Digital Assets and Their Legal Regulation

The popularity of digital assets is growing with each passing year. Such interest to the subject of digitalisation is mostly due to the blockchain technology, which has become one of the alternative ways for conducting money transfers.

Algorithms for achieving consensus used in cryptocurrencies give the ability to use them without the public sector and help with carrying out decentralised operations.

The attitude towards digital assets varies from country to country: from complete permission and use in international operations to complete prohibition of circulation, even for personal use. Below are the statistics for the use of cryptocurrencies in various countries.

Let’s take a look at the countries that already apply blockchain and make effort to create a complete legal framework for using this type of currency in economy. In the USA, cryptocurrencies are considered a valuable property. A few years ago, certain measures were taken on taxing transactions and operations carried out using cryptocurrencies. In Japan, cryptocurrencies were introduced as a widely accepted means of payment in 2016. Since 2017, operations on the sale of such currencies haven’t been subject to consumption tax. The situation in Canada is similar to that in the USA.

Lately, Ukraine has been proposing initiatives on regulating and forming the concept of “digital assets”. Blockchain is expected to be used in state registries and institutions. This system will allow for a complete exclusion of data falsification and raiding. First, the government needs to develop the legal framework. The property of blockchain that implies having a distributed data storage causes a certain problem because the current legislation of Ukraine prohibits it. In order to create the infrastructure, multiple servers have to be used, which is the hope of many digital asset specialists in the country.

Over the past year, a number of events took place in order to popularise and legalise digital assets in Ukraine.
September 24 marked the opening of the III Kharkiv International Legal Forum. Over the course of the event, the subjects that were discussed included cybersecurity and update of legislation, digital assets and their contribution to the future, development of a blockchain-based economy, European integration, security threats and more. The forum participants presented the prospects of developing the blockchain technology for the market of information resources and services of Ukraine.

Speaking of the latest blockchain developments in Ukraine, we can’t ignore two interesting points.

The first one is the test for determining if a blockchain token is a digital asset. The development is based on the approach, which allows us to easily determine the level of correspondence of a blockchain token to a digital asset. Determining if a token is a digital asset is based on the correspondence of its characteristics in the economic field to those of a digital asset. In other words, the principle of equivalence means that each category is equal to others. This is the process of determining the correspondence to a digital asset. If a blockchain token does not correspond to at least one category, this token is not a digital asset.

The second one is the definition of “digital asset”. Digital asset is an information resource derivative of the right to a value and circulating in the distributed ledger in the form of a unique identifier.

According to the most recent data received after the comparative analysis of cryptocurrency and digital asset, we can say that the two above-mentioned concepts are very different from each other in terms of both functioning and application. The main indicator of distinction between the two terms is the backing of a digital asset by real assets. The legal part should also be taken into account, which ensures the proper security for the holders of digital assets that the owners of cryptocurrencies and tokens do not have.

To sum up everything stated above, we can easily conclude that the use of digital assets will positively influence the economy of the country, attract new investments and increase the level of security of sensitive data. The prospects of developing digital assets in Eastern European countries are quite significant and the government is doing everything in its power to increase the role of digital assets in economy and information services.