Cryptocurrency regulation: Need of the Hour

Dr. Himani Sardar1

Prof Chavi Sood2
Abstract

Among a lot of technological revolutions, money is also revolutionized. It has given birth to a
new currency i.e. Digital currency. Cryptocurrency is one such currency that is available in
electronic form and can be exchanged through online mode. With the increase in the popularity
and use of virtual currency around the globe, a strategic legal framework is necessary. The
decentralized and anonymous nature of these currencies gives rise to problems in their regulation
in the current scenario as well as in the future. The authors have tried to focus on different legal
regulations forced on virtual currencies by different countries across the globe.

Keywords: Cryptocurrency, Bitcoin, Legal, Law, Virtual currency

Introduction

Information technology and the rise of the digital world have already made remarkable changes
in the conventional industries and old business processes. Many new ways of doing business have
evolved and created a new set of industries that were not in existence before a couple of years
ago. With so many new technologies coming into business practices, one that remains to get the
maximum attention these days is blockchain technology.

Since business runs on information. The faster the information received and more accurate it is,
the better it is for the business. (IBM, n.d.) considers blockchain as a kind of shared immutable
ledger which enables the process of recording various transactions and tracing assets in business
networks. Assets here can be tangible or intangible. So, it technically means that anything of
value virtually can be tracked and traded on a blockchain network. In the business environment,
a blockchain network can track orders, payments, accounts, production and so much more.
Blockchain could also be used for faster and easier settlements which could save billions that
arise from transaction costs. On the same lines, one can say that blockchain is also mostly known

1
Assistant Professor, IILM University, Gurugram, Haryana
2
Assistant Professor, IILM University, Gurugram, Haryana
23
as the technology which is responsible for virtual cryptocurrencies like Bitcoin, Litecoin,
Ethereum, etc.

Cryptocurrency can be understood as a digital medium of exchange that depends on a

decentralized payment system that helps in the peer-to-peer exchange of transactions secured by
a well-defined network. This pool of technology mainly includes cryptography, public key,
private key, blockchain or mathematical function. Tracing it to 2009, an anonymous programmer,
a group of programmers under the code name of Satoshi Nakamoto introduced Bitcoin
(Nakamoto). Since it was developed in the open-source environment it is completely
decentralized and isn’t controlled by any central authority.

As per the The European Central Bank, Cryptocurrency is a kind of digital money which is
uncontrolled and created by its developers online and is used and accepted as legal money by
members of particular virtual community

All transactions that ever happen on the network or within the network are available to everyone.
Hence everyone in the network is aware of every account’s balance. This could happen if the
blockchain technology used is a public ledger. Every transaction is a file that has the sender’s and
recipient’s public keys with the amount transferred. The transactions then need to be signed off
the sender with their private key. All this is the basic understanding of cryptography and once the
transaction is broadcasted in the network then it needs to be confirmed. In this way,
cryptocurrencies could be used to buy goods, as an investment option, business transactions, and
many more.

As noticed or visible one can easily say that the growth and emergence of cryptocurrency have
attracted greater attention of the government and other stakeholders in the world. These
currencies have formulated a new system of economic relations between parties from different
countries, where the exchange of assets takes place without involving centralized financial
institutions (Bolotaeva, Stepanova, & Alekseeva, 2019). The security and reliability of these
transactions is done by a distributed ledger system which comprises networks, recording the
committed transactions with the help of blockchain technology. These currencies are becoming
more mainstream and parties such as law enforcement officers, tax bodies, and regulatory
authorities worldwide are trying to understand this concept and how regulations fit in them.

Like any new phenomenon, cryptocurrency also has its challenges which arise the need for legal
regulation. Because of its decentralized and anonymous nature, cryptocurrencies could attract or

24
lead to various illegal activities as well. Authorities are worried about the use of these currencies
or technology for money laundering, terrorist funding, tax evasion schemes, etc.

With the upcoming ideas and market for such currencies, there have also been few countries
which have banned cryptocurrencies totally. Countries such as Bangladesh, Bolivia, Ecuador,
Kyrgyzstan and Vietnam have completely banned these currencies while China and Russia are
on the verge of banning them. While some countries such as the USA (has the highest number of
bitcoins), Japan, Sweden, etc. have taken steps to regulate them by considering them as legal
tender. Since crypto such as bitcoins which has been traded on high volumes globally, is still not
considered illegal yet but the laws and regulations could vary from country to country (Science,
2019).

With such dual theories of acceptance for such newly updated technology-abled currencies, there
have been a lot of challenges. First and foremost being the inclusion of them in the legal fraternity
since the use of this digital currency could lead to false use of them. It is vital now that the legal
issues are addressed by the legislators before numerous lawsuits emerge involving
cryptocurrencies. Hence let’s understand in this paper how each country is working at their own
level to legalise them.

Discussion

United States

While cryptocurrency is legal in the United States and despite there being a large number of
investors and blockchain firms present there, there is no clear and comprehensive regulatory
framework to govern crypto activities. International Revenue Services (IRS) classifies
cryptocurrency as property (a digital one) for income tax purposes. Crypto transactions or
exchanges in the US fall are subject to the rules and regulations made by the Bank Secrecy Act
(BSA) and make it mandatory to register themselves with the Financial Crimes Enforcement
Network (FinCEN). They also consider it as money transmitters. The Securities and Exchange
Commission (SEC) puts cryptocurrencies as a security so that the same laws are applicable.They
must follow the anti - money laundering (AML) laws along with the obligations required to
adhere to as per counter - terrorism financing(CMF) laws.

