Starting from 2022, Kyrgyzstan is developing and introducing new laws and documents that regulate blockchain technologies and cryptocurrencies. We are figuring out what rules will work in the country.
The topic of cryptocurrencies and blockchain technologies is increasingly gaining popularity in the world. It has not bypassed Kyrgyzstan either. Despite the fact that the National Bank of the country urges citizens to be more careful with this type of investment, and the legislation still does not recognize cryptocurrency as a means of payment, this market is developing in the country.
Until recently, the state was mainly interested in miners and even then, only in terms of taxation. In 2020, the Tax Code established a rate of 15% as a mining tax. But since August 2022, the law “On Virtual Assets” has come into force in Kyrgyzstan, which has defined clearer rules of the game in the cryptocurrency market, as well as prescribed duties and requirements for its participants.
A number of other documents related to the regulation of the cryptocurrency market are also under discussion.
According to a specialist in cryptocurrency and blockchain technologies Daniil Vartanov, the development of blockchain technologies in Kyrgyzstan now mainly boils down either to speculation on the exchange rate, or to the so-called state blockchain, that is, working according to the rules of the authorities.
“These are the two areas where blockchain does not add any innovation, because the so–called cryptocurrency trading is no different from speculation on the exchange rate in the Forex market, and the state blockchain is generally an oxymoron, it is a mutually exclusive combination of words. Because the blockchain seeks to eliminate the intermediary, eliminate the central figure,” Vartanov believes.
He notes that blockchain is a technology of decentralization and, first of all, it should help where the state does not work well, there is no access to banking financial services, etc.
“Blockchain seeks to change everything in order to give access to what citizens in the most developed countries have in the poorest village or the poorest person. But this is not happening here. It all comes down to trading, or to the state blockchain. It doesn’t make any weather for us,” Vartanov says.
However, the co-founder of WeinCrypto DAO, a crypto enthusiast Elena Chigibayeva believes that the current situation is only a stage of formation. According to her, a favorable environment is being formed in the country for the development of innovations using blockchain technologies and cryptocurrencies.
She compares the situation with cryptocurrency in Kyrgyzstan with the IT market in 2016:
At that time, the law “On the Hi-Tech Park” was released, and a lot of IT specialists began to come out of the shadow of freelancing, single and “party” forms into large companies and industry. In Kyrgyzstan, the ecosystem of blockchain and cryptocurrencies is still being formed – miners, crypto exchanges, blockchain communities, crypto traders, crypto enthusiasts, Web3 startups and so on are emerging.
The Law “On Virtual Assets”. Why is it needed?
In fact, this basic document establishes such a concept as a virtual asset and the rules for its circulation. According to him, a virtual asset is a collection of data in electronic and digital form that has a value. It can be both an independent object of civil law and a means of certifying property and non-property rights.
However, the virtual asset is not a means of payment on the territory of Kyrgyzstan. That is, it is impossible to pay and make any transactions in cryptocurrency in the country.
In addition, the document regulates the mining, issuance and initial placement of virtual assets, as well as the activities of legal entities that provide services related to virtual assets.
According to the law, any person or legal entity has the right to conduct activities related to virtual assets, as well as to own, use and dispose of virtual assets, including exchanging them for other types of virtual assets, as well as acquiring or selling them.
A legal entity also has the right to issue and place its own virtual assets on the territory of Kyrgyzstan and abroad.
But, while operating in the field of virtual assets, market participants are now required to report on transactions with virtual assets.
There are also rules for miners – the passage of mandatory registration, the availability of their own equipment, a functioning virtual wallet and the proper quality of the power supply system of the premises. They also have an increased electricity tariff.Elena Chigibaeva.
“The document defined the general framework, the policy of the country, the main participants of the crypto market, and also outlined the basic regulatory norms. Regulatory norms have been defined for mining, the issue of digital assets and the provision of virtual asset exchange services. The principles of promoting virtual assets on the territory of the Kyrgyz Republic are also outlined,” she says in an interview CABAR.asia .
