The Ever-Changing Landscape of Crypto Legislation
After taking the world by storm in 2009, cryptocurrency has arguably been the fastest growing and most impactful technological development since the conception of the internet itself. Revolutionising the way we trade finance, it is a complete digital and societal reinvention that will shape the future as we know it over the next few decades.
With any reinvention, however, there are always a few setbacks. The two biggest setbacks when it comes to crypto’s current growth comes both internally and externally.
The Blockchain Problem
Internally, the nature of the blockchain (as well as the decentralised network from which each blockchain is run) can cause a large amount of volatility. Although, at times, this volatility can prove beneficial to investors (be that regular, small-time users or crypto whales), the same volatility can be the root cause of a stagnation in value.
At the present moment, we are going through what is termed a “crypto-winter”, whereby prices across the market drop significantly from their peak and fail to undergo any meaningful rise. If you were to buy and trade Bitcoin, for instance, you would be trading it for around 70% less than you would have done back in late 2021.
Externally, the setbacks derive from the fact that the blockchain is run on a decentralised network. Traditionally, fiat currency has been legislated through centralised organisations such as banks and government. This has allowed for worldwide regulation, which is required to keep transactions stable, efficient and avert the risk of scams.
On a decentralised network, however, there is no middle man. Instead, the blockchain is kept alive by the users who are trading in it, with a number of nodes and miners being rewarded for validation and maintenance of the network as a whole. Whilst, in theory, this concept should be more efficient, stable, and sustainable, the government has found it necessary to prescribe regulation.
Legislation Within Cryptocurrency
With certain areas of the world banning the use of crypto altogether, the attempts of centralised organisations to legislate decentralised organisations has been slow and detrimental to faster societal growth.
Either governments are invigorated by the opportunities of online currency – places like El Salvador and Saudi Arabia have taken a predominantly supportive stance, with 14% of the Saudi Arabian population adopting crypto and a further 17% labelled as crypto-curious – or they have attempted to halt development altogether – Algeria prohibited crypto buying, selling and holding in 2018 and China has attempted to propel their own e-currency with prohibited currency exchanges and mining operations.
Elsewhere across the world, regulation and legislation seems to depend on public support, potential business growth, technological efficiency and the details of centralised, government monitoring. For instance, with notorious influencers such as Elon Musk (who has put billions into the US financial market) owning and endorsing cryptocurrency, it is hard for the US government to take any stance other than a positive one.
It can also be argued that legislation (even passive legislation which slows things rather than halts them altogether) is simply a way for centralised banks and governments to get their head around the concept in the first place, whilst also putting together their own alternative e-commerce and digital currency options.
Legislation Across The World
Although the ever-changing landscape of crypto legislation is a hindrance to many investors looking to excel and develop, it is not exactly surprising. It’s important to remember that, although this is arguably the biggest technological revolution in a century, it is still in its teething stage.
Traditional banking finance has been around for thousands of years, whilst the crypto blockchain has only been around for just over ten. Time and patience is needed when it comes to organised regulation, and it could even be beneficial and necessary in the prevention of system hacks and money laundering.
With this being said, what are the current legislation statuses and how do they differ? Are there going to be new ways to trade Ether and Bitcoin in the future? Below is an example of government stances within specific countries, as well as a brief look at potential future legislation:
As of today, the UK has ensured that cryptocurrencies are not legal tender and exchanges have to register with the FCA (financial conduct authority). Gains and losses are subject to capital gains tax, and all exchanges must also comply with the MLRs (money laundering, terrorist financing and transfer of funds regulations).
This is similarly in line with the EU as a whole, which the UK was still a part of during the height of legislation deliberations. For the future, however, the HM Treasury has suggested that there will be a broader regulatory approach, as well as legislation to bring crypto closer to traditional financial advertising.
In India, there is still a lack of understanding of cryptocurrency and what the tax status should be, although transactions could face up to 30% tax.
The future is uncertain. There are predictions, however, that legislation is not being passed just yet as an official digital currency is in the works. If this comes to fruition, there is a possibility that cryptocurrency could be prohibited in the same way it is in China.
The FinCEN (financial crimes enforcement network) does not see crypto as legal tender, and exchanges are held under regulations from the BSA (bank secrecy act). In this way, exchanges must still register with FinCEN, maintain records appropriately, and regularly report to authorities.
For the future, however, the United States is still favourable when it comes to growth and progression. Legislation will be implemented only in terms of combating criminal activities, with exchanges required to submit suspicious activity reports and identify users sending more than $3,000 in one transaction.
Japan has recognised cryptocurrency as legal property, whilst also ruling that digital currency is income which should be taxed under the NTA.
Despite plenty of legislation, Japan is a welcoming environment which is good for crypto’s growth in the future. The FSA has indicated that there will be new legislation, but these will be in tune with the US, whereby exchanges are required to report suspicious activity.
Even more so than the US and UK, Australia has been especially supportive in crypto’s progression and implementation into society. Cryptocurrencies and exchanges are legal, and Bitcoin is treated as property, meaning it’s subject to CGT (capital gains tax).
To garner a prediction of the future, it is important to look at the past. Australia had previously placed cryptocurrency under the GST (goods and services tax), which meant there was double taxation. After disagreement, however, this was removed, demonstrating a more progressive and understanding approach to crypto legislation going forward.