Cryptocurrency Regulations and Future Scenarios
Ever since cryptocurrency started gaining popularity in the world, governments have had mixed emotions about it. After all, the very principle behind cryptocurrency is the decentralisation of finances, so basically, the opposite of centralized governance, which is basically what all governments do. Governments around the world are divided on how to regulate cryptocurrencies as they transition from speculative investment to a stablemate in a balanced portfolio.
The first country on our list has got to be the nation with the most investors in cryptocurrency. That is, none other than the United States of America.
- USA: Despite the fact that the United States has a large number of cryptocurrency investors and blockchain enterprises, the country has struggled to establish a clear regulatory framework for the asset class. In fact, the various bodies inside the country are themselves divided on this topic. The Securities and Exchange Commission (SEC) classifies cryptocurrency as a security, the Commodity Futures Trading Commission (CFTC) as a commodity, and the Treasury as a currency. Meanwhile, cryptocurrencies are classified as property by the Internal Revenue Service (IRS) for federal income tax purposes.
- India: The subcontinent, like most countries, declares that cryptocurrencies are not legal money. Despite this, the country’s Central Board of Direct Taxation stipulates that crypto trading gains must be taxed. The Reserve Bank of India (RBI) forbade financial institutions from transacting in virtual currencies in 2018, however, this decision was overturned by the Supreme Court in March 2020. Despite this, the country’s regulations are still in flux. For example, in early 2021, India proposed legislation making it illegal to create, store, mine, and trade cryptocurrencies that are not backed by the government.
- UK: In the United Kingdom, cryptocurrency is considered property but not legal tender. Furthermore, cryptocurrency exchanges in the United Kingdom must register with the Financial Conduct Authority (FCA) and are not permitted to trade crypto derivatives. Furthermore, the regulatory body has imposed cryptocurrency-specific criteria in the areas of know your customer (KYC), anti-money laundering (AML), and counter-terrorist financing (CFT). Although investors continue to pay capital gains tax on income from cryptocurrency trading, taxability is determined more broadly by the crypto activities carried out and who is involved in the transaction.
- Canada: Regulators in Canada have taken a proactive approach to cryptocurrency. It became the first jurisdiction to approve a Bitcoin exchange-traded fund in February 2021. (ETF). The Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have also stated that cryptocurrency trading platforms and dealers in Canada must register with provincial authorities. In Canada, cryptocurrency investment firms are also classified as money service enterprises, which requires them to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). When it comes to taxation, Canada treats cryptocurrencies the same way it does other commodities.
- Japan: In Japan, the Payment Services Act recognises cryptocurrencies as legal property, which is a forward-thinking approach to crypto laws (PSA). Meanwhile, cryptocurrency exchanges in the country must register with the Financial Services Agency (FSA) and follow AML/CFT guidelines. Earnings from bitcoin trading are classified as “miscellaneous income” in Japan, and investors are taxed accordingly.
- Singapore: The island state regards cryptocurrencies as property rather than legal tender. The Monetary Authority of Singapore (MAS) licences and supervises exchanges under the Payment Services Act (PSA). The fact that long-term capital gains are not taxed contributes to Singapore’s status as a cryptocurrency safe haven. Companies that regularly transact in cryptocurrencies, on the other hand, are taxed, with gains treated as income.
- China: The growing global power classifies cryptocurrencies as property rather than legal cash for the purposes of calculating inheritances. According to the People’s Bank of China, cryptocurrency exchanges are prohibited from operating in China because they encourage unlicensed public financing. Binance, the world’s largest cryptocurrency exchange, was founded in China but relocated its headquarters to the Cayman Islands in 2017 as a result of the Chinese government’s crackdown on cryptocurrency legislation. Furthermore, in May 2021, China banned bitcoin mining, forcing many businesses to close or relocate to places with better regulatory environments.
- South Korea: In the country, cryptocurrencies are neither legal tender nor financial assets. As a result, digital currency transactions are exempt from capital gains taxes. The South Korean Financial Supervisory Service (FSS) oversees cryptocurrency exchange regulation, with operators subject to stringent anti-money laundering and counter-terrorist financing requirements. By September 2021, cryptocurrency exchanges and other virtual asset service providers must register with the Financial Services Commission’s Korea Financial Intelligence Unit (KFIU). (FSC).
- Australia: The Australian government is taking an active stance on cryptocurrency legislation. In Australia, cryptocurrencies are classified as legal property, making them subject to capital gains tax. Exchanges may operate in Australia if they register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and meet stringent anti-money laundering and counter-terrorist financing (AML/CTF) requirements. In 2019, the Australian Securities and Investments Commission (ASIC) issued regulatory guidelines for initial coin offerings (ICOs), as well as a prohibition on exchanges issuing privacy coins.
- European Union: The majority of the European Union (EU) has legalised cryptocurrency, but exchange governance is the responsibility of individual member states. Meanwhile, taxes in the EU vary greatly from one country to the next, ranging from 0% to 50%. In recent years, the EU’s Fifth and Sixth Anti-Money Laundering Directives went into effect, tightening KYC/CFT obligations and standard reporting requirements. In September 2020, the European Commission proposed the Markets in Crypto-Assets Regulation, a framework that improves consumer safeguards, specifies explicit crypto industry behaviour, and adds additional licencing requirements.
- Russia: In 2021, Vladimir Putin stated that Russia accepts the role of cryptocurrencies and that they may be used for payment. According to current legislation, cryptocurrency is a monetary substitute in Russia. According to article 27 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia),” the use of monetary surrogates is prohibited in the Russian Federation. The Central Bank of Russia and Rosfinmonitoring have repeatedly warned Russian residents in their informational appeals that all cryptocurrency transactions are speculative and carry a significant risk of loss of value.
