The relationship between cryptocurrency and regulation is a complicated one. Cryptocurrency was effectively designed to be outside of the system – to be beyond the reach of regulatory bodies which have a tendency to become centralized and corrupt. This has worked quite well so far, but as cryptocurrency and other revolutionary blockchain technologies begin to develop, governments around the world are rushing to box them in. Governments do not like elements within their countries that are entirely out of their control, and especially not when the element in question is money.
We could spend all day speculating as to why it is that some countries embrace cryptocurrencies whereas others do not. The answer is probably much more complicated than we’d like to admit. It’s not just pressure from banks and other legacy institutions, but also a genuine sense of caution and need for oversight which you could argue is natural in human behavior.
The fact of the matter is that failing to abide by regulations will make it very hard for the average person to incorporate cryptocurrency into their daily lives. In the years to come, it will be increasingly necessary to find some sort of balance between the total autonomy which lies at the core of crypto philosophy with protective rules decreed by governments which will make the public more willing to interact with blockchain technologies such as cryptocurrency.
Since regulations and especially cryptocurrency regulations can be quite complicated and detailed, we won’t go too far in depth into each specific country. Instead, we will look at cryptocurrency regulations by policy, starting with where they are legal and where they are not. From there, we will briefly cover a few other elements involving things like ICOs, taxation and KYC/AML regulations. By the end of this article, you will have a pretty solid grasp of what cryptocurrency regulations around the world are looking like in 2020.
Is cryptocurrency illegal? Is cryptocurrency legal in my country?
This is one of the most frequently asked questions by people who are new to cryptocurrency and are looking to invest. Naturally, nobody wants to risk accidentally violating a few laws of their country during the process. At the time of writing, the only countries which have banned cryptocurrencies are Vietnam, Algeria, Bolivia, Pakistan, Nepal, and Morocco. Owning or transacting cryptocurrencies in these countries can result in anything from a small fine to a prison sentence. That being said, it is questionable as to how governments could enforce these laws given the fairly elusive nature of cryptocurrencies.
Which countries let you buy cryptocurrency?
If you do not live in any countries noted in the previous section, then don’t rush out to buy cryptocurrency just yet. This section covers the “next layer” of countries which are restrictive when it comes to crypto. This list includes Lithuania, Lesotho, China, Iran, Thailand, and Colombia. While cryptocurrencies may not be outright illegal in these countries, they may be very hard or even illegal to purchase using banks within that country. In other words, in these countries, financial institutions are barred from confirming any transactions related to cryptocurrency. As such, you may have trouble trying to purchase crypto in these countries if you are using a national bank account.
That being said, if you live outside of the countries listed so far, you should have no issues buying cryptocurrency – it is completely legal to do so.
Are cryptocurrency ICOs illegal?
For those of you who are unfamiliar, initial coin offerings (ICO for short) are a common method of raising funds for a new cryptocurrency project. ICOs have a pretty bad reputation due to the fact that during the cryptocurrency bull-run of 2017-2018, many bad actors were able to raise millions of dollars for their project outside of any regulation or oversight. This meant a great deal of those projects were in fact scams, or to use the proper crypto terminology, “shitcoins”. As a result of these questionable practices, many governments have since instituted strict regulations around ICOs and some have banned them altogether.
The following countries have banned the issuance of ICOs: Pakistan, Macau, and China. If you live in the United States, you may have seen that many ICOs and other cryptocurrency projects exclude you from investing or even participating in them. This is because ICOs are very heavily regulated in the United States and if the project in question was to allow American investors to throw their money into their project, the project would become subject to these regulations. Consequently, many US citizens have been left out of some of the most exciting developments in the cryptocurrency space.
Which countries are friendly to cryptocurrency?
While many governments seem to shrug away from cryptocurrency, others are embracing it due to it’s underlying technology: blockchain. In a sentence, a blockchain is a distributed database which keeps track of every change by referring to multiple points within a network. In short, it is a super secure record of information (transactions in the case of cryptocurrency) which is visible to every participant in the network, and requires consensus (agreement) between all of the parties before any modifications can be made to existing data. This makes these systems nearly impossible to hack, especially when hundreds of thousands of computers are participating in the blockchain network.
There are in fact quite a few countries which are friendly to cryptocurrency and related technologies. These include the Cayman Islands, Luxemburg, Belarus, and Spain. Some of these governments are not so interested in the technology, but more-so by the economic benefits they can bring to their countries by creating “safe-havens” for cryptocurrency companies. Given that some crypto enterprises such as exchanges can generate millions if not billions of dollars in profit per year, such an amount of extra capital is welcomed in many countries, especially those with smaller economies.
