This article is written by Vanya Verma pursuing B.B.A. LL.B (Hons.) from the Alliance University, Bangalore. This article deals with the regulation of cryptocurrencies in various countries.
Table of Contents
A cryptocurrency is a virtual or digital currency that is secured for cryptography in order to secure financial transactions as it makes it nearly impossible to double-spend or counterfeit. Cryptocurrencies work on blockchain technology. Blockchain is a decentralized technology that is spread across a network of computers that manage and record the transactions. A distinguishing characteristic of cryptocurrencies is that central authority generally does not issue them thus, making them theoretically immune to government manipulation or interference.
Online secure payments are allowed by cryptocurrencies which are denominated as virtual “tokens,” which are represented by the ledger entries internal to the system.
Cryptocurrency regulations around the world
There are legal frameworks employed by various countries for the regulation of cryptocurrency. Some countries have made regulations to either curb or foster the use of cryptocurrency, in some countries it is uncertain or developing while there are few countries that have allowed the use of cryptocurrency. The various countries in relation to how they deal with cryptocurrency are as follows:
On April 5, 2018, few advisory guidelines were issued by Reserve Bank of India (RBI) concerning the activities of cryptocurrency in India under a circular named ‘Statement on Developmental and Regulatory Policies’. In paragraph 13 of the circular, the entities governed by RBI were asked not to deal with, or give services to any person or business organizations which deal with or transact in digital currencies. Further, the circular also stated that the entities should end such ties if any. The circular was issued in the public interest as per RBI.
This circular was challenged in the court of law by the ‘Internet And Mobile Association Of India‘ who was the chief petitioner. After almost two years a historical judgment was delivered striking down the central bank’s April 2018 circular which bans regulated financial institutions from providing services to crypto businesses on March 4, 2020, by the Supreme Court of India. The court held that the circular issued by RBI is unconstitutional, as reported by the news.Bitcoin.com. The Indian crypto community won the case against the RBI. The ban was finally lifted by the Supreme court on cryptocurrencies, and thus, trading in cryptocurrencies is now legal.
Though the plea for striking down the applicability of the circular was upheld by the Supreme Court of India, the order pronounced by the bench consisting of Justice V. Ramasubramanian, Rohinton Fali Nariman and Aniruddha Bose may need careful evaluation for a better understanding of the judgment.
The government of Switzerland was open to the idea of cryptocurrency or blockchain technology from the beginning itself. For example, the local authority provides a lot of impetus to the Crypto startup looking forward to establishing their operations such as low tax rate, tax exemptions. The finance regulator of Switzerland classifies the digital currency as assets that need to be disclosed on one’s annual return and it is subject to the country’s prevailing wealth tax scheme.
As per the report released in the year 2018, Switzerland’s “crypto valley” (that is the canton of Zug) houses a surplus of cryptocurrency or blockchain technology-related businesses that are estimated to be worth $ 44 billion.
Malta does not have any predefined laws to directly handle cryptocurrencies such as bitcoin or any other digital assets. Due to relaxed tax laws in Malta, a number of big firms of cryptocurrency have established their firms in the country, the primary reason being that the firms bypass some of the legal hurdles that these businesses have to encounter before establishment, mostly in the major nations of Europe.
Further, a couple of years back, Malta’s prime minister, Joseph Muscat, gave rise to an effect of economic strategy which was designed in order to help in attracting more investments to the country from all over the globe.
Luxembourg is a tiny European country that houses one of the biggest platforms for cryptocurrency exchange that is Bitstamp. All the transactions related to cryptocurrency in the country are exempted from tax. The local government of the country in terms of how cryptocurrency is defined views them as “intangible assets”, not subject to income tax unless they are exchanged for some declaration.
The powerhouse of Asia is well known for its regulatory framework in a low tax and business-friendly environment. In recent years, a number of laws like Blockchain and Cryptocurrency Regulation, 2020 have been signed by the government of the country that is organized in order to prosper the business of cryptocurrency in the country. In the year 2018, a new regulatory framework for the service of payment was finalized by the central bank of Singapore and the frameworks now include cryptocurrency.
The virtual infrastructure of the country is crowded with a large number of crypto and fintech firms that can help in attracting investors.
The President of the Republic of Belarus passed a decree which permitted the local residents of the country the right to buy and sell crypto assets which also included the right to develop one’s own digital currencies. In addition to that, the decree also allows the crypto enthusiasts to indulge in activities such as mining of various altcoins and trading crypto assets in exchange for Belarusian rubles, foreign currencies, and even other forms of electronic money.
Moreover, till January 1 2023, the government of Belarus has exempted the owners of digital currency from payment of any taxes on their crypto holdings.
All the cryptocurrency trading platforms in this country are required to be registered with Japan’s Financial Services Agency (FSA). The agency had started registering them in September 2017. In April 2017, the cryptocurrencies as a means of payment were legalized by Japan under the amended Payment Services Act The latest cryptocurrency that was registered under FSA was Okcoin Japan which is a Japanese subsidiary of Ok Group.
As of today that is in the year 2020, there are 23 registered crypto exchanges registered by FSA in Japan as “Class 1” members of the JVCEA. The association also has “Class 2” members which comprises companies that are still not licensed by the FSA, such as Payward Asia, Coinbase, and Wirex Japan.
