This article is written by Devansh Sharma. This article has been edited by Ojuswi (Associate, Lawsikho).
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
We all have heard about cryptocurrencies and the hype. There are investors, who have experienced major gains overnight while for some it didn’t work like a charm. Most countries have shown no trust in the blockchain and have taken extreme measures to make it illegal or to discourage their citizens from investing in it; some countries have shown utmost faith and see this newly emerging area as an opportunity.
What exactly is a cryptocurrency
A cryptocurrency is an encrypted data string that denotes a unit of currency. It is monitored and organised by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions, e.g., buying, selling, and transferring.
Countries where cryptocurrencies are accepted
El Salvador became the first country in June 2021, to pass Bitcoin as a legal tender along with their national currency, US Dollar.
In April 2022, The Central African Republic announced bitcoin as an official currency. It became the second nation in the world and the first in the African Continent. Even the taxes can be paid in cryptocurrencies to the government through various digital platforms.
Few other countries allow the bitcoin transaction, but allow this freedom with strict rules and orders. This is because of the volatile nature of the cryptocurrency and the unkept account summary of its transactions. Here is the list of a few such nations:
The United States of America
In 2010, Lazlo Hanyecz made the world’s first-ever Crypto Transaction of 10,000 BTC for two pizzas in Jacksonville, Florida. The same amount would have amounted to $600 Million as of April 2021. Today, almost 13 percent of the total business accepting payments in Bitcoins is established in the USA. Miami’s Pizza Bar or Portsmouth’s Seacoast Repertory Theatre are examples of the places which accept payments in bitcoins.
The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has been issuing guidance on the trading of Bitcoin since 2013. Any entity dealing with the administration or exchange of Bitcoin falls under the definition of a money service business (MSB). Additionally, FinCEN is developing regulations for financial and non-financial institutions to keep a check on the AML and CFT activities through cryptocurrencies.
Canada
The nation has been welcoming to the idea of the digitalization of currencies and has recognized it as a commodity under the authority of the Canada Revenue Agency, for Capital Tax purposes. It has been observed that the number of businesses accepting payment transactions in bitcoin is increasing continuously.
Due to its acceptance as a money service business, the trading of cryptocurrencies is administered under the purview of the Proceeds of Crime (Money laundering) and Terrorist Financing Act. Thus, such records of transactions are needed to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). It looks for any illegal transactions, abidance of compliance plans, and storage and management of the records.
Australia
Australia has declared Bitcoin as a legal tender but limits the freedom under the Anti-Money Laundering and Counter-Terrorism Financing Act. Moreover, the country allows the Capital Gain Tax on the cryptocurrencies, i.e., there shall be a tax levied on the profit incurred on the investment in crypto chains.
European Union
The EU recognises cryptocurrencies as crypto assets. It allows the trade of the following but the European Banking Authority keeps warning the citizens to be aware as the blockchain transaction and technology are risky and, not under its purview and control.
However, in 2015, the European Court of Justice (ECJ) considered the blockchain trade as a ‘supply of service’ and exempted it from Value-Added Tax (VAT). In 2020, The European Commission finalized a proposal to regulate crypto-assets. This was done to provide a financial regulatory framework and ensure safe access and usage of cryptocurrencies. Member states like Belgium, Finland, the UK, and Bulgaria have developed their initiative to facilitate the Blockchain trade.
Israel
Israel is the growing hub for start-ups. Many new start-ups are accepting payments in Bitcoins. Till now, 11 Bitcoin ATMs have been opened in Israel. Trading in cryptocurrencies is easy in the nation.
As per the reports of The Library of Congress (LOC) of November 2021, it recognizes the establishment of financial regulatory agencies in 103 nations to develop procedures and rules to deal with the cryptocurrencies and their use in AML/CFT.
UAE
Recently, the ruler of Dubai and also vice-president and prime minister of the United Arab Emirates (UAE) Sheikh Mohammed bin Rashid Al Maktoum announced that UAE has adopted its first law to regulate crypto assets. Such laws have been established and shall be executed under Dubai Virtual Asset Regulatory Authority (VARA). The following laws shall not apply to the state-owned financial free zone, Dubai International Financial Center (DIFC).