Does cryptocurrency get taxed?
Cryptocurrency taxation is arguably the most complicated part of dealing with cryptocurrencies. This is because there are very few governments which provide any sort of support should you get hacked, scammed, or lose your cryptos. If someone was to steal your cryptocurrency and you called the police for help, they would probably ask you to explain what it is, then shrug their shoulders and go about their business. However, governments are at the same time scrambling to put tax regulations in place to ensure they profit from this emerging asset class even though most of them ignore it in virtually every other context.
As a general rule of thumb, most governments do not care about your cryptocurrency until you exchange it for fiat and send it to your bank account. Some countries such as Canada require you to declare any large sums of cryptocurrency you are holding. Taxation for cryptocurrencies vary widely between countries and can depend on your status, namely whether you are a company or an individual. Some countries also further categorize you based on how often you trade cryptocurrency. If it’s your main shtick, you tend to be taxed as if you were making a regular income. In most other cases, a much smaller capital gains tax is applied and some countries even allow you to declare losses related to cryptocurrency. For more information about cryptocurrency taxes in your country, you can refer to this useful website.
You should always double check everything you read online with an accountant and consider doing your own research on the relevant web resources from your government. Since cryptocurrency is such a new asset class, many regulators really do not know how to wrap their heads around the technology and much less how it should be taxed. Some die-hard cryptocurrency supporters have advised against declaring your gains so long as you haven’t converted them to fiat, reasoning that governments are going to try and see how much information they can get out of cryptocurrency holders for tax purposes before implementing tax laws which are comprehensive. These are changing by the year so be very careful when consulting with online resources!
Cryptocurrency Know Your Customer (KYC and Anti-Money Laundering (AML) Regulations Around the World
Regulations related to KYC and AML are particularly controversial in the cryptocurrency community. After all, cryptocurrencies were designed to be outside of existing financial and government institutions. While cryptocurrencies are technically anonymous, the records of transactions as well as wallet balances for almost every single cryptocurrency are publicly available for viewing. The difference is of course that you don’t usually know who owns those wallets nor where they money is being sent in a transaction (and sometimes you don’t even know how much of it is being sent!).
This pseudo-anonymity is why cryptocurrencies such as Bitcoin have been a favorite method of payment by many criminals. Consequently, governments have used this as an excuse to crack down on the average, law abiding crypto holder. With these regulations in place, it makes it possible for governments to connect individuals to various cryptocurrency wallets and transactions. One of the greatest concerns with this is that many in the cryptocurrency space do not trust a centralized authority which such sensitive information. If there was to be a hack of some kind, millions of cryptocurrency users and their funds could be in jeopardy.
When it comes to KYC/AML regulations for cryptocurrency around the world, it seems that most countries outside of the EU are quite lax when it comes to collecting personal data. Starting this year (2020), every single cryptocurrency exchange or company operating within the European Union must collect KYC/AML information (passport, national ID, proof of address etc.) from its users. A failure to do so can result in massive fines and even a total shutdown of the business. Some states in the United States have similar laws in place, as well as Canada. Like taxation, these laws seem to be changing by the day around the world, with Japan implementing new regulations on May 1st and South Korea expected to follow suit later this year.
Cryptocurrency Regulations Around the World in 2020 (And Beyond)
If there is one takeaway from this article it should be this: cryptocurrency regulations vary widely by country and are quite literally changing by the day on a global scale. Some countries like Russia and China continue to flip-flop between being for or against this new asset class. The fact of the matter is that nobody, not even people within the cryptocurrency community, know just how much of an affect the new technologies being introduced will have on society. They also certainly cannot account for the various ways in which these systems could be manipulated or corrupted.
The general trend however seems to be that governments will impose as many regulations as they can before it becomes either cumbersome or unfeasible to add any more. This is because no government likes having disruptive tech run amok under its nose, and especially not one which threatens the current financial hegemony.
Perhaps the most fascinating question involving cryptocurrency regulations is what they will mean for genuine privacy preserving cryptocurrencies such as Monero. In a world where governments and corporations are itching towards the front row to the theatre of our individual lives, powerful blockchain technologies – initially designed to keep these forces at bay – may very well become used against the very people which created and perfected it. Thankfully, many cryptocurrency projects are already trying to find alternatives to mesh in with this new balance between the old and the new. With some luck and a lot of hard work, cryptocurrency will hopefully become a household name without too many strings, or IDs, attached.