This East Asian country, South Korea is another instance, with the Financial Intelligence Unit (FIU) which disclosed its plans to regulate local crypto exchanges by bringing all of them together under a unified administrative umbrella. Further, South Korea regulates its crypto industry by using a “real-name system,” which means that if any crypto user wants to withdraw or deposit Korean won, he must possess a real-name-verified account at the bank which is providing this service to the exchange. As of now, only Korbit, Bithumb, Coinone, and Upbit are providing the aforementioned services for their users.
Compared to many other countries the US government has been more open and positive about Cryptocurrencies and undoubtedly one of the leading global leaders with respect to crypto adoption and its use. Cryptocurrencies have been classified as MSB (Money Services Business) by the US government. Instructions have been given to several government bodies that all transactions related to cryptocurrency are needed to be carried out only in legal terms as there is a presence of cryptocurrencies in the US derivatives market.
The investors have the choice of not only purchasing Bitcoin but also over other 45 digital assets across the country. The cryptocurrency has been categorized by the country’s Financial Crimes Enforcement Network (FinCEN), as “money transmitters” and therefore, they are bound by certain niche laws. Similarly, the Internal Revenue Service (IRS) has also classified crypto assets as the ones with value and property and thus cryptocurrencies are taxable entities in the U.S.
The laws regarding crypto differ from state to state, and even the national-level regulators have different opinions as to how cryptocurrencies should be dealt with. For instance, while the Securities and Exchange Commission (SEC) considers digital assets to be securities, the Commodity Futures Trading Commission (CFTC) classes them as commodities (thereby allowing users to publicly trade cryptocurrency derivatives).
Earlier a Joint Economic Report (JER) was released by the U.S. Congress which indicated that within the next 12 months or so, the country will move towards a more streamlined regulatory approach to crypto.
Canada, similar to the U.S., is also quite open and positive in approving cryptocurrencies. Canada is home to a large number of established crypto business ventures and startups and it sees cryptocurrencies as an alternative form of payment in the future. Cryptocurrencies are classified as a commodity in Canada, which means that all transactions in cryptos in the country are legally termed as a barter trade. This income generated by cryptocurrencies is basically ‘business income’. Canada government wants to ensure strict Anti Money Laundering laws when it comes to cryptocurrencies.
The country’s legal system requires that the firm which deals with digital currencies should register themselves with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Local banks are not permitted to open or maintain the client’s accounts to deal with digital currencies (i.e., if they are not registered with FINTRAC).
When it comes to crypto adoption and innovation U.K. is widely considered to be a global leader. While digital currencies are not yet banned across the country, they are still not considered to be legal tender. No value-added tax (VAT), is applicable across the country on the purchase of various cryptocurrencies. Instead, a surcharge is applicable on goods or services that are obtained in exchange for Bitcoin or other similar cryptocurrencies.
If the investors incur any profit or loss in relation to their crypto assets are subject to capital gains tax. CryptoUK which is a self-regulatory trade association is seeking to enhance the U.K.’s existing industry standards (surrounding Bitcoin) by executing a code of conduct that comprises a number of niche provisions which are related to data security, individual privacy, and anti-money laundering.
The Reserve Bank of Australia appears to have an open mind towards the crypto industry, it was stated by the regulatory body that it does not prevent people from making use of digital currencies. In 2017, it was declared by the Australian government that Bitcoin would be treated like regular money and will not be subject to double taxation.
The Court ruling on cryptocurrency offered the companies which operate cryptocurrency or offer services related to cryptocurrency, have legal certainty to operate in the country. Earlier the country had passed a bill that was to establish a new legal framework to govern cryptocurrency operations like Initial Coin Offerings (ICOs) across the nation.
Crypto-related firms have to voluntarily abide by the standards on consumer protection and capital requirements and pay tax in the country, in exchange for approval from the regulator.
In Germany, the cryptocurrencies are classified by The German Federal Financial Supervisory Authority (BaFin) as “units of account” that can be used for the purpose of payment. Nevertheless, individuals or firms that indulge in token purchases (for commercial purposes) should obtain approval in advance from the regulatory body. BaFin has prescribed a case-by-case examination for firms looking to conduct an Initial Coin Offering (ICO) and thus suggesting that it has an open mind towards such developing methods of fundraising.
Starting from the year 2020, German banks and other regulated financial institutions are allowed to operate cryptocurrencies such as bitcoin on behalf of their clients, after amendments were adopted by Berlin reversing Europe’s anti-money laundering rules into national law. German fintech also rushed to offer similar services.
Early in the year 2018, China had banned all activities related to cryptocurrencies to take place within the borders of the country and had shut down domestic cryptocurrency exchanges. Moreover, there also exists an access ban that has been imposed by the government on all the locals and international crypto exchange platforms. According to Zhou Xiaochuan, ex-governor of the People’s Bank of China, instructions have been given to the local financial institutions by the regulators that digital currencies will not be recognized as a tool for any retail payment.
Many countries who had earlier banned cryptocurrencies have now legalized the same, like India who has recently reversed its previous order and now the digital currency is legal in India. While there are some countries that are still striving to construct an economic framework for digital currency, there are some countries that have already built systems that require the digital currency service providers to be licensed by the appropriate local regulatory bodies. It is likely that in the coming years the countries who have banned cryptocurrency will lift their ban in the need of the hour.
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