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One of the impediments to the adoption of blockchain and crypto technologies in the world are the regulations governing their introduction into the world of business. The constantly changing nature of the legal framework and the fear of being caught up in legal disputes with regulatory authorities, especially the tax ones, is forcing most small- and medium-sized businesses across the globe to work with blockchain from the shadows.
Nonetheless, many experts believe the year 2019 has seen a significant improvement in many countries in regard to blockchain regulation, with the attitude toward digital money shifting dramatically in recent years. This observation is shared by Alina Kiselevich, a communication specialist at Enigma Securities — a crypto market broker-dealer — who told Cointelegraph that:
“Some countries now consider them legal tender, while many viewing cryptocurrencies as commodities. Governments around the world are keenly aware of the problem that the technology is rapidly outpacing the laws that govern it.”
Blockchain adoption is being accelerated, but crypto can be only referred to as a national cryptocurrency.
When it comes to crypto regulation, the relationship with blockchain in China could compete with a Shakespearean romance. On one hand, the Chinese central authorities are introducing blockchain technology in some of their mainstay powerhouses, such as the Agricultural Bank of China and other financial institutions, for tracking transactions and introducing transparency. However, on the other hand, they are still cracking down on cases in which the technology is used among the population.
China’s leading social media platform, Weibo, recently banned leading Chinese crypto platforms Binance and Tron due to a violation of its rules. In November, Shanghai regulators ordered a search of all local crypto exchanges and formed reports on their findings to the People’s Bank of China for further action.
Regardless of the bans, The Standing Committee of the 13th National People’s Congress in China ruled that a new law on the regulation of cryptographic technology will come into effect on Jan. 1, 2020. The law aims to set a regulatory framework for blockchain applications in light of President Xi Jinping’s calls for accelerating the adoption of blockchain technology in the country.
According to Steve Tsou, global CEO of RRMine — a distributed Bitcoin hashrate asset management and trading platform — 2019 has been a year of laying down the regulatory foundations for Chinese crypto. He told Cointelegraph:
“Various regions have passed a series of policies to support blockchain companies and set up innovative pilot areas. Among them, the core directions are AI tech based on computing power and blockchain, IOT networks, and offshore digital financial innovation.”
Speaking about the future development of crypto regulation in China, Tsou added that, “With clearer supportive attitude and more restrictive supervision, there can be a process of trial, which has at least found an exit and clear direction for the entire crypto world.” Similar expectations were shared with Cointelegraph by Sukhi Jutla, the co-founder of MarketOrders — a blockchain-based platform for the gold and diamond jewelry industry:
“With over 1 billion population in China, this looks like the perfect testing ground to see mass adoption taking place. China is already the leader when it comes to mobile payments and creating their own dedicated cryptocurrency was the natural next step. China is the home to thousands of blockchain startups so I wouldn’t be surprised to see China leading the way and making even more gingiva advancements in 2020.”
Crypto-to-crypto trades are not taxable.
The land of high arts and couture has been on the sidelines of blockchain integration, until François Villeroy de Galhau, the governor of the Bank of France,announced that the institution is ready to launch a pilot project for a central bank digital currency, or CBDC, in the first quarter of 2020.
The new instrument will be based on a digital euro format and will be available only to financial institutions, excluding retail customers. The move has already been regarded as a counteract to the threat posed by Facebook’s Libra stablecoin, considering that France is aiming to become the first country to issue a CBDC with blockchain-based settlements and is currently the biggest adopter of Bitcoin payments, with over 25,000 sales points accepting it across the country.
In another, even more crypto-friendly move, French Minister of Economy Bruno Le Maire stated on Sept. 12 that crypto-to-crypto trades will no longer be subject to tax. However, sales of cryptocurrencies for fiat will still be taxable with the nation’s treasury.
Banks are allowed to work with cryptocurrencies.
Rational and calculative as ever, the German government has been biding its time in releasing any manner of clarification regarding its stance on blockchain technologies. At present, the German financial industry, one of the main engines of Europe’s largest economy, is prohibited from having any dealings with cryptocurrencies.
However, the German government passed a bill in November that allows banks to sell Bitcoin and other cryptocurrencies, as well as grant custody over them, by the end of 2020.
Though the law is still at the draft stage, it has been met with significant enthusiasm from local businesses, as it would allow banks to streamline crypto operations and give them the authority to safeguard user assets on the basis of their experience and established risk mechanisms.
