As cryptocurrencies became common, governmental agencies and institutions started working on regulatory measures. The goal was to bring security and order to this new and uncharted field. It was met with some skepticism. The main appeal of digital currencies was in the fact, they were not regulated, yet.
Now, when different forms of regulations are established all over the world, sites such as CryptoManiaks.com provide a great resource for users to dive into this field. In this article, we’ll outline an overview of how governments all over the world regulate the use of cryptocurrencies.
Bitcoin was invented in 2009 and it marked a shift in the world of finance. Bitcoin uses revolutionary blockchain technology. It also introduced a decentralized ledger and a safe way to record transactions. The breakthrough inspired countless other “altcoins”, most notably Ethereum in 2015.
At first, there were no regulations of any kind since the concept itself was brand new. This posed a concern for many governments and international regulatory institutions. There was no way to address potential fraud or to tax the gains made in cryptocurrencies. “Altcoins' 'gained ground and became more popular. Businesses and governments realized some regulations had to be put in place.
The main goals were to detect and punish fraud and money laundering attempts. Consumer protection became an important concern, once crypto was widely used.
At first, governments didn’t have a unified response to the use of cryptocurrencies. The US acknowledges its existence by treating Bitcoin as a digital commodity. China took a more restrictive and recommended approach. It banned financial institutions from trading in cryptocurrencies.
Russia also started with a rather skeptical approach toward cryptocurrencies. It initially proposed banning the use of cryptocurrencies. The public backlash made the government regulate the industry instead.
The international, and even borderless nature of cryptocurrencies presented a unique challenge. That’s why each government created its own approach to regulations, at least first.
In 2017 Japan accepted Bitcoin as legal tender. It was the first country to do so.
The Crypto-Winter and Regulatory Responses
Crypto-winters refer to a significant decline in cryptocurrency markets. Cryptocurrencies went through a few of these periods of bear markets and it’s had an impact on the public attitude towards them. It has also highlighted the importance of regulations. Regulations are protecting investors and mitigate the risks involved.
At the same time, some countries reacted the opposite way. There was a view that no regulations could capture the changing nature of this market. Too much regulation would stifle innovation and the market would lose its appeal.
During the crypto-winter the EU, Japan, South Korea, and the US strengthen their regulatory practices. The EU harmonized regulations between member states. South Korea implemented real name ID when using crypto. The US increased scrutiny on the First Coin Offerings.
The governments need to foster innovation but also protect investors in crypto. Cryptocurrencies have revolutionized many industries and governments need to foster such breakthroughs.
This is why many governments are creating what’s called “regulatory sandboxes”. These allow governments to provide businesses with guidelines. A relaxed approach allows the industry to grow and innovate. That way the experimentation with new technology happens within controlled regulatory oversight. There’s usually a time limit on how long this relaxed regularity approach will last. This is when tougher regulations kick in.
Stablecoins and security tokens were another innovation that caused concern for regulatory agencies. Security tokens are somewhat like traditional securities. They represent ownership or right over an underlying asset.
Stablecoins are less volatile. That’s because their value is connected to an underlying asset, as well. This was a departure from what cryptocurrencies were at the beginning. At the same time, it made them more connected to traditional banking and financial institutions.
Innovations such as these further blurred the line between cryptocurrencies and traditional investing. Many governments started applying regulations used for stocks and bonds.
The United States Security and Exchange Commission started treating stablecoins and security tokens as any other security. There were also regulations against money laundering. Know-Your-Customer regulations that are used for online sales, also apply to buying stablecoins.
All these combined meant that cryptocurrency is now more mainstream and more regulated. At the same time, innovations such as these made the product less volatile in the markets.
North America
The US has had a dynamic approach to regulating cryptocurrencies. As they first appeared it treated them as commodities, and later on as securities. As cryptocurrencies became more widely used more rules and regulations were introduced. These are mostly about preventing fraud and money laundering.
Canada was more liberal. It recognizes crypto exchanges as a money service business. The government is trying to be more conducive to innovation.
Europe
The EU has led the way when it comes to cryptocurrency regulations. Fifth Anti-Money Laundering Directive (5AMLD) was extended to cryptocurrencies. All EU countries have a common approach to regulating crypto exchanges and wallet providers.
Markets in Crypto-Assets is a proposed EU law that will further regulate the industry. Due to the EU's complicated legislative process, it’s not yet adopted by all EU countries.
Asia
There’s no unified approach to crypto regulation in Asia. China as the biggest economy of the region is rather strict. It has banned ICO, mining, and crypto exchanges. This is due to the volatility of the market. The Chinese government also doesn't approve of crypto due to how decentralized it is.
Japan has accepted Bitcoin as legal tender and it has a comprehensive network of regulations made to protect the end customer.
South Korea has oscillated between the two approaches. The government tries to foster innovative technology. It also places many regulations to make crypto markets less volatile.
The Rest of the World
Australia regulates cryptocurrencies under money laundering and terrorism funding laws. Singapore has established a licensing framework for digital payment token services. It fosters responsible innovation. The United Arab Emirates has also accepted the innovative technology of blockchain. The country tries to be a regional champion of cryptocurrencies.
Cryptocurrencies are rapidly evolving. This makes them a challenge for regulators. The speed of innovation is always faster than that of governments. There won't be one policy that covers every country in the world. It can't be since cryptocurrencies are very decentralized.
Some experts say there will be regulatory fragmentation. This means different countries will adopt different approaches to regulating crypto trading. A lack of standardization can be confusing to end users. A user can face different rules depending on where they are buying or selling a cryptocurrency.
No one can really predict what kind of innovation may come out of the crypto market. Chances are that more regulations will be needed as more users buy and sell cryptocurrencies. More international cooperation will also be likely. In the short run, regulations used for bonds will apply.
Cryptocurrencies have been around for ten years. When they first appeared the market was completely unregulated. To provide more security for both users and investors, governments have issued many regulations since then. Regulations are mostly about preventing money laundering and stopping marketing volatility.
Governments need to foster innovative technology while making it safe to use. This is a balance that the regulations are trying to achieve. China, for instance, has taken a stricter route. The US and EU are allowing the industry to innovate.
In the years to come, there will be more attempts to create a global framework of rules and regulations. This is why it’s important for those interested in cryptocurrencies to stay on top of events. Sites such as CryptoManiaks provide a great resource and guides to follow crypto news.
