Andriy Pinezhko. Increasing the efficiency of public management ofcryptocurrency circulation in Ukraine: challenges and prospects

DOI: https://doi.org/10.62204/2336-498X-2023-1-6

INCREASING THE EFFICIENCY OF PUBLIC MANAGEMENT

OF CRYPTOCURRENCY CIRCULATION IN UKRAINE:

CHALLENGES AND PROSPECTS

Andriy Pinezhko,

recipient of the third educational and scientific level of higher education

Higher Educational Institution «Academician Yuriy Bugay

International Scientific and Technical University», Ukraine

pinegko23@ukr.net; ORCID: 0009-0007-2148-4568

Annotation. This article is devoted to the problem of improving the efficiency of public management of cryptocurrency circulation in Ukraine. Prospects for solving these problems are presented, such as the development of clear regulation, promotion of innovation, protection of the rights and interests of investors and educational programs. Optimizing public administration will help create stable and transparent conditions for the development of the trade market in Ukraine.

Keywords: cryptocurrency, public administration, blockchain, innovation, efficiency, market.

Introduction. Cryptocurrency has become one of the most influential financial instruments in the modern world. It changes approaches to payment systems, investment opportunities and banking. In Ukraine, the cryptocurrency market is still developing, but its potential is clear. To achieve successful and sustainable development of cryptocurrency circulation in the country, effective public management is necessary. In this article, we will consider the challenges and prospects for improving the efficiency of public management of cryptocurrency circulation in Ukraine. This research can become the basis for the development of effective strategies and policies on cryptocurrencies by the Ukrainian government and help the country use the advantages of cryptocurrencies and blockchain technologies to ensure sustainable economic development and modern public administration. The task of the research is to study the possibilities of using cryptocurrencies to stimulate investment and economic development, to develop recommendations for improving the regulatory environment, ensuring financial stability and protecting consumer rights.

Scientific research in the field of cryptocurrencies and their regulation is carried out by scientists, lawyers, economists and experts in the field of finance and technology. The scientists investigating this issue include: O. Zhukov – researcher in the field of finance and cryptocurrencies; V. Lavreniuk – investigates the regulation and development of the cryptocurrency market in Ukraine; V. Kysil – expert in the field of blockchain technologies, fintech and cryptocurrencies, vice-president of the Ukrainian FinTech Association; R. Yaremenko – researcher in the field of cryptocurrencies and blockchain technologies, founder of Blockchain4Ukraine; O. Tsibulko – expert in the field of finance and blockchain technologies, head of the “Blockchain Lab” research center; M. Pryimachenko – specialist in financial technologies and blockchain, cofounder of Kyiv Blockchain Hub; O. Vyshnevska – researcher in the field of regulation of cryptocurrencies, vice-president of the Ukrainian FinTech Association; A. Nedilya is an expert on blockchain and cryptocurrencies.

Results of research. To date, cryptocurrency in Ukraine is under the direct control of the National Bank of Ukraine (NBU) and other relevant authorities. The legal framework for regulating cryptocurrency activities is progressing, but at the same time, it is being challenged by new technological and economic realities. Public administration is necessary, which will contribute to the creation of transparent and stable conditions for the development of the market. In September 2021, cryptocurrencies were legal in Ukraine, and their circulation and use were not prohibited. At that time, there was no special regulatory law in Ukraine that regulates the broad aspect of cryptocurrency activity, but some initiatives in this direction were discussed.

Regarding the taxation of cryptocurrencies, the Ukrainian legislative bodies had a certain level of interest in certain methods of taxation of transactions with cryptocurrencies, but clear and unambiguous regulations did not exist. At the time, cryptocurrencies were considered the most for tax purposes when they were sold at a profit. As cryptocurrencies have the potential to change the financial landscape and influence the country’s economy, regulation of the cryptocurrency industry has become a focus of attention for Ukrainian lawmakers. Probably, since then, new bills or changes in the existing rules that regulate the cryptocurrency space in Ukraine have been adopted [1].

The key elements of the current state of cryptocurrency in Ukraine are systematized:

Legalization: In September 2021, the Verkhovna Rada of Ukraine adopted a law that legalizes and regulates the cryptocurrency market. With the help of this law, Ukraine tried to create a clear regulation for crypto-exchanges, cryptocurrency exchange companies and other market participants.
Definition of Terminology: The Act defines key terms such as virtual assets, virtual asset custodians etc. which help in the regulation and control of this sector.
Taxation: Although the cryptocurrency market has been legalized, the details of the taxation of crypto-transactions have not yet been fully resolved.
Support for innovation: the government of Ukraine is interested in the development and support of innovative technologies, including blockchain and cryptocurrency. In addition, there were attempts to cooperate with global blockchain initiators and companies [2-3].

