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Cryptocurrency regulation: Need of the Hour
Dr. Himani Sardar1 Prof Chavi Sood2 Abstract
Among a lot of technological revolutions, money is also revolutionized. It has given birth to a new currency i.e. Digital currency. Cryptocurrency is one such currency that is available in electronic form and can be exchanged through online mode. With the increase in the popularity and use of virtual currency around the globe, a strategic legal framework is necessary. The decentralized and anonymous nature of these currencies gives rise to problems in their regulation in the current scenario as well as in the future. The authors have tried to focus on different legal regulations forced on virtual currencies by different countries across the globe.
Keywords: Cryptocurrency, Bitcoin, Legal, Law, Virtual currency Introduction
Information technology and the rise of the digital world have already made remarkable changes in the conventional industries and old business processes. Many new ways of doing business have evolved and created a new set of industries that were not in existence before a couple of years ago. With so many new technologies coming into business practices, one that remains to get the maximum attention these days is blockchain technology.
Since business runs on information. The faster the information received and more accurate it is, the better it is for the business. (IBM, n.d.) considers blockchain as a kind of shared immutable ledger which enables the process of recording various transactions and tracing assets in business networks. Assets here can be tangible or intangible. So, it technically means that anything of value virtually can be tracked and traded on a blockchain network. In the business environment, a blockchain network can track orders, payments, accounts, production and so much more.
Blockchain could also be used for faster and easier settlements which could save billions that arise from transaction costs. On the same lines, one can say that blockchain is also mostly known
1 Assistant Professor, IILM University, Gurugram, Haryana
2 Assistant Professor, IILM University, Gurugram, Haryana
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as the technology which is responsible for virtual cryptocurrencies like Bitcoin, Litecoin, Ethereum, etc.
Cryptocurrency can be understood as a digital medium of exchange that depends on a decentralized payment system that helps in the peer-to-peer exchange of transactions secured by a well-defined network. This pool of technology mainly includes cryptography, public key, private key, blockchain or mathematical function. Tracing it to 2009, an anonymous programmer, a group of programmers under the code name of Satoshi Nakamoto introduced Bitcoin (Nakamoto). Since it was developed in the open-source environment it is completely decentralized and isn’t controlled by any central authority.
As per the The European Central Bank, Cryptocurrency is a kind of digital money which is uncontrolled and created by its developers online and is used and accepted as legal money by members of particular virtual community
All transactions that ever happen on the network or within the network are available to everyone.
Hence everyone in the network is aware of every account’s balance. This could happen if the blockchain technology used is a public ledger. Every transaction is a file that has the sender’s and recipient’s public keys with the amount transferred. The transactions then need to be signed off the sender with their private key. All this is the basic understanding of cryptography and once the transaction is broadcasted in the network then it needs to be confirmed. In this way, cryptocurrencies could be used to buy goods, as an investment option, business transactions, and many more.
As noticed or visible one can easily say that the growth and emergence of cryptocurrency have attracted greater attention of the government and other stakeholders in the world. These currencies have formulated a new system of economic relations between parties from different countries, where the exchange of assets takes place without involving centralized financial institutions (Bolotaeva, Stepanova, & Alekseeva, 2019). The security and reliability of these transactions is done by a distributed ledger system which comprises networks, recording the committed transactions with the help of blockchain technology. These currencies are becoming more mainstream and parties such as law enforcement officers, tax bodies, and regulatory authorities worldwide are trying to understand this concept and how regulations fit in them.
Like any new phenomenon, cryptocurrency also has its challenges which arise the need for legal regulation. Because of its decentralized and anonymous nature, cryptocurrencies could attract or
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lead to various illegal activities as well. Authorities are worried about the use of these currencies or technology for money laundering, terrorist funding, tax evasion schemes, etc.
With the upcoming ideas and market for such currencies, there have also been few countries which have banned cryptocurrencies totally. Countries such as Bangladesh, Bolivia, Ecuador, Kyrgyzstan and Vietnam have completely banned these currencies while China and Russia are on the verge of banning them. While some countries such as the USA (has the highest number of bitcoins), Japan, Sweden, etc. have taken steps to regulate them by considering them as legal tender. Since crypto such as bitcoins which has been traded on high volumes globally, is still not considered illegal yet but the laws and regulations could vary from country to country (Science, 2019).
With such dual theories of acceptance for such newly updated technology-abled currencies, there have been a lot of challenges. First and foremost being the inclusion of them in the legal fraternity since the use of this digital currency could lead to false use of them. It is vital now that the legal issues are addressed by the legislators before numerous lawsuits emerge involving cryptocurrencies. Hence let’s understand in this paper how each country is working at their own level to legalise them.