The United States of America
Digital assets are regulated just like fiat money.
The U.S. is seen as a trendsetter in terms of blockchain and cryptocurrency adoption, and most other countries in the world act in hindsight to the economic giant across the Atlantic. Though still fragmented on regulation at the state level, the U.S. is coming to terms with the need to adopt new technology as individual state authorities pass crypto-friendly laws.
The state of Wyoming passed a bill in 2019 that came into effect on March 1. The law divided digital assets into three categories: digital consumer assets, digital securities and virtual currencies.
All assets from the category of virtual currencies will be equated with fiat currencies and subject to the same tax and supervision procedures. The law also allows banks to provide custodial services for digital assets, making the ownership of cryptocurrencies both legal and equal in status to fiat currencies.
Crypto mining is legal but needs a license.
Introducing new technology in a land so harshly pressured by Western sanctions is a tricky deal. Notably, Iran is becoming one of the main hubs for cryptocurrency and blockchain adoption, spurred on by its long-standing sanctions. Both the Iranian government and citizens are increasingly turning to decentralized technology for circumventing the economic blockade.
In what can be described as a bold move, the Iranian government passed a law in July 2019 that endorsed the mining of cryptocurrencies, equating it to industrial activity. The Ministry of Industry, Mine and Trade has already started issuing licenses for the activity, and demand is surging. The activity will be subject to taxation like in any other industry, and miners who create their own mining farms will get support from the government.
To encourage the trend, the Iranian government is offering subsidized electricity rates at half a cent per kilowatt for mining activities, a trend that has started attracting mining companies from China and even the U.S. to Iran. However, despite the seemingly libertarian approach and progressive attitude toward blockchain technology, cryptocurrencies are banned as a means of settlement in Iran.
As the leading countries’ stances on the crypto market have changed in 2019, other regions also have a part to play in impacting cryptocurrency and blockchain adoption. Among them is the United Kingdom, according to Galyna Danilenko from Smartlands, a U.K.-based digital securities issuance and investment platform: “UK has made a significant breakthrough in 2019: with the legal paper issued in November, digital assets were recognized as property.”
Jessica Renden, head of operations at cryptocurrency exchange Cointree, referred to Japan and New Zealand as the main countries that are setting trends in the crypto regulation market in 2019. She explained her view to Cointelegraph:
“The New Zealand tax authorities have confirmed that bitcoin and several other coins are approved as salary payment alternatives, subject to employment contracts set out by employers. Earlier this year the Japanese government passed a bill to incorporate cryptocurrency into regulation and to date have 21 approved registered crypto exchanges.”
Russia is another country that made the most promising breakthrough in cryptocurrency regulation, according to Evan Luthra, a Forbes “Top 30 Under 30” tech entrepreneur and blockchain expert holding an honorary Ph.D. in decentralized and distributed systems. He told Cointelegraph that although legislation on cryptocurrencies has not been formed yet in Russia, a lot has changed throughout the year:
“The authorities changed their initial radically negative position and are now interested in developing new technologies for the benefit of the state, financial system, welfare, and convenience of citizens. The main achievement, I guess, was the Russian Federal Law ‘On Digital Rights’ release.”
According to MarketOrders’ Jutla, the United Arab Emirates is one of the leaders in crypto regulation when it comes to the Middle East. He said:
“This year, the Securities and Commodities Authority (SCA) in the United Arab Emirates drafted a resolution on regulating crypto-assets, providing greater clarity for crypto-related projects in the Middle East nation. By drafting this resolution, the UAE is sending a positive sign to the world. This can be seen as a signal that they are open to exploring this area and by creating guidelines they are giving more reassurance, confidence and stability to businesses owners who may want to enter this field.”
Cryptocurrency regulation trend moves on
Experts predict that in the next couple of years, more countries will make significant changes in their crypto regulation. In regard to this, Renden told Cointelegraph that the first country-backed digital currency should arrive in the next one to two years, potentially from China. She added:
“This will open the floodgates as regulators become more comfortable and organizations around the globe realize the benefits digital currencies provide, such as low transaction fees and instant payments. Within five years, we expect all first-world countries to have released, or to be working on their own digital currency if they aren't already.”
While sharing an opinion on this matter to Cointelegraph, Kiselevich said that he sees numerous countries around the world making big steps toward launching and implementing both crypto and blockchain technologies, adding that, “It looks like a trend that might be followed by a lot of countries later.”