Meanwhile, almost each month marks the origin of a greater number of cryptocurrencies, which definitely affects the world economy. The most popular cryptocurrencies are Bitcoin, Litcoin, Ethereum, Ripple.
At the time of writing, many countries have no legal regulation of cryptocurrency, in which connection this object is "free floating".
Other countries partially or completely ban cryptocurrency. For example, China has recently banned cryptocurrency at all in connection with the fact that cryptocurrencies are not secured by real value, their prices can easily be manipulated, and commercial contracts are not protected by the Chinese legislation.
At the same time, there are countries, which adhere to a moderate position, imposing partial bans. For example, Russia considers cryptocurrency as a digital asset, establishes the amounts of legal transactions, and considers mining as entrepreneurial activities, despite the absence of special regulation.
In general, cryptocurrency is a variety of digital money, the basis of which is formed by data encryption (cryptography). It has no physical appearance and exists in the electronic form only. The key advantages of cryptocurrency are anonymity, decentralization and security.
Please note that the laws of the countries, which have permitted the use cryptocurrencies, apply two general approaches to the essence of cryptocurrency.
- Cryptocurrency is money.
- Cryptocurrency is commodity (in case of taking the specific function of universal equivalent pertinent to money, the Kazakhstan approach determining cryptocurrency as property in all its universal nature tends to the position "cryptocurrency is commodity").
The key features of cryptocurrency are:
- Cryptocurrency is neither issued by any bank, nor bound to any country's economy. Issue of cryptocurrency is not controlled by a single authority.
- As a rule, the work with cryptocurrency is anonymous. To work with a bank and the payment systems it is necessary to specify at least a part of personal data. There is no need to do this in cryptocurrency. All information about a participant is a set of symbols in the wallet address. It is worth mentioning that certain cryptocurrency exchanges significantly limit the use of cryptocurrency until accomplishment of the account verification at the exchange.
- Simple and direct transfer of assets between the chain participants.
Until recent time, cryptocurrency has not been regulated in any way in Kazakhstan.
However, the situation with cryptocurrency significantly changed in Kazakhstan along with the adoption of the Kazakhstan Law on Introduction of Amendments into Certain Legislative Acts of Kazakhstan on the Issues of Regulation of Digital Technologies dated 25 June 2020, which added cryptocurrency provisions to the Kazakhstan Law on Informatization.
To date, cryptocurrency is referred to property and is defined by the term "digital asset", which means property created in the electronic and digital form with the application of cryptographic means and computer calculations, which is not a financial instrument, as well as the electronic and digital form of certifying property rights.
According to the current legislation of Kazakhstan, digital assets are not a means of payment and may be divided into two types: secured and unsecured digital assets.
Secured digital assets include a digital token and other digital assets serving as a digital means of certifying property rights to goods and/or services issued (provided) by a person that issued a secured digital asset.
Essentially, a secured cryptocurrency is a cryptocurrency, the value of which directly depends on real assets. Such cryptocurrency allows guaranteeing the stability of its exchange rate and preventing exceptional depreciation.
Unsecured digital assets include tokens received as an award for the participation in support of consensus in blockchain.
At the time of writing, major part of cryptocurrencies are unsecured. These are Bitcoin, Ripple, Ethereum, etc.
The price of such cryptocurrencies is formed by way of demand only, in which connection investments in an unsecured cryptocurrency are exposed to extreme risks. The rates of unsecured cryptocurrencies are subject to significant influence by external factors.
For example, after the ban on cryptocurrencies in China, the value of almost all cryptocurrencies has decreased.
The Kazakhstan law-maker prohibited to organize the issue and circulation of unsecured digital assets in the Kazakhstan territory with a reservation that otherwise may be provided for by the Kazakhstan laws, and established that a digital asset neither secures the rights to financial instruments, nor gives relevant rights to its owner with respect to a legal entity. At the same time, National Bank of Kazakhstan established that banks must not interact with cryptocurrency in any manner, which precludes from the activities of cryptocurrency exchanges, because it is impossible to open a bank account or a fiat channel with a local bank.
When stating that the laws of Kazakhstan may provide for otherwise, the law-maker most likely implied legislation of the Astana International Financial Centre ("AIFC"), which does not prohibit the activities with cryptocurrency in its territory.
The said prohibition does not cover the activities in the AIFC, because the AIFC has its own legislation composed of the AIFC acts and the current legislation of Kazakhstan, which is applied to the extent not regulated by the AIFC acts.
With respect to cryptocurrency, the AIFC made a significant step towards cryptocurrency much earlier than the Kazakhstan law-maker and created the legal environment for the circulation of cryptocurrencies, regulation and functioning of exchanges.
The AIFC acts distinguish cryptocurrency as an independent item of circulation. It follows from the official definition given in the glossary of the AIFC committee for the regulation of financial services ("AFSA") that a digital asset is a digital expression of value, which functions as a medium of exchange, unit of account or store of value, and which may be bought/sold for a fiat currency, but is not guaranteed by the government of any jurisdiction (AIFC Glossary / AIFC Act No. Fr0017 of 2018).
Activities involving the circulation of cryptocurrency are also distinguished in the AIFC as a separate type of market operations and include:
- management of a digital asset trading facility ("cryptocurrency exchange");
- ensuring of storage and management of digital assets, which belong to another person (AIFC Glossary / AIFC Act No. Fr0017 of 2018).
Management of a cryptocurrency exchange includes the activities carried out for the purposes of entering into contracts between the counterparties for:
- purchase, sale or exchange of digital assets for a fiat currency;
- exchange of one digital asset for another (Schedule 4(3) of the AIFC General Rules).
On 26 July 2021, the AIFC published the Consultation Paper on the development of cryptocurrency industry, and one of the issues raised therein deals with a possibility to open bank accounts for cryptocurrency exchange with local banks (paragraph 8 of Consultation paper No. AFSA-G-CE-2021–0004).
In order for a currency exchange to start functioning in the AIFC it is necessary to strictly comply with requirements established by the AIFC acts, one of which relates to compliance with technological requirements, obtainment of a license, etc.
According to the general rule, circulation of decentralized assets is not allowed now in the Kazakhstan territory, except for the AIFC territory, where the activities with cryptocurrency are permitted in case of compliance with precise requirements established by the AIFC acts.
Kazakhstan has only started to solve the issues of activities with cryptocurrency (including the AIFC territory) by way of developing additional acts, which, in our view, evidences the intention to further recognize and ensure regulatory support of this industry.
Nurlan A. Sholanov, Partner, AEQUITAS Law Firm
Kirill Greshnikov, Junior Associate, AEQUITAS Law Firm