Canada

25
Considering the neighbouring USA, Canada is quite positive towards cryptocurrency. These
transactions are legal in Canada and in February 2021, it became the first country which approved
a fund traded via a Bitcoin Exchange. It is necessary for such Firms and businesses which deal
with cryptocurrencies to register themselves with the FINTRAC (Financial Transactions and
Reports Analysis Centre of Canada). In terms of taxation, cryptocurrency is treated similarly as
other commodities.

United Kingdom

The UK regards cryptocurrency as an asset rather than a legal commodity. Additionally, all these
types of exchanges are required to register with the Financial Conduct Authority of the UK but
are not allowed to offer the trading in crypto derivatives. However, specific regulations have been
laid by the regulatory authorities for the cryptocurrency specific requirements like KYC (Know
Your Customer), and the previously mentioned CFT and AML. Also, even though the taxability
depend majorly on the crypto activities made and who has engaged in it, these investors must still
pay capital gains tax on their profits

Japan

The Land of the rising sun takes a forward thinking approach in cryptocurrency regulation. by
recognizing cryptocurrencies as legal property under the Payment Services Act in 2017. Japan’s
Financial Services Agency (FSA) governs all the crypto exchanges and trading platforms for the
same. This Act complies with AML/CFT obligations and this country considers cryptocurrency
trading gains to be “miscellaneous income” and taxes their investors accordingly.

Australia

Cryptocurrency is very much acceptable and legal in this country as well. They have taken a
proactive stance towards crypto regulation. Australia’s government and authorities has classified
cryptocurrencies as legal property & subjected it to Anti-Money Laundering and Counter-
terrorism Financing Act 2006. The transactions are freely operated in the country as long as they
are registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Since
it is treated as good as a property, capital gains tax on it is applicable as well.

Singapore

26
The Island state, just like the UK, considers cryptocurrency to be a property but not legal. These
exchanges are regulated and licensed by the Monetary Authority of Singapore (MSA) in
accordance with the rules by Payment Services Act (PSA). These trades are usually not taxed as
long term capital gains. But the companies that regularly transcat in cryptocurrency are taxed by
treating these gains as their income. Lately, Blockchain and Cryptocurrency Regulation 2020 was
signed to regulate it.

South Korea
In this country crypto exchanges are legal but not cryptocurrencies. Yes, it is a bit confusing but
as such digital currency transactions are exempted from tax and do not attract capital gains tax.
Crypto regulations are overseen by the South Korean Financial Supervisory Services (FSS) and
adhere to strict CFT/AML obligations. Exchanges dealing in crypto and other virtual asset service
providers must register with KFIU which stands for Korea Financial Intelligence Unit
September,2021 onwards. Nevertheless, it has been planned by the Ministry of Strategy and
Finance to impose tax with a revised framework which will be launched in the year 2022.
China
This emerging country doesn’t distinguish cryptocurrencies as legal tender but surely includes
them as property to find out inheritance. The People’s Bank of China bans these exchanges from
operating in the country. Forcing people engaging in the activity to close such operations, in
2021, China placed a ban on bitcoin mining. Binance, which is the world’s largest crypto
exchange was first launched in China but later in 2017, the headquarters were relocated to the
Cayman Islands.

India

Like most countries, the subcontinent doesn’t consider cryptocurrency as legal tender. The
country’s CBDT (Central Board of Direct Tax) specifies that investors must pay taxes on crypto
trading profits. In March 2020, the Supreme Court reversed the decision of carrying transactions
in virtual currencies which was initially banned by the RBI (Reserve Bank of India) in 2018. But
in early 2021, the country put forward a law that apart from state blocked digital assets , it would
be illegal to mine, trade, hold or issue cryptocurrency.

Conclusion

27
Cryptocurrency is still in its early stage and a lot of institutions and investors haven’t yet realised
its potential. In absence of such awareness, the laws for the same are difficult to propose or pass.
One must need technical insight to put these digital currencies in the eyes of law. Hence
economists and regulators need to come forward with suggestions to address the elephant in the
room. In order to allow the nation’s growth regulatory efforts are required, to work with it not
against it, and to recognize potential benefits. A number of countries currently prove to be totally
incapable of responding to innovations and technological progress. But the emergence of
decentralized system and cryptocurrency will surely lead to evolutionary changes in the
international legal system (Cvetkova, 2018)

References

Dialani, P. (2021).A Rundown of Cryptocurrency Regulations Across the World. Retrieved from
https://www.analyticsinsight.net/a-rundown-of-cryptocurrency-regulations-across-the-
world/
Poddar, U. (2021). Explainer -Why does the modi government want to ban private
Cryptocurrencies? Retrieved from https://scroll.in/article/1011515/why-does-the-modi-
government-want-to-ban-privatecryptocurrencies
Smith, T. (2021). Cryptocurrency Regulations Around the World. Retrieved from
https://www.investopedia.com/cryptocurrency-regulations-around-the-world-5202122
Nova, A. (2020), Cryptocurrency Regulations Around the World. Retrieved from
http://help.bevol.org/en/cryptocurrency-regulations-around-the-world/
Science, E. (2019). The Legal Nature of Cryptocurrency The Legal Nature of Cryptocurrency.
Retrieved from https://doi.org/10.1088/1755-1315/272/3/032166
Cvetkova, I. (2018). Cryptocurrencies legal regulation. BRICS Law Journal, 5(2), 128–153.
Retrieved from https://doi.org/10.21684/2412-2343-2018-5-2-128-153
Jasim, K. M. (2018). Legal Status of Crypto Currency in India : A critical review. International
Journal of Engineering & Technology, 7, 960–962.
Houben R., Snyers A. (2018), Cryptocurrencies & Blockchain, Policy Department for Economic,
Scientific and Quality of Life Policies, PE 619.024, Retrieved from
https://doi.org/10.2861/263175

28