How is the regulation of cryptocurrencies changing and how will it affect the market ecosystem? High-profile processes and legislative decisions that demonstrate the attitude of the countries of the world to cryptocurrencies.
Initially, bitcoin appeared as an opposition to centralized payment systems, which are subject to regulation and control by central banks, legislatures and courts. Cryptocurrency did not need to be accepted by states, and the latter did not notice it for a long time, but with the mass distribution of cryptocurrencies, everything changed. What is the status of cryptocurrencies now and how has the relationship with regulators changed?
Global practice of cryptocurrency regulation
Global trends and vectors of cryptocurrency regulation in certain regions were outlined 7-8 years ago, and neither then nor now do governments and banks around the world have a single approach to this issue. The main practice of regulators is now grouped in three main regions and it differs significantly:
North America. The United States and Canada are trying to integrate cryptocurrencies into the existing legal framework, which causes many problems for both regulators and industry players. Although in general, the cryptocurrency in this part of the world is warmly received and the largest markets and exchanges work here.
Asia. The region is trying to use blockchain and cryptocurrencies to improve the existing financial system. But the countries ‘ understanding of this process is different: if Japan recognized bitcoin as a means of payment, then China followed the path of monopolizing the blockchain by the state.
The European Union. The legal framework for cryptocurrencies in Europe is rather vague and manifests itself in each country in its own way. Strict rules are established only in relation to procedures, more on this below.
CIS. The key regulators of Eastern Europe are Russia and Ukraine with different positions on cryptocurrencies. In the Russian Federation, the law “On the CFA” came into force, which defined cryptocurrencies as property, but prohibited their use as a means of payment. On December 2, 2020, Ukraine adopted the law “On Virtual Assets”, which is designed to regulate the turnover of cryptocurrencies in the country.
The rest of the countries either follow the example of their larger neighbors or still don’t understand how to regulate IT, which is not surprising given the complex economic and technical nature of cryptocurrencies.
How the attitude of states to cryptocurrencies has changed
Despite such different approaches, it is possible to identify two trends that are typical for most regulators who are faced with the need to enter cryptocurrencies into the legal field:
Change in perception. The industry has started to be noticed and is no longer perceived as a geek craze.
Prevention of possible risks. Cryptocurrencies are feared for their anonymity and lack of control, and they try in any way to prevent them from becoming a tool of crime.
This means that cryptocurrencies have been noticed, and not from the best side. That is why in the last few years we have seen a tightening of regulation, not so much of the cryptocurrencies themselves, but of the market ecosystem: KYC on exchanges, monitoring of transactions of individual wallets, combating money laundering, and much more. Even in the EU, where they have not yet decided what to consider cryptocurrencies, the AMLD5 rules apply to exchanges.
Old-school users perceive this as the pressure of the states on the” objectionable ” cryptocurrency, but the situation is much more complicated. Commenting on the regulatory requirements for exchanges, CEO of Binaryx Oleg Kurchenko says that this is a double-edged sword:
“Yes, KYC and AML create some inconvenience for our customers and arouse suspicion among adherents of conspiracy theories, but these rules are needed not so much by us as by users. If the client has passed the KYC, he receives all the rights of the consumer, and the platform is responsible to him as stipulated in the offer.”
Verification of users through KYC and compliance with anti-money laundering standards means that:
You can prove your innocence in crimes involving the use of cryptocurrencies, if you are accused of them;
You have the right to protect your interests and rights granted by a particular jurisdiction;
The platform itself operates legally, and is responsible for its activities to the client and the regulator.
“KYC + legal information about the site is almost a firewall from the scam. If the exchange is of unknown origin, and the clients are anonymous, then who, to whom and for what will be able to make claims, for example, if the account is frozen or your order is suddenly closed?”.
In addition, the financing of terrorism through cryptocurrencies and money laundering through exchanges has become a headache for all regulators. Here you can not do without verification:
“Imagine that you bought BTC on an anonymous bulletin board or an unknown exchange. If the transaction b came to you from a wallet with a dubious reputation (for example, a drug dealer from the darknet), then tools like those provided by Chainalysys will mark your wallet as unreliable. A couple of such transfers — and the law enforcement officers will have a few questions for you. Isn’t the price of anonymity high if you don’t indulge in terrorism at your leisure?»
Legal regulation is not required to crush exchanges and cryptocurrencies. It helps to transform the crypt from a marginal financial instrument into a full-fledged market sector that has the same responsibilities and rights as the rest.
High-profile processes and regulatory decisions
And yet, most countries are trying to articulate their position on cryptocurrencies and blockchain more clearly, although this is not a quick process. Concrete examples of recent times will help to clearly illustrate who, what, and how they relate to:
Charges against Ripple. The SEC’s case against Ripple led to the company’s de facto suspension of operations in the US and the loss of many partners. The SEC believes that XRP is a security and could not be released to the market through an ICO. The case is still in court and could set a dangerous precedent for other coins in the US.
The bill of the Central Bank of India. The Reserve Bank of India has proposed banning the use of private cryptocurrencies and creating a legal framework for the digital rupee. It seems that India is following the path of China.
Anchorage approval. OSS issued Anchorage a license to launch the first cryptocurrency bank in the United States with the status of a national bank.
New law on DLT assets in Switzerland. The country has fully legalized the trade of digital assets operating in distributed registries. This means that goods and services can be legally tokenized.
plans in China. Based on the national BSN blockchain, China plans to build an international payment system using the digital currencies of central banks and public cryptocurrencies around the world.
The entry into force of the Law “On CFA” in the Russian Federation and the taxation of cryptocurrency transactions. The law includes the concepts of cryptocurrencies, and all coins or tokens issued outside the territory of the Russian Federation are not recognized as regulated digital assets. That is, truly decentralized cryptocurrencies can actually be legally traded in Russia, but cannot be used as a currency. Most of the operations with public crypto assets remained in the “gray zone”. However, in February, the Duma adopted in the first reading amendments to the Tax Code, allowing taxes to be levied on cryptocurrency transactions.
Adoption in the first reading of the Law ” On Virtual Assets” in Ukraine. The act introduces the concept of cryptocurrencies and regulates their circulation in the country. Several structures, including the Ministry of Finance, should monitor the market at once. In general, this is the legalization of an already established market, aimed at bringing it out of the shadows and creating mechanisms to protect the rights of its participants (Binance has been operating in Ukraine for several years). But until the Law comes into force, the government’s position on cryptocurrencies remains generally neutral and passive.
These are just a few recent solutions that are now being heard by the community. Over the past few years, we have witnessed no less grandiose events, such as the joint pressure of the EU and the US on the developers of Libra, the first tests of the digital yuan, and the unsuccessful attempts to save Venezuela from hyperinflation with the help of El Petro.
What will be the future of cryptocurrency regulation?
These contradictory decisions so far speak only about one thing-countries are trying to regulate crypto assets, but they do not yet know how. And this is just the beginning. While regulators are trying to deal with classic cryptocurrencies like BTC, the industry is already preparing new challenges — DeFi, tokenization of traditional assets, voting systems on the blockchain, etc.
It is obvious that cryptocurrencies continue to change the world and regulators have to react, so until there is a final formation or prohibition of cryptocurrencies, such high-profile cases will appear again and again. We are at the stage of forming complex concepts for regulating cryptocurrencies and blockchain, and now their general outlines are only vaguely outlined.