Over the past decades, a significant upgrade in technology has affected the economy as well as finance and economic processes. The greatest potential in fintech today is in cryptocurrencies and blockchain-projects.
The main problems that anything on the blockchain can help with are money manipulation, corruption, and risks of a general financial nature. There are especially many such problems in countries where the market model of relationships is still influenced by the post-totalitarian legacy. They are called «countries with economies in transition» — yet in most of them, the transition to democracy and the market has stretched for several decades. What can cryptocurrency change in such states? Let's figure it out.
The main thing that Bitcoin apologists advocate for is the freedom to pay amounts for any operations because transactions can be carried out at any time anywhere in the world where there is an online connection. Operations using cryptocurrency do not require opening and maintaining bank accounts and are characterized by low service costs in countries where the bureaucracy around bank payments and without GDPR has been at the highest level until now.
The second aspect that is beneficial for users in such countries, is the anonymity of the owner of cryptocurrencies, as well as the impossibility of depositing cryptocurrency to the authorized capital of legal entities, which guarantees a reduction in monetary fraud and corruption. Blockchain technology is also very important, since cryptocurrency is not only about «assets», yet also about resource development and productivity in general.
The example of China and some other countries demonstrates: countries that do not have a stable economy but have opportunities for crypto mining can significantly improve the economic situation. The presence of professional and promising personnel, energy sources where a product can be produced, and the transparency of the industry in the early stages is a good start for the transition of economic processes to a new level. The only thing that can prevent this economic idyll is the legislators, who do not have such an optimistic view of the free crypto market.
In the generally accepted understanding, countries with economies in transition are a group of states that are at the stage of transition from one socio-economic state to another, occupying an intermediate position between economically developed and developing countries. The status of such states is fixed in the UNFCCC and can be simplified only through amendments to the Convention. Today, more than 14 states are included in the list of countries with economies in transition, including Ukraine, Belarus, Latvia, Russia, Moldova, Romania and also Poland. Some of them, being in a difficult economic situation, understand and realize the prospects of cryptocurrency in the context of improving both the economic and financial spheres, and are already taking the first steps towards the development of this technology.
The country seeks to declare itself not only as a successful «agronomic country», yet to emerge from the shadow of the more powerful technological economy of the neighboring Russian Federation. In addition, there was no breakthrough in the IT sector for a long time (except for Wargaming). In 2017-2018, the Belarusian authorities stopped looking closely at cryptocurrency — and in a short time, they legalized and settled cryptocurrency transactions.
A year later, the first cryptocurrency exchange Сurrency.com appeared here. Now the latest data on the GDP of Belarus shows stable progress. Over the five-year period, the government forecasts the GDP growth rate in the range of 112.1-115%.
Coronavirus has made adjustments to optimistic forecasts - however, analyzing the market situation at the time, we can say that the losses could be short-term if the current government stopped violating the citizen's rights.
The economic realities of this country are complicated by military actions in the East and frequent changes of governments over the past year. However, certain changes have been outlined in terms of legislative regulation as well. There were several bills on cryptocurrency pending in the Ukrainian parliament, and just recently the way of declaring cryptocurrency was signed as a law-regulated procedure. And at the end of July 2020, it was announced that the new rules for financial monitoring came into effect.
The Ministry of Digital and IT adjourned all the terms of cooperation and signed a memorandum with Crystal Blockchain B.V. This organization is one of the world's leading manufacturers of software for monitoring transactions with virtual assets. Crystal analytical software is used by Ukrainian banks, private and government structures to monitor financial transactions.
According to the Ukrainian law bill № 361-IX, which concerns combating the laundering of proceeds from crime, the concept of virtual assets is introduced in Ukrainian legislation‚ — and this includes cryptocurrencies. Compulsory financial monitoring is applied to them. The borderline amount is the equivalent in hryvnia in the amount of about $15K. And KYC procedure should be performed starting from a little bit more than $1K.
On the other hand, the government of the Ukrainian Prime Minister Denis Shmygal is also interested in cryptocurrency mining. In May 2020, a document signed by the Minister of Energy of Ukraine Olga Buslavets addressed to the Director of the Development of Nuclear Energy and the Nuclear Industry of NNEGC Energoatom, was published. Among other instructions, there was a proposal to work out the possible implementation of projects for the mining of cryptocurrencies in order to find additional markets for the sale of electricity produced by nuclear and power plants.
Experiments, as well as government regulation and monitoring, show that the current Ukrainian government is trying to follow the example of Belarus, but so far it has not been very successful.
Here, cryptocurrency is in the «gray zone». Mining facilities are trying to install and operate, while foreign investors are building a photovoltaic park, which, according to the media, was designed to produce cheap electricity for mining cryptocurrencies.
The most dramatic events unfold around the cryptocurrency market and its regulation in this country. From all the countries of the post-Soviet space, it seemed for a long time that it was in Russia that there would be progress in terms of cryptocurrency use. Trends have been positive since 2016 — but a set of law bills on the regulation of the circulation of digital currencies and digital financial assets in the Russian Federation actually puts an end on the possibilities of using cryptocurrency in general.
The edition presented in May 2020 literally shocked market participants were shocked, and a large-scale discussion unfolded in the media. On the other hand, there was no good news for Russian crypto enthusiasts because of Durov’s Gram announcement about its closure, despite the significant contribution of Russian investors. The battles in the media and the community did not help much to change the balance of power — most of the edits were cosmetic.
The draft law on digital financial assets passed the third reading and was directed to RF Council. 107 pages of the final edition — and the main blow to the crypto community is the fact that the bill still prohibits the acceptance of digital currency by Russian companies and individuals-residents as a means of payment. At the same time, digital financial assets are under the strict control of the tax authorities and the Central Bank of the Russian Federation (i.e., although it is prohibited to use cryptocurrencies, it is still necessary to send a report to the tax authorities if you have a cryptocurrency on your account).
Moritz Holtmeier and Philip Sandner in their work «The Impact of Cryptocurrency on Developing Countries» analyzed the main opportunities of cryptocurrency for countries with low economic levels. The authors highlight the following prospects for this industry in an economic context:
— Access to the international market and business
— Increasing the speed of financial transactions
— People's confidence and the fight against corruption
— Lending opportunities
— Development of financial inclusion
Until now, it was believed that for a new economic turn, additional natural resources, a developed credit system, certain decisions of the central bank, changes in technological progress, population size may be needed, and a global pandemic or a long-term military conflict may become the deterrent factors. But now the decisions of central banks in the context of the economic crisis due to COVID-19 affect the economic prospects of countries. It is a technology that is considered a «gold mine» in the development of the economy because even with the COVID-19 pandemic, the cryptocurrency world continues to develop and is only gaining momentum. If countries with economies in transition take the necessary measures to regulate cryptocurrencies and democratize this market segment, then such states will be able to find (unlike oil) an unfinished resource for development. It all depends only on how the conflict between the old bureaucracy and the new system of technological order ends. So far, in the largest segment of the Russian-speaking space, this battle is lost — yet the whole struggle for the role of cryptocurrency in the future continues for the post-Soviet countries.