How to bury the idea of a crypto-country: The Belarus story

Several years ago, Belarus made noise worldwide as the first country to introduce all the basic concepts related to blockchain and cryptocurrencies into legislation. It also gave nearly free rein to the cryptocurrency business. However, in time, all the positive initiatives were completely destroyed by bureaucracy.

In recent news: Belarusian Railway (BCh) has issued $ 5 million worth of tokens, $ 100 each. The annual interest for investors is 7.5%, the token circulation period is three years. There is an early redemption possibility of 100% of all tokens sold every six months starting from September 1, 2022. Investors must replenish their virtual wallets with the corresponding dollar amount to purchase tokens from the launched ICO.

«Tokens as a digital financial instrument open up the opportunity for individuals and legal entities to preserve and securely increase their savings by investing them in one of the country’s largest companies», — the BCh press release states.

At first glance, everything seems nice and forward-thinking: a strong national company is mastering the blockchain and using an advanced method of attracting investment. All hail the wonders of digital economy! But for an expert intimately familiar with the situation, the picture is completely different. BCh is a state-owned company with all the ensuing features. For example, a private business could never win a court case against it. And the corporate finances are classified. Though, according to unofficial information, BCh is deeply unprofitable.

Let’s dig deeper. The token placement and circulation are carried out on the BelVEB Bank crypto platform. This is a state-owned bank, so there is no free circulation of tokens on commercial crypto exchanges to speak of. What do we get as a result? A simple issue of state-owned company bonds in the country with, to put it mildly, not the best image among investors. All done in the form of digital tokens with a single purpose – to bypass international economic sanctions imposed on President Lukashenko’s regime.

But how did the country, which a few years ago was building an image of a “crypto heaven” for itself, turn into something completely opposite?

Only three years ago, it seemed that the Decree #8 “On the Development of Digital Economy” signed in late 2017 by President of Belarus Alexander Lukashenko would quickly make the country a world leader in the legislative recognition and regulation of digital technologies. At the time, thanks to the Decree (in Belarus, the president’s unilateral orders automatically have the force of laws, and the parliament must approve them), Belarus became the only country in the world where all the newest computer technologies, from cryptocurrencies (along with mining and ICOs) to self-driving cars, artificial intelligence, and smart contracts, were officially recognized and regulated. The country’s authorities hoped that such digital liberalization would attract the world’s largest IT corporations (and their capital) to Belarus.

Сreated by another presidential decree, the Hi-Tech Park (HTP) has been operating in Belarus since 2006. It is a state offshore zone with preferential tax conditions for IT companies. The park has proven its effectiveness: the total income of its residents in recent years has exceeded a billion dollars.

Thanks to the HTP, over the past decade, Belarus has formed a special caste of highly paid professionals: programmers, testers, IT managers, and other specialists. Their salaries are dozens of times higher than the national average, so it is unsurprising to see Belarusian schoolchildren dream of becoming programmers when they grow up.

The Belarusian authorities realized that you could get a great financial return from IT without investing at all in fixed assets. But it would require expanding the circle of HTP resident firms at the expense of related IT fields. The cryptocurrency direction looked very promising at the time.

Thus, the most notable thing in Decree # 8 was the incredible liberalization of everything related to blockchain technology and its derivatives: smart contracts, cryptocurrencies, their mining, ICOs, crypto exchanges, etc. All operations with cryptocurrencies and tokens were exempt from taxation until 2023. As a result, Belarus became the first country in the world to introduce the entire modern blockchain infrastructure into the legal field, both for legal entities and individuals.

But in reality, not everything was so rosy. The president’s decree only set the framework for new rules in the IT field. It would take effect three months later, and during that time, various departments were tasked with developing a regulatory base for its functioning. For example, the National Bank of the Republic of Belarus needed to detail the rules for working with cryptocurrencies.

Three months had passed, but there was still no legal framework. It did not appear after six months, nor a year later. One by one, the government departments withdrew themselves from writing laws for an area that none of them understood anything about. At last, the responsibility to write something at least resembling cryptocurrency legislation fell on the HTP administration. And it, indeed, wrote up “something” – the rules for the crypto company registration and cryptocurrency circulation, which were hardly lenient.

It’s important to realize that in Belarus, the same Alexander Lukashenko has carefully maintained a Soviet-style administrative-command system of state economic control only slightly diluted by the private sector. And don’t forget about the tight control over businesses by law enforcement officials and the absence of independent courts.

Integrating blockchain and cryptocurrency-friendly legislation into this system is like putting a jet fighter engine on an old truck. Of course, you can do it – but such a device won’t go very far. Smart contracts and the State Control Committee cannot exist in the same country.

So there you go. To date, there are only a few crypto exchanges registered in Belarus, and the largest one is state-affiliated and constantly accused of laundering dirty money coming from Russia. It is extremely difficult to run an independent crypto business – most of the specialists, faced with repressions, simply left the country.

The author of these lines knew several teams that were preparing to launch their projects in Belarus in 2018: crypto-exchanges, ICO platforms, exchangers, etc. The projects eventually got launched – but in other countries, from Singapore to the United States.

In time, the necessary legislation did actually appear. However, it took two more years and happened under the auspices of the FATF intergovernmental organization, which issues recommendations for all countries on combating money laundering. Usually, those involve many restrictions and a complete lack of privacy.

Once getting ready to launch blockchain projects in Belarus, entrepreneurs gained experience and knowledge, got burned a couple of times, and grew disillusioned about their homeland becoming an IT paradise. Now they are implementing their ideas abroad, even if they are still based in Minsk.

What is there to learn from Belarus’ failed transformation into a crypto-friendly country? The state bureaucratic machine stomped all over the good intentions, which it did not understand, and therefore rejected. The head of state himself, who seems to make all the decisions in the country, initially saw an opportunity to quickly fill the budget using crypto business (recall that Decree #8 was written during the 2017 crypto boom). But then he noticeably lost interest in the idea.

The result is many unfulfilled hopes and thousands of blockchain specialists leaving the country. To this day, in Belarus, there is no meaningful use for cryptocurrencies in business.