Introduction:
The legality of cryptocurrencies varies substantially from state to state as being undefined and still changing in most of the jurisdictions around the world. Not in contravention with the above statement, but the majority of the states permit usage of digital currencies, i.e. Bitcoin, as a medium of exchange with a differing legal framework and regulatory implications.
Crypto-currency is defined as a digital asset to be used as a medium of exchange wherein individual coin ownership records are stored in the form of a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. This mechanism operates through decentralized control unlike the central digital currency and central banking system. Bitcoin is the first decentralized crypto-currency, released in 2009. Since then, around 6000 alternative variants of Bitcoin have been released.
As a matter of fact, the digital (crypto) currency is now becoming a global phenomenon and since the emerging awareness and usage of this digital technology, most of the countries have embraced it and are now becoming crypto-friendly destinations. Whereas, other countries and their governments have tried to limit, regulate and even to slow down the adoption rate and popularity of such technology.[1]
Crypto Regulations- Does it affects Business?
Experts have expressed a belief that the cryptocurrency regulation system is a medium of stabilising and securing businesses. To achieve this target, adoption of unified glossary of terms in crypto-business and creation of Eurasian Economic Commission (EEC) leadership has been proposed by such financial experts which will provide for the coverage of the banking and insurance sectors, as well as the securities market. Thus, it is important to create conditions and a system of checks for the development of digital financial technologies.[2]
Regulations in European Union
While Bitcoin having a legal status in the EU, the existence of an overall regulatory legal framework is missing. Even though the European Parliament met recently to discuss Initial Coin Offerings (ICOs), there’s been no sign of real approach towards regulating cryptocurrencies has been witnessed. However, member nations have moved forward with their own regulatory efforts.
France
In recent EU news, the French National Assembly adopted the Action Plan for Business Growth and Transformation (PACTE). The plan provides a framework for token sales, also highlighted concrete plans to bridge the banking system with blockchain-based projects. French was the first to issue guidelines to those who want to get involved in the growing crypto industry. This French framework for ICOs is known as “Optional Visa Regime”.
Germany
The German Federal Financial Supervisory Authority (BaFin) qualifies virtual currencies as units of account and therefore financial instruments. Also in February 2018, the German Federal Ministry of Finance published guidance on value-added-tax (VAT) treatment of bitcoin and other virtual currencies. It determined that transactions to exchange a traditional currency for bitcoin or other virtual currencies fall under exemptions of VAT. However, a court ruling disclaimed the status of bitcoin as a financial instrument as it found that the definition of Bitcoin doesn’t meet the conditions specified in a financial instrument under German Banking Act as;
- It is not issued by the Central Bank
- It does not have general recognition
- Lacks suitable value for comparing with other goods and services
Italy
Italy passed a Ministerial Resolution in Sep. 2016, issued by Revenue Agency which addressed the aspects of tax treatments of bitcoin and other cyber-currencies. This Resolution implemented the decision issued by the European Court of Justice (ECJ) in the case of Skatteverket v. David Hedqvist[3], which held that the value-added tax (VAT) does not apply to transactions in which cyber-currencies are exchanged for traditional currencies or vice versa. In 2017, Italy via Legislative Decree No. 90 subjected virtual currency providers to the regulations established for traditional money exchange operators and for the effect of such decree, it charged the Ministry of Economy and Finance to issue guidelines setting forth the timelines for the legal performance of such activities country-wide.
Regulations in Non-EU Member Countries
Russia
In 2019, Vladamir Putin gave a deadline for officials to create a regulatory framework for cryptocurrencies until then there is no framework defining cryptocurrency mining, cryptocurrencies, or tokens. While cryptocurrencies are not regulated per se, their use as a payment for goods and services is illegal at this point in time. Despite this, amendments were introduced to the Civil Code in order to protect the rights of the owners of cryptocurrency coins and tokens. The document defines “digital money” and “digital rights,” and provides for their judicial protection.[4]
Switzerland
The nation has continued to be a hub of crypto start-ups and is friendly with the growing crypto market as it permits these exchanges to register with the Swiss Federal Tax Administration. The Swiss Authorities consider crypto as an asset, thus transactions made will need to adhere to corresponding laws. Also, in March 2020, the Federal Assembly passed a motion to undertake the operations of cryptocurrencies under the same regulations opted for the banking system and opposed the creation of new laws to regulate crypto assets.
