The lack of control over cryptocurrencies has made the government in Kiev concerned they are “being used to finance terrorism, in particular, the occupied territories of Ukraine”.
Terror groups see a money opportunity with the digital currency as it is outside of the traditional global banking system.
According to Politico, there are fears from the security services in Ukraine the currency is being used to finance “separatists in the east”.
In December, CEO of Exmo Finance, a cryptocurrency exchange, Pavel Lerner was kidnapped in Ukraine by armed men in balaclavas and forced to pay a million-dollar ransom in bitcoins from his digital wallet.
There are weekly raids on crypto-mining operations, which is when fast processors solve maths equations to verify blockchains and are rewarded in cryptocurrencies.
Even last month, the police in Ukraine raided the Kvazar semiconductor plant in Kiev and seized millions of pounds of computer equipment, which they claimed were taken by the Russians and used to finance the separatist regions of Donetsk and Lugansk.
In December, Ukraine’s state security service said it was investigating a Russian citizen who allegedly used cryptocurrency to launder money to Russia.
Ukraine’s deputy prosecutor General Anatoliy Matios said: “Currency that is officially banned in Ukraine has been used to buy military equipment, weapons and ammunition for the illegal armed groups.”
Ukraine’s State Financial Monitoring Service has announced there will be changes soon to the legal status of cryptocurrencies.
Although the country has created a working group on cryptocurrency regulation, no laws have been proposed to parliament yet.
In January, the country’s national security and defence council chief, Oleksandr Turchynov warned the current lack of relevant laws “poses a threat to the economy and security of the state”.
He added: “Given the rapid development of cryptocurrencies in the world, this issue cannot be left out of the state’s attention.”