Cryptocurrencies in Kyrgyzstan: an experience to look up to

Сryptocurrencies and blockchain technologies are becoming increasingly popular in the world. Kyrgyzstan has not been bypassed by the new digital financial trends either. Despite the fact that the National Bank of the country urges to be careful with investments in cryptocurrencies and the legislation does not recognize cryptocurrencies as legal tender, this market is developing in the country.

In 2022, the Government of Kyrgyzstan began actively developing and implementing new laws and tools regulating blockchain technologies and digital assets. Until recently, officials were mainly interested in miners and only from the point of view of their taxation. Since 2020, the tax code has established a 15% mining tax rate. In August 2022, the law “On Virtual Assets” came into force in Kyrgyzstan. He defined clearer rules for working in the cryptocurrency market, as well as defined obligations and requirements for its participants – residents of Kyrgyzstan.

Blockchain is a decentralized technology and, first of all, it should help in situations when the state cannot provide access to banking financial services.

According to Elena Chigibayeva, co-founder of the WeinCrypto DAO project, which seeks to improve financial literacy and support the youth of Kyrgyzstan in realizing their potential in Web 3.0, a favorable environment is being created in the country for the development of innovations using blockchain technologies and cryptocurrencies. Blockchain and the cryptocurrency system in Kyrgyzstan are still developing, there are miners, cryptocurrency exchanges, blockchain communities, cryptocurrency traders and crypto enthusiasts.

The law “On Virtual Assets” adopted this year is a basic document defining the concept of a virtual asset and the rules for its circulation. According to it virtual asset is a set of data in electronic digital form, which has its own 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 legal tender on the territory of Kyrgyzstan. In other words, no cryptocurrency transactions are supported in the country.

The document also regulates the activities of miners, the issuance and initial placement of virtual assets, as well as the activities of legal entities that provide services related to virtual finance. According to the law, any natural or legal person can carry out activities related to virtual assets, as well as own, use and dispose of them, including exchanging for other types of virtual assets, as well as buying and selling. Legal entities can also issue and place their own virtual assets on the territory of Kyrgyzstan and abroad.

However, when carrying out activities in the field of virtual assets, market participants must report on their transactions with virtual assets. Special rules are introduced for miners: they must register, have their own equipment, an active virtual wallet and a proper quality power supply system in the premises. They also have to pay for electricity at an increased tarifs. According to experts, this law does not restrict, but generally supports the development of blockchain as a technology and ecosystem. The document defines the general framework, the policy of the country, the main participants in the cryptocurrency market, as well as the main regulatory standards. It also defines the principles of promoting virtual assets on the territory of Kyrgyzstan.

However, there are two sides to any delay. According to Daniil Vartanov, one of the most famous blockchain developers and a specialist in the field of cryptocurrencies in Kyrgyzstan, the law allows traders to be removed from the "gray" zone, but at the same time prohibits selling goods and services directly in exchange for cryptocurrency.

"It literally knocks the ground out from under the feet of our future, because it makes as much sense as the fact that 30 years ago we would have been banned from sending messages via the Internet, and the Kyrgyz Postal Service would have been a monopolist in people's communication. The same thing is happening now, when the National Bank is trying to maintain its monopoly on the currency used by citizens."

In addition to the existing law “On Virtual Assets”, this September the government also adopted a number of instruments that establish rules for cryptocurrency market players. In particular, for cryptocurrency exchanges. They must be open joint-stock companies and carry out operations as a public company, as well as register in the Unified State Register of Cryptocurrency Exchanges of the country. In addition, investment funds can now invest in cryptocurrencies, but the share of such investments should not exceed 20% of the fund's net assets.

The procedure for providing services related to virtual assets is also under consideration. The procedure was developed by the National Bank. The initiators of the project propose to establish minimum requirements for commercial banks providing services related to virtual assets. The rules for the provision of services are set out for banks and banking agents, and any activity related to the circulation of virtual assets must be licensed.

According to the Center for Political and Legal Studies, the number of owners of crypto assets in Kyrgyzstan will steadily grow in the coming years, and the state should create favorable conditions for both investment activities and for attracting investors and developers of new technologies.

"With the right strategy, the country has chances not to lag far behind in the race of new technologies and not to make mistakes that can lead to a growing outflow of capital to other countries, including to the nearest neighbors," the experts of the Center believe.

Kyrgyzstan's open and understandable policy regarding cryptocurrencies can become favorable for attracting investors and performing payment transactions related to digital assets. However, it is equally important to pay attention to people's financial literacy.

IslamicCoin is the first project to provide the community with powerful financial technology that allows for seamless transactions, support innovation and charity. The project is 100% compliant with Shariah law and benefits the community. Developers focus on sustainable development and use technology and innovation to ensure financial sustainability.

"At the heart of Islamic finance is the prohibition on charging interest. Islamic finance has always been focused on not shifting most of the risks to one side of the financial relationship. In Islamic finance, balance and transparency of transactions should be observed, which can negatively affect our society," says Mohammed AlKaff AlHashmi, one of the founders of IslamicCoin.

IslamicCoin is aimed at 1.1 billion Muslims using the Internet. The project creates convenient tools designed for users who have never been owners of cryptocurrencies. Thus, the creators of IslamicCoin are expanding the capabilities of the Muslim online community by providing it with opportunities to use a new form of digital money and involving them in the modern digital world.