In today’s world, the regulatory framework for using and owning cryptocurrency around the world is wildly different from country to country. Some explicitly ban it, others put digital and virtual currency vendors in a chokehold by introducing indirect bans on their operations. On the other hand, there are countries which have either included cryptocurrency trading in their existing framework, like Japan or Sweden, or devised new laws to help the industry grow in a regulated environment, like Belarus. Most states agree on one thing, though: denying responsibility for this growing sector of the economy is no longer an option, and they have to figure out how to handle it.
Spearheading the legal status of cryptocurrencies is the nation of Malta. Though not a legal tender, cryptocurrencies there are considered to be a means of value transfer and storage. More curiously, it is one of the few countries where VAT is not applicable to transactions with crypto. Existing laws of Malta regulate the widest area of the crypto space at the moment, covering cryptocurrency exchanges, wallet providers, brokers, ICOs, asset managers and even advisers.
One of the most progressive frameworks in the world today is present in Canada.
Cryptocurrencies are considered a legitimate means of payment where accepted. However, they are not considered to be legal tender, which means one cannot use them for debt cancellation or tax payment. Interestingly enough, Canadian law distinguishes between mining for commercial and personal purposes, with only the former being subject to taxation.
Canada was one of the first countries to introduce cryptocurrencies as a subject to national law in the amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act as the Bill C-31. For a business to be compliant in Canada, regardless wherever it is based, it has to be registered with Fintrac (Financial Transactions and Reports Analysis Centre of Canada), as well as report to them their activities, suspicious transactions or involvement of “politically exposed” customers.
Another country where starting a fully compliant cryptocurrency business is possible is Estonia in Eastern Europe. It has comprehensive legislation on AML/ATF, which includes businesses operating with cryptocurrencies, such as exchanges and wallets. As a result, there are licences for such businesses which act as authorisation from the authorities. Cryptocurrency regulations in Estonia are open and innovative, especially in comparison to other EU member-states.
As long as a business follows the country’s rules, Estonian regulators are quick at helping them set up a business in the country.
Good Old Measures for New Troubles
Not surprisingly, the situation is not as great in some other places in the world. Even owning bitcoin can place you on the enforcement’s radar in Bangladesh, leave alone accepting or trading it. There are whole regions which are not welcoming toward cryptocurrencies. They are outright banned in some MENA countries: Algeria, Bahrain, Iran, Iraq and UAE. The rest of the countries of the region have issued warnings against trading in cryptocurrencies, with Israel, where operations in cryptocurrency are legitimate as long as an individual holds a valid license, being an only exception.
Changing Legal Status
Right now, India and South Korea are all over the news thanks to the governments of both countries making the decisions which are welcomed as embracing the industry. The South Korean National Assembly has passed the most comprehensive to date legislation to create a legal framework for the industry, and the Supreme Court of India has overruled the Reserve Bank of India’s ban on provision of banking services to cryptocurrency businesses.
Since 2017, South Korea has seen a widespread in cryptocurrency adoption: a third of its salaried workers have been investing in crypto, and the government has been gradually warming up to technologies like blockchain and digital currencies. The logical decision in these changing circumstances would be not to ban cryptocurrencies but to introduce a regulatory framework that would allow regulating cryptocurrency exchanges and businesses. Though the framework is yet to be introduced, this is sure to set a precedent for the other states to follow.
It’s hardly a surprise to anyone that fintech and blockchain have been developing rapidly in India, and cryptocurrencies are being widely used there. However, until recently, cryptocurrencies, unlike cashless and digital economy, were considered outliers as far as the legislation goes. From 2018 onward, there has not been an explicit ban on cryptocurrencies, but the RBI-imposed ban on service provisions significantly hindered operations of cryptocurrency businesses. In the light of further concerns, the Supreme Court requested the Government to define the legal status of cryptocurrencies in February 2019, and it should be noted that this request is still pending, which might rain on the parade of everyone celebrating the lift of RBI ban.
A likely scenario is that India will follow in China’s footsteps, embracing blockchain technology but scorning the cryptocurrencies which come as “a byproduct” of this technology. A crypto boom in 2017 has taught everyone a sore lesson how ICOs and investing can be used by fraudsters, so China preferred to ban ICOs altogether and has been gradually revoking the privileges of miners and traders one by one since then. More can be read in an article we wrote earlier.
Another topic that has only recently and temporarily left the spotlight is TON and Libra cases. So how is cryptocurrency regulated in the States, anyway? Well, the short answer is just like in the rest of the world. A longer answer would include a clarification that the stance varies from state to state. Generally, owning cryptocurrencies implies no repercussions and exchanges are legal. The latter is in an uncertain jurisdiction, overlooked by either the Securities and Exchange Commission, SEC for short, which insists that cryptocurrencies are securities, or the Commodities Futures Trading Commission (CFTC), for whom they are commodities. The Justice Department is collaborating with both to develop a legal framework for cryptocurrency trading and use.
Claiming the Space
The legal landscape for the crypto industry has changed significantly in comparison to how it was just a couple years ago. Back then, issuing a press release warning about the risks of trading on cryptocurrency exchanges due to volatility and decentralized nature of the currencies seemed to be enough. However, we have seen a lot more certain action from the governments across the world lately. Who wins from this? Ideally, compliant businesses that stick to AML/ATF regulations and intend to benefit from the technology behind cryptocurrencies. Who might suffer losses? Unfortunately, stricter regulations might mean stricter taxation, less privacy and more hurdles to set up a business. It is not enough to just include cryptocurrency into a legal landscape, the legislation has to be devised with all the participants in mind and upheld by every participating side.