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Are bitcoins legal in Ukraine?

Exposing myths about cryptocurrency and bitcoins, how their use is regulated in Ukraine and in the world, taxes have to be paid on bitcoin transactions and what are the risks for owners.

Recently, interest in virtual currencies has increased significantly. This is due to the crisis in the domestic banking system, instability of hryvnia, volatility of currency exchange rates and other difficulties faced by businesses.

The advantage of virtual money is that it is not subject to the above risks.

Cryptocurrency issuance is decentralized, limited and automated, all payments are anonymous and transactions, even to the most remote corners of the world, can take only seconds.

Back to the origins  

The history of cryptocurrencies began in 2008 when a document describing bitcoin appeared on the internet under the name Satoshi Nakamoto.  It is not known who was and still is hiding under this pseudonym, whether it was a single author or a group of developers.

Initially, virtual currency was only in demand among mathematicians, cryptographers, and people interested in computer and network technology. At the time, digital payments served only as proof that electronic money was possible, with no guaranteed security.

In 2010, the first cryptocurrency exchanger (bitcoins) was created, where you could exchange cryptocurrencies (bitcoins) for dollars. The same year marked the first purchase in which the digital currency was a payment instrument, namely, one user of the system purchased two pizzas from another user. The purchase was worth 10,000 bitcoins (translated into dollars at the current exchange rate, that's about $25).

The global integration of virtual currencies took place in 2014. The catalyst for this process was the news that business giants Microsoft, Dell, Greenpeace, Virgin Galactic and Wikipedia started accepting cryptocurrency payments. First and foremost, corporations began to take advantage of digital currencies to boost sales of goods and services.

By entering into a partnership with BitPay, Microsoft added bitcoin as a way to pay for various digital content, including mobile, as well as payment for games and Xbox subscriptions.

Today, however, this type of payment is gaining unprecedented popularity in the world's most developed countries. For example, Richard Branson's private space company Virgin Galactic announced its belief in cryptocurrency back in 2013, offering to pay for flights into space with it.

In Indonesia, such digital money is used in grocery shops. And in Cyprus, crypto can even be used to pay for university tuition. But despite the popularity of virtual payments, few people really know how legal they are, whether it is possible to invest in them and what risks will be faced by those who decide to use e-money as payment?

This is primarily due to the plethora of myths that have accompanied virtual money since its inception.

Debunking the myths

1. Cryptocurrency is illegal

This is the most common myth. Cryptocurrency is not officially banned in Ukraine at the moment. To call it illegal is incorrect. Following the rule "everything that is not prohibited", worldwide cryptocurrency, in particular bitcoin, is used as a means of payment.

In many countries, e-money is officially recognised as 'private money' or a financial asset that is subject to general financial regulation.

2. Digital money was created to finance terrorism

The claim that virtual money was created for terrorist purposes and to destroy the economy is completely untrue.

Cryptocurrency is only one of the financial instruments, the use of which depends on who holds it. It should be considered that cash is used much more frequently for illegal transactions, but that does not become a reason to criticise or ban cash.

3. Crypto is a giant pyramid scheme

Many tend to think of cryptocurrency as just another financial pyramid scheme. However, academic economists are increasingly refuting such suspicions. In a 2014 report, the Swiss Federation Council, in response to the repeatedly raised question of whether bitcoin is a financial pyramid, officially stated that the virtual money system does not make the typical promises of profit, so it cannot be considered a pyramid.

A similar conclusion was reached by the UK government. For example, in a document titled "Digital Currencies: A Response to a Request for Information" the UK central office indicated that the use of digital currencies poses minimal risks to the financial stability and monetary system of the state.

Legal regulation in Ukraine and globally

The first thing to note is that cryptocurrency, in terms of national legislation, is not money.

As early as November 2014, the National Bank clarified that it considers bitcoin "virtual currency" to be money

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