- Nigeria: On January 17, 2017, the Central Bank of Nigeria (CBN) issued a circular informing all Nigerian banks that bank transactions in bitcoin and other virtual currencies are prohibited in Nigeria. Later, the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation formed a committee to look into the possibility of Nigeria adopting blockchain technology, which powers bitcoin and other digital currencies. The committee has filed its report, according to Mr Dipo Fatokun, Director, Banking & Payments System Department at CBN, but “many subcommittees are still working on the matter.” On February 5, 2021, the Central Bank of Nigeria issued a circular notifying Nigerian financial institutions that, as a follow-up to their January 2017 circular, trading in cryptocurrencies or enabling payment for it remains illegal and will result in severe penalties.
- United Arab Emirates: There is an outright prohibition. All transactions in “virtual currencies” (encompassing cryptocurrencies in Arabic) are prohibited 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, according to the Library of Congress. Nonetheless, Dubai gold dealer Regal RA DMCC became the first company in the Middle East to receive a licence to trade cryptocurrency on February 13, 2018, according to the Dubai Multi Commodities Center. DMCC’s Crypto-commodities licence is for Proprietary Trading in Crypto-commodities exclusively,” according to the DMCC website, which promotes “cold storage” of cryptocurrency. This licence does not permit any initial coin offerings or the establishment of an exchange.” The Securities and Commodities Authority issued “The Chairman of the Authority’s Board of Directors’ Decision No. (23/Chairman) of 2020 Concerning Crypto Assets Activities Regulation” in November 2020. “It establishes a regulatory framework for the issuance, listing, and trading of crypto assets. Crypto asset providers must be incorporated in the UAE.”
- Pakistan: In Pakistan, Bitcoin and other cryptocurrencies are not formally regulated, but they are not illegal or prohibited. As of January 16, 2021, the State Bank of Pakistan has prohibited individuals or organisations from selling, buying, exchanging, or investing in virtual currencies, coins, or tokens. The Federal Investigation Agency’s (FIA) Cyber Crime Wing has made several arrests in connection with bitcoin and other cryptocurrency mining. These arrests were made on the basis of suspicion of money laundering. Despite the numerous controversy surrounding virtual currencies, prominent Pakistani bloggers and social media influencers openly trade bitcoin and regularly post content on social media advocating for cryptocurrency regulation. In December 2020, the government of Khyber Pakhtunkhwa became the first in Pakistan to pass legislation legalising bitcoin.
As a way to participate in the technological revolution, governments have begun to develop their own cryptocurrency, and several nations have issued legislation to regulate its use, giving it more legitimacy as a currency to be used by businesses and individuals. More rules will emerge, hastening cryptocurrency adoption in everyday life. Seems like someone forgot to pass down the memo about how cryptocurrency is a step towards the anti-governing bodies movement, and will only promote more body-less autonomy.
Several economists predict a significant shift in crypto as institutional money enters the market. Furthermore, there is a chance that cryptocurrency will be listed on the Nasdaq, lending legitimacy to blockchain and its use as a replacement for traditional currencies. Some believe that a validated exchange-traded fund is all that cryptocurrency requires (ETF). Although an ETF would make it easier for consumers to invest in Bitcoin, there must still be a demand for cryptocurrency, which a fund may not generate automatically.
Some of the current limitations of cryptocurrencies, such as the fact that a computer crash can wipe out one’s digital fortune or a virtual vault can be looted by a hacker, may be addressed in the future thanks to technological advancements. What will be more difficult to overcome is the underlying paradox that plagues cryptocurrencies: the more popular they become, the more regulation and government scrutiny they will face, eroding the fundamental assumption underlying their existence. But hey, who doesn’t love the idea of a dystopian future where the people and the governments are at odds.
Despite the fact that the number of shops accepting cryptocurrency has steadily increased, they continue to be in the minority. Cryptocurrencies must first gain consumer acceptance before they can be widely used. Except for the technologically savvy, the greater complexity of cryptocurrencies in comparison to traditional currencies will likely deter most consumers.
A cryptocurrency that wishes to enter the mainstream financial system may be required to meet a number of conditions. It would have to be mathematically complex (to avoid fraud and hacker attacks) but simple for consumers to understand; decentralised but with adequate consumer safeguards and protection; and maintain user anonymity without acting as a conduit for tax evasion, money laundering, and other criminal activities. Given how difficult these conditions are to meet, is it possible that the most popular cryptocurrency in a few years’ time will have characteristics that fall somewhere between severely controlled fiat currencies and today’s cryptocurrencies?
While that is unlikely, there is no doubt that as the dominant cryptocurrency at the moment, Bitcoin’s success (or failure) in dealing with the challenges it faces will have a significant impact on the fortunes of other cryptocurrencies in the coming years.
The security of a currency is critical, and cryptocurrency is extremely secure. Blockchain has never been hacked and is open source, demonstrating its superior security. The only way cryptocurrency can be hacked is if a company in the ecosystem has a vulnerability in their site or information tied to it that can be used to hack wallets, but cryptocurrency is typically secure and can be used as currency for a long time.
As crypto evolves, it will gain a lot of stability, making it easier to transfer and use as a store of value, allowing businesses, governments, and everyone to use it in their daily lives. Cryptocurrency is still in its infancy, and some are sceptical of it, but it is here to stay, has been integrated into our daily lives, and will soon be a currency used by everyone. Given its widespread acceptance and popularity, cryptocurrency’s future is almost certain to be bright.
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