Some other countries where the usage of Bitcoins in transactions is allowed are:
Iceland, Japan, Mexico, Albania, Hong Kong. Cuba, Iran
Countries where Cryptocurrencies are Illegal
The November 2021 update by the library of Congress identifies 42 countries to have implicit bans on blockchains. Some of them are: Bahrain, Burundi, Cameroon, Gabon, Georgia, Guyana, India, Kuwait, Lesotho, Libya, Macao, The Maldives, Vietnam, Zimbabwe
Countries with Absolute Ban: Algeria, Bangladesh, Bolivia, China, Egypt, Indonesia, Iraq, Morocco, Nepal, Qatar, Russia, Tunisia, Turkey
Countries with Implicit Ban: Saudi Arabia, Senegal, Tajikistan, Tanzania, Togo, Turkey
Why do some countries have reservations against the blockchains
Most lawmakers have been facing trouble in dealing with cryptocurrency as there is not enough understanding of how the crypto chain works. Due to its ambiguous nature, the policy determiners do not find themselves to be sure enough to let the following be a part of the cryptocurrency as it can have a direct and hard impact if things do not turn out as it is desired.
The other notion is that there is not much of a precedent to back on except the judgments of the banning of such currencies. Formulation of new laws can be hard for many countries, especially in those areas where there is not enough knowledge or surety of the asset.
Most policymakers have also found themselves dumbstruck when it comes to the crypto technologies as they are constantly gliding between treating the same as a currency or an asset. Though most of the citizens deem it to be an investment.
If the cryptocurrencies are deemed to be an asset- they can “tackle market and compliance risks, but not illicit activities.” quoted in a report by Policy 4.0, a think tank founded by blockchain expert Tanvi Mehta.
The reality
Even though many countries like South Korea, Egypt, and China have called for a blanket ban on the trading of digital assets, this blanket is being noticed for its various large holes. The laws have been written on the papers yet there is a sufficient observation on the continuance of the trade of the cryptocurrencies in such places.
Most nations are not able to determine whether to treat such blockchains as a currency or an asset.
On the other hand, the WEF and IMF have shown a sweet-salty reaction to cryptocurrency. While they have accepted its efficiency in overcoming the cross-border payments and financial regulations, the IMF has warned the nations against its volatile nature as bank deposits and lending.
India on blockchain
It was established in 2018 that India has a mixed reaction to trading in private cryptocurrencies. Where the government has taken a stance of keeping the cryptocurrencies illegal, RBI issued several circulars and notifications taking different stances over the cryptocurrencies, until completely banning several entities from trading in cryptocurrencies under the ‘Statement on Developmental and Regulatory Policies’ notification. The Hon’ble Supreme Court then quashed the ban imposed by RBI on blockchain and cryptocurrency trading and allowed the trade to be legal (Internet and Mobile Assn. of India v. Reserve Bank of India (2020) 10 SCC 274)). This made the general public confused about the stand of the government on the issue.
In February 2019, The Subhash Chandra Garg Committee, constituted by the Department of Economic Affairs, Ministry of Finance, submitted their report that led to the establishment of the ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’. This bill was then introduced in the winter session of Lok Sabha in 2021. This bill seeks to ban all private cryptocurrencies and facilitate the introduction of a Central Bank Digital Currency (CBDC). It is one of the 26 bills introduced in the parliament.
Under paragraph 4.5.5 of their ‘Payments Vision 2025’, RBI has talked about “bringing further efficiencies in payment processing and settlements on the introduction of CBDCs – domestic and cross-border” as an issue to deal with by then. This Central Bank Digital Currency (CBDC) will be issued by the Reserve Bank of India. It will help in promoting financial inclusions and simplify the implementation of monetary and fiscal policies.
India is still in consultation with international authorities like the International Monetary Fund and World Bank to arrive at a definite stance over the issue.
Future of digital currency:
By judging the recent market volatility, many nations hold their positions firmly in the market. The market is a gamble that no emerging power wants to take risks with unless they can play on the safe side.
Though there is hope for a worldwide acceptance of the currency as UAE, UE, USA, Australia, and other developed nations are taking a keen interest in regulating the blockchain and building a safe environment for their citizen’s virtual trading, that hope is covered with fog at the moment.
References
- https://timesofindia.indiatimes.com/business/india-business/cryptocurrency-in-india-budget-2022-crypto-tax-virtual-digital-assets-explained/articleshow/89364427.cms#:~:text=The%20Finance%20Minister%20Nirmala%20Sitharaman,Virtual%20Digital%20Asset%20(VDA).
- https://indianexpress.com/article/technology/crypto/cryptocurrency-bill-all-top-countries-where-cryptos-is-legal-illegal-or-restricted-7947092/#:~:text=India,uses%2C%E2%80%9D%20the%20document%20reads
- https://www.investopedia.com/articles/forex/041515/countries-where-bitcoin-legal-illegal.asp
- Regulation of cryptocurrency around the world: November 2021 Update by Library of Congress ( blockchain\service-ll-llglrd-2021687419-2021687419.pdf )
- https://rbi.org.in/scripts/PublicationReportDetails.aspx?ID=1202
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