Discussion United States
While cryptocurrency is legal in the United States and despite there being a large number of investors and blockchain firms present there, there is no clear and comprehensive regulatory framework to govern crypto activities. International Revenue Services (IRS) classifies cryptocurrency as property (a digital one) for income tax purposes. Crypto transactions or exchanges in the US fall are subject to the rules and regulations made by the Bank Secrecy Act (BSA) and make it mandatory to register themselves with the Financial Crimes Enforcement Network (FinCEN). They also consider it as money transmitters. The Securities and Exchange Commission (SEC) puts cryptocurrencies as a security so that the same laws are applicable.They must follow the anti - money laundering (AML) laws along with the obligations required to adhere to as per counter - terrorism financing(CMF) laws.
Canada
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Considering the neighbouring USA, Canada is quite positive towards cryptocurrency. These transactions are legal in Canada and in February 2021, it became the first country which approved a fund traded via a Bitcoin Exchange. It is necessary for such Firms and businesses which deal with cryptocurrencies to register themselves with the FINTRAC (Financial Transactions and Reports Analysis Centre of Canada). In terms of taxation, cryptocurrency is treated similarly as other commodities.
United Kingdom
The UK regards cryptocurrency as an asset rather than a legal commodity. Additionally, all these types of exchanges are required to register with the Financial Conduct Authority of the UK but are not allowed to offer the trading in crypto derivatives. However, specific regulations have been laid by the regulatory authorities for the cryptocurrency specific requirements like KYC (Know Your Customer), and the previously mentioned CFT and AML. Also, even though the taxability depend majorly on the crypto activities made and who has engaged in it, these investors must still pay capital gains tax on their profits
Japan
The Land of the rising sun takes a forward thinking approach in cryptocurrency regulation. by recognizing cryptocurrencies as legal property under the Payment Services Act in 2017. Japan’s Financial Services Agency (FSA) governs all the crypto exchanges and trading platforms for the same. This Act complies with AML/CFT obligations and this country considers cryptocurrency trading gains to be “miscellaneous income” and taxes their investors accordingly.
Australia
Cryptocurrency is very much acceptable and legal in this country as well. They have taken a proactive stance towards crypto regulation. Australia’s government and authorities has classified cryptocurrencies as legal property & subjected it to Anti-Money Laundering and Counter- terrorism Financing Act 2006. The transactions are freely operated in the country as long as they are registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Since it is treated as good as a property, capital gains tax on it is applicable as well.
Singapore
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The Island state, just like the UK, considers cryptocurrency to be a property but not legal. These exchanges are regulated and licensed by the Monetary Authority of Singapore (MSA) in accordance with the rules by Payment Services Act (PSA). These trades are usually not taxed as long term capital gains. But the companies that regularly transcat in cryptocurrency are taxed by treating these gains as their income. Lately, Blockchain and Cryptocurrency Regulation 2020 was signed to regulate it.
South Korea
In this country crypto exchanges are legal but not cryptocurrencies. Yes, it is a bit confusing but as such digital currency transactions are exempted from tax and do not attract capital gains tax.
Crypto regulations are overseen by the South Korean Financial Supervisory Services (FSS) and adhere to strict CFT/AML obligations. Exchanges dealing in crypto and other virtual asset service providers must register with KFIU which stands for Korea Financial Intelligence Unit September,2021 onwards. Nevertheless, it has been planned by the Ministry of Strategy and Finance to impose tax with a revised framework which will be launched in the year 2022.
China
This emerging country doesn’t distinguish cryptocurrencies as legal tender but surely includes them as property to find out inheritance. The People’s Bank of China bans these exchanges from operating in the country. Forcing people engaging in the activity to close such operations, in 2021, China placed a ban on bitcoin mining. Binance, which is the world’s largest crypto exchange was first launched in China but later in 2017, the headquarters were relocated to the Cayman Islands.
India
Like most countries, the subcontinent doesn’t consider cryptocurrency as legal tender. The country’s CBDT (Central Board of Direct Tax) specifies that investors must pay taxes on crypto trading profits. In March 2020, the Supreme Court reversed the decision of carrying transactions in virtual currencies which was initially banned by the RBI (Reserve Bank of India) in 2018. But in early 2021, the country put forward a law that apart from state blocked digital assets , it would be illegal to mine, trade, hold or issue cryptocurrency.
Conclusion
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Cryptocurrency is still in its early stage and a lot of institutions and investors haven’t yet realised its potential. In absence of such awareness, the laws for the same are difficult to propose or pass.
One must need technical insight to put these digital currencies in the eyes of law. Hence economists and regulators need to come forward with suggestions to address the elephant in the room. In order to allow the nation’s growth regulatory efforts are required, to work with it not against it, and to recognize potential benefits. A number of countries currently prove to be totally incapable of responding to innovations and technological progress. But the emergence of decentralized system and cryptocurrency will surely lead to evolutionary changes in the international legal system (Cvetkova, 2018)
References
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