Increasing the effectiveness of the public management of cryptocurrency circulation in Ukraine is achieved with several challenges, which are systematized in Table 1. Taking into account all these challenges, the key to success is a systematic approach aimed at creating an effective, safe and stable environment for the development and implementation of cryptocurrency in Ukraine. Considering all these challenges, it is important to approach the issue of cryptocurrency regulation in Ukraine with openness, flexibility and readiness to cooperate with open stakeholders.

On the basis of the conducted research, the systemic problems of the public management of cryptocurrency circulation in Ukraine were identified: regulatory ambiguity (the lack of clear and unambiguous rules can lead to the danger of using them for illegal purposes, as well as create obstacles for law-abiding market participants); security and protection of investors (the high level of anonymity of cryptocurrency transactions can lead to the risk of fraud, loss of funds and mistrust on the part of investors); lack of a tax base (the absence of a tax system can lead to a loss of revenues to the state budget); lack of education (many citizens and entrepreneurs do not understand the level of influence of possible market risk, which can limit its development).

Table 1

Challenges and factors of increasing the efficiency of public management

of cryptocurrency circulation in Ukraine

№	Challenges and factors	Characteristic
1	Regulation	Creating a clear and stable regulatory environment for cryptocurrencies is key. This includes established rules for consumer protection, anti-money laundering and other aspects of market abuse.
2	Technical training	Government structures need to have the appropriate technical expertise and knowledge to monitor and analyze cryptocurrency transactions.
3	Financial literacy	In order for the population in Ukraine to understand and correctly use cryptocurrencies, it is necessary to strengthen work on increasing financial literacy.
4	Consumer protection	Development of a mechanism to protect consumers from fraudulent schemes related to cryptocurrencies
5	Involvement of stakeholders	For successful regulation, it is necessary to interact with the main market participants: crypto exchanges, miners, developers, etc.
6	Anti-abuse	It is necessary to identify and stop the activities of shadow markets and other illegal platforms that buy cryptocurrency for illegal transactions.
7	Adaptation of traditional financial institutions	Traditional financial institutions such as banks must adapt to the new cryptocurrency environment, which may require changes to their operating models.
8	Increasing trust in cryptocurrencies	In some manifestations, there is a lack of trust in cryptocurrency, and in order to ensure widespread use, work must be done to increase trust in this technology.
9	Educational programs	Training personnel who understand the specifics of blockchain technology and cryptocurrencies is a key factor. This includes the creation of specialized courses at universities and other educational institutions.
10	Dialogue with the public	It is important to ensure that the public is included in discussions about cryptocurrency regulation, including through public hearings, workshops and working groups.

Source: systematized by the author [4-5]

Solving these challenges requires a deep understanding of the cryptocurrency market, collaboration with industry experts, and a willingness to quickly adapt in response to changes in this dynamic field. Directions for solving the problem of managing the circulation of the cryptocurrency market include:

− regulatory measures. The government can take regulatory measures to ensure the legality, stability and security of the cryptocurrency market. This may include the development of new laws and regulations, as well as the adaptation of existing ones to regulate cryptocurrency transactions;

− licensing and registration. Through the use of licenses or market registration, transparency and accountability in the industry can be increased;

− control against money laundering (AML) and financing of terrorism (CFT). The AML/CFT security standard will help prevent illegal activities and protect investors and users;

− consumer rights protection. The government may establish mechanisms to protect the rights of cryptocurrency users, including compensation mechanisms in the event of theft or fraud;

− professional development. Ensuring proper professional development of employees in the field of cryptocurrencies will help improve the quality of service and reduce risks for customers;

− cooperation with international organizations. Ukraine can cooperate with international organizations and countries to exchange information, provide assistance in the investigation of criminal cases and develop international regulatory standards;

− promotion of innovations. The government can actively promote the development of innovations in the field of blockchain and cryptocurrencies, as well as fintech solutions. Innovative projects and start-ups can contribute to the development of the country and attract investments;

− financial literacy. Ensuring financial literacy among the population will help reduce the risks of uncontrolled use of cryptocurrency and help investors make effective decisions;

− dialogue with industry experts and the community. It is important to include industry experts, representatives of the crypto community and other stakeholders in the process of developing regulatory measures. Dialogue and collaboration can lead to more informed and effective decisions;

− international cooperation. The field of cryptocurrencies is global in nature, so it is important to cooperate with other countries and international organizations to develop common standards and regulatory approaches;

− emphasis on safety. Ensuring a high level of cyber security and protection against cyber attacks can prevent the loss of funds and maintain trust in the cryptocurrency platform;

− stimulation of research. Cryptocurrency market support and analysis can increase government and regulatory research for decision-making [6-7].

