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Regulation of Cryptocurrency
Cryptocurrency has been popular since Bitcoin’s rise to fame in 2016 when the price of one Bitcoin jumped from $572.33 to $4764.87. Since then many other forms of cryptocurrency have emerged in the market so what is cryptocurrency? Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions[1]. The main feature of cryptocurrency is its use of blockchain technology to ensure transparency, decentralization and immutability. The decentralized nature of cryptocurrency - using blockchain, makes it all the more appealing to traders because it makes transactions immune to government control and interference. However, the spread of cryptocurrency around the globe has awoken governments to the need for regulation.
One of the impediments to the use of blockchain technology and cryptocurrency is the strict regulation surrounding them which forces many traders to work with blockchain from the shadows. Nonetheless, 2019 seems to have been a year of change with regard to virtual currency with blockchain regulations improving in many countries. In the United States, cryptocurrency is legal tender, but regulation varies according to the states, and in Canada while it is not legal tender, exchanges in cryptocurrency are legal and they must be registered with FinTRAC. Australia has been extremely progressive in the recognition of cryptocurrency as legal tender and in 2017 the government declared that Bitcoin should be treated as property and taxed under Australia’s Goods and Services Tax[2]. Japan’s attitude to cryptocurrency is similar to Australia’s as it recognizes Bitcoin and other cryptocurrencies as legal property under the Payment Services Act. China has a complicated relationship with digital currency where, on the one hand, central authorities are introducing blockchain technology in their mainstay financial institutions, but on the other hand are cracking down severely on the public’s use of cryptocurrency. Germany, at present is prohibited from dealing with cryptocurrency but the government has passed a Bill allowing banks to sell Bitcoin and other cryptocurrencies by the end of 2020[3].
In India, Cryptocurrency is not legal tender and while exchanges are legal, the government has made it very difficult for them to operate. Even though there is a lack of clarity on the legality of cryptocurrency, the Chairman of the Central Board of Taxation has announced that any profits made from Bitcoin is liable to be taxed. Regulations on the exchange of cryptocurrency in India are extremely harsh and the Reserve Bank of India has banned banks and other regulated financial institutions from dealing with or selling digital currency.
Cryptocurrencies today lack the regulatory safeguards that financial institutions and markets have, such as third-party audits, financial reporting and disclosure, prevention of insider trading and a proper security infrastructure — all of which pose risks for the retail investor when unestablished[4]. While many people argue that the very purpose of decentralisation of cryptocurrencies is to prohibit regulation, many aspects such as exchanges, issuance of new tokens, and marketing are highly centralized in nature, and thus requiring rules to prevent and punish impropriety[5]. If left unchecked, their unpredictable nature poses a risk to the stability of the economy, especially in developing countries. Furthermore, concerns over misuse of the technology to fund terrorism, trafficking and drugs makes it imperative for regulators to step in and enforce controls.
[1] Ameer Rosic, What is Cryptocurrency?, Blockgeeks, (Apr. 7, 2017, 10:54 AM), https://blockgeeks.com/guides/what-is-cryptocurrency/.
[2] Comply Advantage, Cryptocurrency Regulations Around the World, ComplyAdvantage, (Apr. 7, 2020, 3:42 PM), https://cointelegraph.com/news/five-countries-where-crypto-regulation-changed-the-most-in-2019.
[3] Julia Magas, Five Countries Where Crypto Regulation Changed the Most in 2019, CoinTelegraph, (Dec. 29, 2019, 4:15 PM), https://cointelegraph.com/news/five-countries-where-crypto-regulation-changed-the-most-in-2019.
[4] Praveen Jayachandran, Cryptocurrency Regulation: An Indian Perspective, CoinTelegraph, (Nov. 16, 2019, 1:17 PM), https://cointelegraph.com/news/cryptocurrency-regulation-an-indian-perspective.
[5] Id.
- Bitcoin
- Cryptocurrency
- Legality
