Overview of Cryptocurrency Regulation Around the World
Over the last year, there has been a rise in popularity and demand for cryptocurrency, resulting in an increase in its value. In December of 2017, bitcoin’s value reached nearly $20,000 per bitcoin. This year however, cryptocurrencies of all kinds seem to be faring far worse. As of recently, the same bitcoin’s value dropped to $4,400. NYU´s Journal of Law & Business has tackled this subject before, but due to recent developments in the market, it is time to revisit the topic once again. The following is a brief overview of the current legal and regulatory landscape for cryptocurrencies around the world.
It should be noted that this topic does provided for quite a broad range of particularities from country to country. Precisely the fact that cryptocurrencies exist as a private endeavor, based on a decentralized technological platform and not from any governmental or even institutionalized setting, makes it clear that there are as many regulations as countries. Perhaps the best illustration of this is the various terminologies used to refer to cryptocurrency in different parts of the world. It is true that the broad term “cryptocurrency” is a notion common to most states, and that that notion is usually based on the decentralized technology with inherent encryption known as blockchain. However, after that, regulations across the word differ on the chosen terminology used to describe it.
In Argentina, Australia and Canada, the term “digital currency” is utilized. In Uruguay on the other hand, “digital currency” means something completely different (a state issued digital version of the regular currency) and “crypto currency” is the preferred term. In a similar manner, Italy uses the term “cyber currency,” while Colombia uses both “electronic currency” and “virtual currency.” In China, the most common expression is “virtual commodity.” Finally, in countries like Germany and Switzerland, expressions like “crypto-token” or “payment token” are preferred. Despite the differences in terminology, these countries share many similarities in the way that they regulate cryptocurrency.
Countries That Restrict Cryptocurrency
Some countries have decided to impose restrictions on cryptocurrencies, particularly on investments in them. Of course, these restrictions vary from one jurisdiction to another. For example, Bolivia, Ecuador and Algeria, (among others) completely ban all activities involving cryptocurrency.
Other countries, like Colombia, China and Qatar, do not have specific bans or prohibitions on citizens, but instead bar financial institutions (in their territories) from utilizing cryptocurrencies or providing access to cryptocurrencies to costumers. (It should also be noted that China expressly prohibits initial coin offerings.)
Countries That Favor Cryptocurrency
Some countries are developing regulations that are meant to attract investors and technology companies. The goal is not necessarily, to increase or further cryptocurrency per se, but to advance the technology. Spain´s Central Bank, for example, issued a report where it is argued that blockchain technology could help in tracking Spain’s money supply, and would also help manage interest rates, as it would be simpler than the current method of printing money and the digital tool would allow for a more efficient and easier way to manage money. In addition, Spain's Parliament is currently working on a comprehensive law project that, among its various topics regarding cryptocurrency, includes the possibility of migrating the operations of public offices to blockchain technology by 2020. Luxembourg and the Cayman Islands are also taking a similar approach.
Other countries are trying to develop their own, state-owned or operated, cryptocurrency. For example, in December 2017, Venezuela issued Decree No. 3196 that authorized the government to create its own cryptocurrency (named “Petro”, as it would be physically backed by Venezuela’s prolific oil reserves). Uruguay has developed a digital currency (not a cryptocurrency since it is not backed by blockchain, but rather a digital form of “paper” currency) and is currently studying the regulation of cryptocurrency.
There have also been developments in cryptocurrency regulation in the United States. Wyoming became the first State to legislate and define cryptocurrency as a new class of assets. Arizona and Georgia are currently considering legislation to allow citizens to pay their taxes with cryptocurrency. (Arizona has already enacted such legislation and is currently revising it).
Finally, some countries like the United Kingdom, Belgium and South Africa have determined that the size of the cryptocurrency market is too small to warrant regulation.
One of the most relevant (if not the most relevant) question relating to cryptocurrency is the issue of taxation (that is, of course, for those countries that allow investment or use of them). The basic challenge faced by countries is how to categorize cryptocurrency and the activities linked to it for taxation purposes. The different possibilities will eventually determine what type of tax and what tax rate will be applied to income earned from cryptocurrency.
Naturally, different countries and states have categorized cryptocurrency differently for tax purposes. Some have categorized them as assets (Israel, and as previously mentioned Wyoming is considering the same), some as financial assets and some as foreign currency (Switzerland). In Spain and Argentina, the income produced by investing in cryptocurrency is taxed by an income tax. . Also, in Spain, legislation is currently being drafted that would require disclosing any investment in cryptocurrency for taxation purposes. However, it should noted that in the European Union, gains arising from cryptocurrency investments are not subject to value added tax (VAT) after a 2015 decision of the European Court of Justice.
In addition to regulation (whether restricting or promoting cryptocurrency), most states have implemented a communication strategy consisting of government-issued notices warning of the possible dangers of cryptocurrency that should be considered before investing in cryptocurrencies or entering the cryptocurrency market. These notices are meant to educate and inform the population about the key differences between actual currency and cryptocurrency. Recently, countries have also issue information about the risk of fluctuations in the value of cryptocurrency, and warned that dealing with cryptocurrency means interacting (in most cases) with foreign companies that are not bound by any form of regulation (as opposed to traditional currency or financial instruments).
It is clear that the existence and proliferation of cryptocurrency around the world prompted almost all governments to take some form of action. While a minority of countries have legislated to promote cryptocurrency, most have promulgated legislation to restrict or limit cryptocurrency use and investment. However, in almost all countries that have taken any kind of action (and even in some that have not), the government has also advised caution on the use of cryptocurrency.
Pablo Garrido is an LL.M. Candidate in the International Business Regulation, Litigation and Arbitration Program at New York University School of Law. He is a graduate of Catholic University of Uruguay where he is also a candidate for a Masters in Civil Law, with a specialization in contracts. He is a teacher at Montevideo University and at Catholic University of Uruguay. He was also the general counsel of a financial institution in Uruguay, as well as in-house counsel of a telecommunications company. Currently he is a corporate and arbitration attorney in Montevideo, Uruguay.