However, the document has a reverse side of the coin. Daniil Vartanov, a specialist in blockchain technology, notes that the law pays attention to exchange operations and their legalization. According to him, this is not bad, because they came out of the “gray zone”. But, on the other hand, there is a wording in the law that in Kyrgyzstan it is directly prohibited to sell goods and services in exchange for cryptocurrencies.
“This literally knocks the legal ground out from under the feet of our future, because it is equivalent to the fact that 30 years ago we would have been banned from transmitting messages via the Internet, and Kyrgyzpochtasy would have maintained a monopoly on people’s communication. So here, the National Bank is trying to maintain its monopoly on the currency that citizens use. All the opportunities that blockchain technologies can provide in general go through cryptocurrencies, and this is how the state forces us to engage in the same trading and state blockchain. This is very bad,” the expert believes.
New rules
In addition to the existing law “On Virtual Assets” in September, the government of the country also adopted a number of documents that establish rules for players of the cryptocurrency market. In particular, for crypto exchanges.
Among the requirements are to work as a joint stock company and conduct its activities in the status of a public company, as well as mandatory registration in the Unified State Register of Crypto Exchanges of the Kyrgyz Republic.
In addition, investment funds can now invest in cryptocurrencies, but their share should not exceed 20% of the value of the fund’s net assets.
It is also under discussion The procedure for providing services related to virtual assets, which was developed by the National Bank. The initiators of the project propose to establish minimum requirements for commercial banks when they provide services related to virtual services. The rules for the provision of services for banks and bank agents are prescribed, and mandatory licensing for activities related to the turnover of virtual assets is also introduced.
According to the document, banks must necessarily obtain permission to conduct this activity from the NBKR by providing a package of documents and preparing internal mechanisms for carrying out this activity. At the same time, the bank will be entitled to provide the following list of services related to virtual assets:
transfer of virtual assets;
storage, management and control of virtual assets;
provision of financial services related to the initial placement and (or) sale of virtual assets of the issuer.
A bet on blockchain?
According to a study by the Center for Political and Legal Studies, the number of holders of crypto assets in Kyrgyzstan will steadily grow and the state should create favorable conditions for both investment activities and for attracting investors and developers of new technologies.
“With the right strategy, our country has chances, at least, to keep up with the race of new technologies and not make mistakes that can lead to an increase in the outflow of citizens’ capital to other countries, including the nearest neighbors,” the Center’s experts believe.
They note that Kyrgyzstan has chosen a reasonable and reasonable strategy regarding the crypto market.
“We should continue to consistently adhere to the principle – not to prohibit, but to regulate. This applies to both mining and turnover of crypto assets. At the same time, the conditions for the turnover of crypto assets and the work of investors and startup developers in this area should be at least no less favorable than those of the neighboring countries closest to the region,” the report says.
According to the experts of the Center, an open and understandable policy of Kyrgyzstan regarding cryptocurrencies can become favorable for attracting investors and carrying out payment transactions related to cryptocurrency. But it is equally important to pay attention to the financial literacy of the population.
Daniil Vartanov holds the same opinion:
Betting on blockchain technology and cryptocurrency is the same as betting on the Internet 30 years ago. But it should be done not by the state, but by citizens. All that is required of the state is not to interfere, not to hinder and not to erect legal obstacles, and then we will succeed.
Vartanov added that the country’s universities already have the necessary disciplines for understanding blockchain technologies – mathematics and cryptography.
“Even the world’s universities that give a specialty in the field of blockchain are just monthly courses in online format. Five–year education is not needed here,” he believes.
Despite the high volatility and other risks of cryptocurrencies, a number of countries are positive about the turnover of virtual assets and investments in blockchain technologies. For example, Switzerland, Singapore, Liechtenstein, Germany and other countries create transparent and maximally favorable conditions for this.
