CHALLENGES AND OPPORTUNITIES FOR THE ADOPTION OF CRYPTOCURRENCIES IN  THE FINANCIAL MARKET OF UZBEKISTAN

Sabina Umedjanova

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CHALLENGES AND OPPORTUNITIES FOR THE ADOPTION OF CRYPTOCURRENCIES IN

THE FINANCIAL MARKET OF UZBEKISTAN

Umedjanova Sabina -

TSUE, Finance and financial technology,

Group MT-81, 3rd year student

Cryptocurrencies have gained immense popularity worldwide and are considered as a

potential alternative to traditional currencies due to their decentralized nature and the ability

to enable fast and secure transactions. "Crypto" refers to the various encryption algorithms

and cryptographic techniques that safeguard these entries, such as elliptical curve encryption,
public-private key pairs, and hashing functions. In other words, it is a digital asset that uses

cryptography to secure transactions and control the creation of new units. Cryptocurrencies
can be mined, purchased from cryptocurrency exchanges, or rewarded for work done on a

blockchain.

Uzbekistan is a developing country in Central Asia with a population of over 30 million.

The government of Uzbekistan has shown an interest in exploring the potential of blockchain

technology and cryptocurrencies. However, cryptocurrencies are not officially recognized as

legal tender in Uzbekistan, and there are several challenges that need to be addressed before
cryptocurrencies can be widely adopted in the country.

According to a report by Chainalysis, a blockchain analytics firm, Uzbekistan ranks 52nd

out of 154 countries in terms of cryptocurrency adoption. [1] The report found that
cryptocurrency adoption is highest in countries with strong economies and high levels of

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digital connectivity. However, even in countries with less developed economies, such as
Nigeria and Vietnam, cryptocurrency adoption has been growing rapidly in recent years.

In September 2018, the President of Uzbekistan signed a decree that legalized

cryptocurrency exchanges in the country. The decree also introduced a licensing regime for

cryptocurrency exchanges and established a legal framework for the taxation of

cryptocurrency transactions.

In December 2019, the National Agency for Project Management under the President of

the Republic of Uzbekistan (NAPM) banned the country’s residents from purchasing

cryptocurrencies, resulting in a massive blow to the country’s crypto industry. [2] Residents

are still permitted to hold and sell the crypto holdings that they already own, but they are

required to follow extensive identification procedures to curb money laundering. Non-

residents, on the other hand, were allowed to participate in the country’s first regulated

cryptocurrency exchange, Uznex, which was launched by Kobea Group, a technology company

from South Korea, starting January 2020. [3]

The regulatory framework for cryptocurrencies in Uzbekistan is still in its early stages of

development. According to data from CoinDance, a website that tracks global cryptocurrency

usage, the weekly trading volume of Bitcoin in Uzbekistan is typically around 2-3 Bitcoin,

which is a small fraction of the trading volume in other countries. [4]

In January 2020, the Central Bank of Uzbekistan issued a draft law on cryptocurrencies

and blockchain technology. [5] The law proposes to regulate the issuance, circulation, and use

of cryptocurrencies in Uzbekistan. This initiative could help to increase awareness and
adoption of cryptocurrencies in Uzbekistan, as it demonstrates the potential uses of

blockchain technology. The law also requires cryptocurrency exchanges to obtain a license

from the Central Bank and comply with anti-money laundering and terrorist financing
regulations.

Nowadays Uzbekistan still faces several challenges in its attempts to adopt

cryptocurrencies. One of the primary problems associated with cryptocurrencies in
Uzbekistan is the lack of legal recognition. While some countries have legalized

cryptocurrency, Uzbekistan has not yet done so. This means that there is no legal framework

for regulating cryptocurrency transactions, which could create legal issues for businesses and
individuals that use digital currencies. This lack of regulation also creates uncertainty and

makes it difficult for investors to assess the risks and opportunities associated with investing

in cryptocurrencies.

Another challenge facing cryptocurrency in Uzbekistan is the lack of awareness and

education about digital currencies. Many people in Uzbekistan are not familiar with

cryptocurrency and do not understand how it works. According to the World Bank, in 2017,
only 15% of adults in Uzbekistan had access to formal financial services, with only 4% having

a bank account. This lack of access to financial services can make it difficult for individuals to

participate in the cryptocurrency market, which requires a certain level of technological and
financial literacy. [6]

Security is another major concern surrounding cryptocurrency in Uzbekistan.

Cryptocurrency transactions are vulnerable to hacking, fraud, and other forms of cybercrime.

Without proper security measures in place, businesses and individuals may be hesitant to use

digital currencies.

In addition to these problems, Uzbekistan's banking system is not fully integrated with

the global financial system, which makes it difficult for businesses and individuals to transact

with cryptocurrencies. The lack of integration also makes it difficult for businesses and
individuals to convert cryptocurrencies into local currency.

For example, China has launched its own digital currency, the digital yuan, which is now

being used by millions of people. Other countries, such as the United States and Japan, have
also taken steps to regulate cryptocurrencies and promote their adoption. Japan was one of

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the first countries to recognize Bitcoin as legal tender in 2017, and since then, several
businesses in the country have started accepting cryptocurrencies as a means of payment. In

Switzerland, cryptocurrencies are regulated under the Financial Market Supervisory
Authority (FINMA), which has established guidelines for the issuance and trading of

cryptocurrencies. Similarly, the United States has a complex regulatory framework for

cryptocurrencies that varies from state to state.

There are several solutions to the challenges facing the adoption of cryptocurrencies in

Uzbekistan. Firstly, the government should develop a regulatory framework that governs the

use of cryptocurrencies. This framework should address issues such as taxation, licensing, and
security to create a conducive environment for the growth of the cryptocurrency market.

Secondly, the government should invest in developing the necessary infrastructure to

support cryptocurrency transactions, such as cryptocurrency exchanges and payment
gateways. This would create an enabling environment for businesses and individuals to adopt

cryptocurrencies as a mode of payment.

Government also need to invest in cybersecurity infrastructure and implement best

practices for securing cryptocurrency transactions. This could include measures such as two-

factor authentication, encryption, and regular security audits.

Finally, the government and private sector organizations should work together to

increase awareness and education about cryptocurrency. This could include public awareness

campaigns, training programs for businesses and individuals, and partnerships with

international organizations that can provide expertise and resources.

Overall, the adoption of cryptocurrencies in Uzbekistan is still in its early stages, and

several challenges need to be addressed to promote widespread adoption. However, with the

government's increasing interest in blockchain technology and the potential benefits it could
bring to the country's economy, it is likely that the adoption rate of cryptocurrencies will

increase in the coming years.

The issues of cryptocurrency use in Uzbekistan can be resolved through the

development of a regulatory framework, increasing access to cryptocurrency exchanges,

improving security, and increasing awareness among the population. It will recommend that

the government embraces cryptocurrency use to benefit from its potential. Additionally, it will
emphasize the importance of comparing cryptocurrency use in Uzbekistan with other

countries to learn from their experiences. By taking these steps, Uzbekistan can position itself

as a leader in the adoption of digital currencies in the region, promoting economic growth and
innovation.

References

1.

Chainalysis.

(2020).

2020

Global

Crypto

Adoption

Index.

Retrieved