United Kingdom
In May 2019, Dave Ramsden of UK’s Central Bank addressed the stance of the nation on cryptocurrencies and gave following updates on crypto regulations;[5]
- The UK’s financial authorities do not consider cryptocurrencies to be a currency but as an asset because;
- It is too volatile to be stored of value
- It is expensive and unwieldy as a medium of exchange
- The UK does not consider the crypto market to be a threat to financial stability. The size of the market is too small at this time. However, they will continue to monitor the market and assess the risks.
Regulations in North and Latin America
Canada
The Canadian Government and regulatory agencies issued a statement in March 2019 regarding requirements for crypto exchanges. The main purpose of the exchange guidelines is to reduce the risk to all parties, from retail investors to the exchanges themselves. Canadian authorities seemed committed to working with the unregulated exchanges to come up with clear, new guidance. They also expressed the intention to provide regulation that will evolve with the quickly expanding ‘crypto industry’.
United States
FinCEN, a bureau of Treasury Department said in 2013 that virtual currencies don’t have legal tender status in any of the jurisdictions, but digital exchanges are allowed to operate. California has shown a positive approach toward this new technology. Crypto-related companies and service providers don’t require any specific licenses to operate in California. It is also the first state that introduced crypto regulations in the USA.
The current scenario of regulation of cryptocurrencies is dependable upon the state’s decisiveness. However, the Securities and Exchange Commission has indicated its views on digital currency as a security. Earlier, the agency expanded its scrutiny and said it is looking to apply securities laws to everything from cryptocurrency exchanges to digital asset storage companies known as e-wallets. The aim behind enacting such laws is to make sure that they’re not used for illicit activities.[6]
Brazil
The Brazilian government has expressed that cryptocurrency exchanges will operate under a designated code that will refer to the ‘brokerage and possession of crypto assets’ and which will also prevent the offences related to money-laundering and fraud which has been a major concern of the government and people of Brazil. The approach made further legitimizes the role of cryptocurrencies in the Brazilian economy as it validates the circulation of these digital assets in the nation.[7]
Regulations in Middle East Nations
In many regions of middle-east, i.e. Saudi Arabia, Qatar, Iraq, etc. crypto-currency is regarded as a threat than technological advancement. Thus most of the countries which have banned crypto belong to the middle-east region of the world.
Israel
Israel embraced the technology as the government regarded as ‘future currency’ but yet to have clear and straight guidelines. To overcome this issue, Israel is working with a major player of crypto, Switzerland, to device blockchain regulations. The regulators drafted legislation covering the aspects of digital currencies. The aforesaid legislation will require cryptocurrency financial service providers to keep certain records such as customer IDs, public keys, IP addresses of customers to prevent instances of fraud/money laundering.
United Arab Emirates (UAE)
Under article D.7.3 of the Regulatory Framework for Stored Values and an Electronic Payment System, issued by the Central Bank of the United Arab Emirates in January 2017, all transactions in “virtual currencies” (encompassing cryptocurrencies in Arabic) are prohibited in the region. However, due to low oil prices and weak equity markets in the UAE, the government is planning to come up with legislation to initiate ICOs and spark the creation of a new business.
Regulations in African Nations
Nigeria
Nigerians represent the third-largest holder of bitcoin, as a percentage of GDP, in the world. While the government has in the past been cautionary and slow to regulate cryptocurrencies, there is hope that this will soon change as the Central Bank of Nigeria announced that it is developing regulation policies by restructuring licensing regime.
Uganda
Finance Minister of Uganda sent assurances that government regulations are being drafted that will cover cryptocurrencies and pyramid schemes. Just recently, a National Payment System Bill was approved and will be applied to all forms of digital currencies as well as it also stated that full KYC procedures will be enabled to make the transactions secure.
Regulations in South East Asian Countries
India
The government of India stated in 2018 that cryptocurrencies such as bitcoins are neither a currency nor a coin, and also not legal tender in India. While blockchain has been readily adopted by the Indian government. Crypto is not recognized as a legal currency and has been facing the Reserve Bank of India (RBI) in court after the bank effectively banned crypto.
