Overview of Cryptocurrency Regulations

The first major regulation a lot of countries seem to be implementing or thinking how to implement, is by nature how to classify cryptocurrencies. Should they be considered commodities or securities after all. Having a clear distinction will set the tone on how they will be further regulated and traded as different rules apply for commodities and securities.

The other important thing governments are trying to regulate is the sole process of how money is being “mined”. Mining has become more expensive with time, reducing the ROI. It requires more and more initial investment in purpose-built proper hardware and consumes a lot of energy although the return can be marginally changed with one small change in algorithms by the coin’s core team. China is one such example of a government, trying to strongly control mining.

ICO Crowdfunding Regulations

ICO or initial coin offering is a way for a development team to launch a cryptocurrency project by raising money issuing the new digital coin at subprime prices, in exchange for other crypto currencies or fiat currency. The problem with doing ICOs in a mostly unregulated industry and sector is that there is no guarantee you will not get scammed and cheated off your money – as were many examples with ICOs in the past. Many of the ICOs were raising money without a real product behind their idea thus creating a bubble. Once enough capital has been raised the development team will simply disappear as were the case with BitConnect. In other times, the government will act accordingly, as in the case with Centra, a company carrying a fraudulent ICO whose two owners ended up in prison.

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  Cryptocurrency regulations in Asia

  Asia has always been a major player in both cryptocurrency and new trendy technology. In recent years there has been a lot of movements in the regulations in Asia. While in 2013 China was a major driver in cryptocurrency and supporter of the sector, seeing cryptocurrencies as an alternative to stocks and the housing market. However, in 2014 the government took a big turn in the opposite direction, with the Chinese central bank ordered banks and companies to close account for virtual currencies. In 2017 the Chinese government banned ICOs and in the beginning of 2018 blocked foreign trading platforms operating in China. This would see a shift in power making Japan the new upcoming Asian player. In 2017, while the Chinese government was pushing down on cryptocurrencies, the Japanese government allowed merchants to legally accept Bitcoin as a payment method. Following, the country recognized several exchanges as legal operators.

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  Crypto regulations in Europe

  In Europe, it seems Malta and Switzerland are the pioneers, leading the adoption of cryptocurrencies. Malta has passed several legislations such as the Digital Authority Act to certify companies using and working with crypto and blockchain; the Virtual Financial assets Act to regulate ICOs and trading cryptocurrency on exchanges on the island; Innovative Technology Arrangement and Services Act to take care of registering tech providers and services connected with crypto. Although Switzerland hasn’t published any official legislative documents regarding crypto, the prevailing feeling and ambition in the government is to establish the country as a hub for cryptocurrencies and blockchain in continental Europe. The Swiss financial regulator however has issued a guideline on ICOs with the idea of trying to apply current financial market laws to ICOs and crowdfunding.

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  Cryptocurrency regulations in the America

  USA is currently focusing on reaching a consensus as to how to classify cryptocurrencies. The US has not introduced any new cryptocurrency and blockchain specific laws and once it classifies crypto as either securities or futures it will aim at applying the current financial markets in the county. Nevertheless, at the end of 2017 SEC, the Security and Exchange Commission issued a warning to investors there is still less protection for crypto investors the for traditional investors. Canada is generally allowing the use of cryptocurrencies but is viewing them as commodities, hence transactions should be viewed as barter transaction according to the Canadian Revenue agency. Mining cryptocurrencies can be taken as a full-time business (which will be taxed) or can be done as a personal hobby (which will not be taxed however). Canada has also introduced several legislations to better tax and govern crypto and blockchain projects and has also launched the country’s first blockchain tech fund. Probably the most interesting news in terms of blockchain from Canada, is the fact the Bank of Canada is involved in a research and testing initiative to assess if and how a distributed ledger technology can be used in other sectors as well, namely the wholesale payment system.

If stop thinking of protecting people and imposing some order in the crypto industry, banks and investors could profit a lot by investing the cryptocurrencies. Although this can be seen as a step back to centralization of an initially though decentralized product, there are already examples of this happening. The US’s CME and CBOE are already offering bitcoin futures products.