These directions can help create a more stable and trusting climate for the market in Ukraine. However, before making any decisions, it is necessary to constantly research the issues and consult with experts in the fields of law, finance and cryptocurrencies.

The state has a significant potential to influence the formation and development of the cryptocurrency market in Ukraine. A balanced approach that combines strategic planning, adaptive regulation and active support for innovation can lead to stability, growth and competitiveness of the Ukrainian crypto industry market in the world market.

Given the rapid development of the cryptocurrency market and technology, it is important to remain flexible and ready to quickly adapt new rules and regulations in response to emerging challenges.

Financial Literacy and Education: A targeted campaign to increase public financial literacy in the field can help cryptocurrency prevent certain scams while promoting informed decision-making on the part of investors.

Supporting the ecosystem for development: Instead of regulation, the government can actively support and stimulate the development of the cryptocurrency sector by creating platforms for communication, startup funding and research.

Creation of public digital assets: The government may consider the possibility of creating its own digital currency (CBDC – Central Bank Digital Currency), which can serve as a means to modernize the national financial system and increase its competitiveness.

Encouraging IT infrastructure: Investments in the development of IT infrastructure can contribute not only to the circulation of cryptocurrency, but also to the integration of blockchain technologies into various sectors of the economy.

Data security: The protection of personal data and the confidentiality of transactions has a high status, in particular in the context of the storage and transfer of information through the blockchain.

Creation of specialized bodies: Considering the possibility of creating dedicated regulatory bodies that have an in-depth understanding of the crypto industry can help in carrying out regulatory tasks more effectively.

Public participation in the management of cryptocurrency circulation is a large aspect of the functioning of decentralized systems. The main ways in which the public can participate in this process include [8]:

Mining. In some cryptocurrency systems, like Bitcoin, miners maintain a decentralized network by confirming and storing transactions on the blockchain.
Participation in consensus. Some cryptocurrency protocols, for example, those that use the Proof of Stake mechanism, can allow coin holders to participate in the process, after which transactions are confirmed.
Development and improvement of protocols. The public can participate in changes to cryptocurrency protocols through change proposal processes (such as Bitcoin Improvement Proposals or Ethereum Improvement Proposals).
Voting. Some platforms, such as Decred or Tezos, include voting mechanisms that allow communities to vote on changes to the protocol.
Public discussion. Forums, social networks and other platforms allow participants to discuss the direction of cryptocurrency development and circulation of funds.
Regulation. Citizens can influence governments’ regulatory decisions through cryptocurrency public consultation and lobbying processes.
Education. Educating and informing people about cryptocurrency can help shape public opinion and influence decision-making [9].

In general, public participation provides a more transparent and open process for managing cryptocurrencies, allowing many participants in the network to interact and influence its development.

Conclusions. The public management of cryptocurrency circulation in Ukraine faces many challenges that require a complex and balanced approach. The development of the cryptocurrency market can bring significant benefits to the country’s economy, including attracting investment, stimulating technological development and ensuring greater inclusive financial efficiency. However, it also requires appropriate regulation to prevent exposure to risks such as fraud, money laundering and volatility.

Among the key challenges that need to be taken into account are the development of clear legislation, the creation of a favorable innovation environment, increasing the level of education about cryptocurrencies, ensuring transparency and protection against cybercrimes. In addition, aspects such as integration with traditional financial systems, prevention of volatility, ethical aspects and environmental issues should be taken into account. Ukraine should also spread the experience of other countries introducing their own digital currencies. Given the speed of development of the cryptocurrency sector, the Ukrainian government should now begin to develop a strategy for managing cryptocurrency at the national level, including the development of appropriate legislation, the creation of consumer protection mechanisms and the stimulation of innovation. All stakeholders must be included in this process to ensure its effectiveness and legitimacy. Thus, improving the efficiency of public management of cryptocurrency circulation in Ukraine requires a comprehensive approach that ensures strategic thinking, flexibility, education and cooperation with key market players.

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