The Reserve Bank of India (RBI) has issued three notifications advising caution on the usage of digital/virtual currencies as there is an absence of a legal framework for regulating cryptocurrencies. RBI prohibited banks, lenders and other regulated financial institutions from dealing with digital currencies and also stated in the notification dated 6th Apr. 2018, that those entities which already provides such services of ‘virtual currencies’ be terminated within the span of three months from the issuance of notification.
Despite RBI’s directions regarding crypto, Deputy Governor B.P. Kanungo, in a policy press conference, did recognize that the blockchain technology or the distributed ledger technology that lies beneath the virtual currencies has potential benefits for financial inclusion and enhancing the efficiency of the financial system, and stated that the “RBI has constituted an inter-departmental committee in Reserve Bank of India who will produce a report and they will explore the feasibility and desirability of issuing a digital currency by the central bank.”
Also, a PIL[8] was filed under Article 32 of the Constitution against Union of India, Ministry of Finance and the Reserve Bank of India over the use and business of Bitcoins, Litecoins, Ethereum etc. The Supreme Court on July 14, 2017, directed the RBI and the other concerned ministries to clarify their stance and enact a bill on the same before disposing off the PIL. In response to this, the government began to draft a law that will address two concerns primarily;[9]
- The source of money being used to trade in cryptocurrencies
- Regulation of exchanges of virtual currency to protect the common man’s interest.
The government’s much of the concern about crypto in India revolves around money laundering and terrorist financing, but with the righteous regulations and legislation, regulators can scrutinize the operations of crypto-currencies effectively and foster progress as pointed out by the Deputy Gov. B.P. Kanungo.
China
According to the former governor of Peoples Bank of China, Zhou Xiaochuan, Chinese regulators do not recognize virtual currencies such as bitcoin as a tool for retail payments like paper bills, coins, or credit cards. Bitcoin was legally recognized by Chinese authorities as digital property. However, the cryptocurrency is still considered illegal in China. In general, the Chinese people are allowed to hold crypto and may even be able to trade it peer to peer but otherwise, trading it is against the law.
Regulations in Australia
In the area of anti-money laundering and counterterrorism financing (AML/CTF), the government introduced a bill in Parliament in August 2017 in order bring digital currency exchange providers under the AML/CTF regulatory regime. Under the amendments, digital currency exchanges will be required to enrol in a register maintained by AUSTRAC (Australian Transaction Reports and Analysis Centre) and implement an AML/CTF program “to mitigate the risks of money laundering as well as identify and verify the identity of their customers”.[10]
Conclusion
Form the above comparative discussion, it can be concluded that the issue of regulating crypto assets is essential because of its influence in everyday life. Experts have very different opinions on the future status of digital currencies, however, transactions and other operations with bitcoins are already being successfully carried out around the world.
Thus, a need for a serious legislative framework on the regulation of cryptocurrencies is needed and it would be more effective if international authorities issue certain common guidelines for every nation w.r.t usage of crypto-currencies which will aid in preventing complexities.
References:
[1] “The Legal Status of Cryptocurrencies across the Globe”, Medium.com
[2] “Regulation of cryptocurrency in the world”, Cryptology, 20th Aug. 2020
[3] ECLI:EU:C:2015:718 (ECJ Oct. 22, 2015)
[4] Bill No. 424632-7, Federal Law of the Russian Federation on Amending Parts One, Two and Four of the Civil Code of the Russian Federation
[5] Rooney, Kate. “Your guide to cryptocurrency regulations around the world and where they are headed”, CNBC, 27th Mar. 2018
[6] “Regulation of Cryptocurrency around the World”, The Library of Congress.
[7] Lopez, Mariana. “Brazilian government starts cryptocurrency regulation”, Contxto, 29th Apr. 2020
[8] (Writ Petition (Civil) no. 406 of 2017)
[9] Thibodeau, Mary. “Cryptocurrency Regulation Global Update 2020”, Hedgetrade, 11th Jan. 2019
[10] Pearce, Rohan. “Government Cracks Down on Bitcoin Money Laundering”, Computerworld, 17th Aug. 2017
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