achieve this goal. After all, without new effective instruments, clear rules of the existence of this industry and transparent conditions of taxation, the market will continue to exist outside Ukraine, while it could stimulate the development of economy and innovation in the country.