Senior lawyer and blockchain practice leader of Juscutum JSC Nestor Dubnevich talks about blockchain’s role in Ukraine’s development, cryptoanarchists’ need for lawyers and whether it is easy to launder money through cryptocurrency.
– How long have you been familiar with cryptocurrency and blockchain matter?
— I heard about bitcoin in 2014 for the first time. My father told me about it, he is an expert in technologies. In 2015 he actively attended meet-ups. In Ukraine there were only a few conferences hold, this topic was absolutely new. That year I received my first bitcoins as a payment for my legal advice, which I have kept until today.
When I first registered my bitcoin wallet, I was very surprised that there was a currency which does not require your passport, income certificate and other documents proving your financial trustworthiness to open the account. It was the time when many Ukrainian banks had gone bankrupt and depositors lost their money. In view of those events, I had decided that I wanted to work with financial tools of the future.
– Does the Ukrainian cryptosphere have a demand for lawyers? After all, many people like the word “cryptoanarchist”.
– At the beginning of this year, the demand for blockchain experts accounted for 700%. It was primarily about developers, but, as you know, the new projects creation entails the increase in the need for BPO providers: financial experts, auditors, lawyers. Therefore, such an increase in demand has had an impact on the legal profession as well.
Of course, in this industry there have been guys, loyal to the primary idea of ignoring any centralized control. But, as the practice shows, as soon as the company starts to grow, the legal registration and security issues appear in the new light, and to ignore them becomes much more difficult.
– How often have you had to deal with crypto-fraud and whether it is possible to jail such an offender? Do all these cases ever reach the court?
— For the past two years, more than 1 billion USD in cryptocurrency have been collected by fraudulent projects. Our team has received several requests from the victims. Among them were cryptofund investors, token buyers, cryptowallets users. Investigation of such projects and collection of evidence, which could help to bring the case to the court is a very complicated process, since most such projects used VPN, bitcoin mixers and traffic obfuscators. Therefore, there are very few precedents of victims’ rights protection.
– Is it really possible to launder money through cryptocurrency?
– It is more difficult than when using cash. Each transaction appears in blockchain and can be traced, starting from the very first holder. The exception is the anonymous ZCash and Monero cryptocurrency (these types of cryptocurrency were distinguished by Europol as those creating risks of laundering).
The above mentioned law enforcement agency in one of its speeches noted that approximately 2-3 billion Euros had been laundered with the use of cryptocurrency for all time of its existence. But it is necessary to consider this figure on a global scale, and than we will see that given the amount of the virtual currency market capitalization (approximately $300 billion), this “frightening” figure of the European law enforcement agency is only 0.6% of its fiat equivalent. It is a rather low percentage to publicly speculate on the risks of laundering through cryptocurrencies.
– According to the report of the Organization for the Economic Cooperation and Development (OECD), 46 countries have public blockchain projects. Is there Ukraine among them and, if it is so, which interesting cases can you recall?
— Ukraine is one of the most active countries working on the implementation of blockchain in the state sector. The use of this technology for storing citizens’ data is a good opportunity to make a qualitative leap in eGov-services’ development. Last year a pilot project related to blockchain Land Registry was launched and the technology was included in country’s digitalization strategy.
– One of the people’s deputies has recently stated that blockchain eliminates the administrative resources. What is the attitude of the authorities towards this technology?
– Due to the fact that this technology is still very young, it is early to expect successful cases of blockchain implementation in our country. Most of the world’s governments at this stage of technology development use it mostly for PR rather than to solve practical issues.
But we should not forget that the blockchain at a certain level of its development can significantly affect the transparency of important state processes. Voting, procurement, public sales of state property, these are the areas where corruption risk is quite high. The blockchain technology is able to solve these problems.
– Is it possible to use blockchain for voting?
– This question mostly refers to the technology’s “growing up” process. So far it is still too young and insufficiently investigated to involve it in such important public campaigns.
– Banks are the main opponents to blockchain technology in the world. What about Ukrainian banks, do they have the same attitude?
– Nowadays, the banks approach to blockchain is very similar to governments’ approach. This technology attracts close attention of the audience and creates an “innovation” image to the business using it. A bright example is a British company that after the addition of the word “blockchain” to its name has increased the value of its shares at 394%. So we may not expect proper operating cases with blockchain application in the activities of financial institutions.
– State service of special communication and information protection of Ukraine has announced that the miners are allowed to mine cryptocurrencies without a special license. Who among our people in power have lobbied for this issue? And what will happen further to the industry?
— Solution to this long-term issue is the achievement of domestic crypto community’s establishment. Since the mining process uses the encryption technology, in the past few years there have been discussions whether this is a sufficient basis to require such companies to obtain licenses in the Specialized Communication State Agency. Adoption of this explanatory statement has given a definite answer to this question. And the more similar explanatory statements we get from the Tax Agency, Financial Monitoring State Agency, the National Bank, etc.), the faster this industry will develop in our country.
– As a lawyer, what would you advise to Ukrainian cryptoinvestors to protect their investments in the country that has not yet decided on its cryptocurrency status?
– Cryptocurrency has been conceived as an asset that cannot be frozen, blocked, or seized. When considering measures to protect your cryptoassets, you should keep in mind this idea, and rely primarily on technical aspects: to store your private key and a seed-phrase to the wallet in a safe place, avoid using unprotected communication channels, visiting the exchange, you should carefully examine the website to avoid becoming a victim of phishing.
As for the legal security, in a legal vacuum they will sound pretty primitive, but they’re rather effective, namely:
1) Silence. While bitcoins are not protected by a Bank secrecy, you’d better keep silent about their owning.
2) For storing your seed-phrase a bank deposit box will be better than your notepad.
3) As for your personal security, it is better to provide yourself with a “SOS” button, just in case of “unexpected guests” visiting.
— Do you accept cryptocurrency as a payment for your services?
– Yes, I do. I believe that you cannot become an expert in the industry, which achievements you don’t use. Because all of this may sound like a joke about school sex, much talked about, but never tried.