Are cryptocurrencies legal?
5 min reading
Many people are interested in the question of the legality of cryptocurrency. Let's try to understand it together.
Are cryptocurrencies legal?
There is no doubt that cryptocurrencies, including bitcoin (BTC), are the future, which will come sooner or later. Years, decades, or centuries from now, it will finally become clear to everyone that it is a cryptocurrency that provides the best value for money. Although right now miners and traders are still concerned about bitcoin’s legality, the time will come when it will become the most common currency.
Since the beginning of the first cryptocurrency, the global cryptocurrency market has grown significantly, and there are many participants who are looking for benefits in the cryptocurrency industry. The scope of their application ranges from fast and safe completion of payments to exchange operations, investments, the realization of smart contracts and the decentralized computing platform, and many other things.
The scale of growth of the cryptocurrency industry does not go unnoticed by either government agencies or commercial or ordinary users. One of the pressing issues is to define what the cryptocurrency industry is in its entirety and how it fits into the existing framework of the world system.
However, most of the risks which accompany the circulation of cryptocurrencies are impossible to exclude because they belong to the functional and not the financial area. The most significant is regulatory risk. According to experts, if the cryptocurrency market becomes regulated, many more people will join the adventure. A regulatory ban is always bad news for the sector and impacts the global value of the ecosystem.
Benefits of cryptocurrencies
Cryptocurrencies have many useful properties that regular money sometimes lacks. New money is provided with the energy needed to create the necessary mathematical processes. The increase in speed and efficiency of processors generates inflation, which is counterbalanced by the growing demand for this energy.
Different countries’ attitudes toward cryptocurrencies
Businesses are already ready to use cryptocurrencies, smart contracts, and other blockchain tools, and the world’s largest banks are not only studying but already implementing new modifications of blockchain and alternative analogs. The legal status of cryptocurrencies varies greatly from country to country. A number of the country’s cryptocurrency transactions are officially allowed. They are usually viewed as a commodity or investment asset and are subject to the relevant legislation for tax purposes. In Germany Bitcoin is recognized as a unit of account, in Japan Bitcoin is legal tender with a purchase tax.
Global trends and vectors of cryptocurrency regulation in certain regions were formed 7-8 years ago, and neither then nor now governments and banks around the world have a unified approach to this issue. The U.S. and Canada are trying to integrate cryptocurrencies into the existing legal framework, which causes a lot of problems for both regulators and industry players. Although, in general, cryptocurrency in this part of the world is warmly welcomed and the largest markets and exchanges are operating here.
In Asia, they are trying to use blockchain and cryptocurrencies to improve the existing financial system. But countries’ understanding of this process is different: while Japan recognized bitcoin as a means of payment, China has taken the path of blockchain monopolization by the state. The legal framework for cryptocurrencies in Europe is rather vague and varies from country to country. Strict rules are set only for procedures. The key regulators in Eastern Europe are Russia and Ukraine with different positions on cryptocurrencies. In Russia, a law came into force, which defined cryptocurrencies as property but prohibited their use as a means of payment. Ukraine passed a law to regulate the circulation of cryptocurrencies in the country. Other countries either follow the example of their larger neighbors or still do not understand how to regulate cryptocurrency, which is not surprising, given the complex economic and technical nature of cryptocurrencies. Cryptocurrencies have become part of the global economy. That is why in the last few years we have seen a tightening of regulation not even so much of cryptocurrencies themselves, but of the market ecosystem: KYC on exchanges, transaction monitoring of individual wallets, anti-money laundering, and much more. Even in the EU, where it has not yet been decided what to count cryptocurrencies as, exchanges are subject to AMLD5 rules.
Currently, there is no legal and regulatory framework in the world that establishes reference rules governing cryptocurrency ICOs. It follows that and there are no legal protection mechanisms for both investors and persons issuing cryptocurrency tokens. Now in some countries, there are already attempts to include crypto investing in the legal field and giving cryptocurrencies an official status. It is possible to consider these attempts in the creation of conditions for the regulation of the new instrument of financing. An illustrative example is Japan, which was the first country to equate digital to real money, legalized cryptocurrency exchanges by developing rules for their and, as a consequence, created a basis, but not a systematic benchmark for procedures similar to ICOs.
The example of these countries has shown that defining the legal status of cryptocurrencies and the processes of Initial Coin Offerings creates guarantees for participants and players in the market itself, and thanks to this there are prerequisites for the emergence of crypto-investment centers. Of course, the lack of legal regulation provides freedom, nevertheless attracting serious players will require certain legislative and legal guarantees.