Why We Need New Rules and Tools for Cryptocurrencies

Cryptocurrencies may be used for good but often provide space for fraudulent activity.

Digital crime, Bitcoin traders disappearing with your money, and money laundering are the dark sides of unregulated crypto markets.

On the other side, more businesses worldwide, especially ones providing remote services, are ready to embrace cryptocurrencies. Yet, there is one thing to consider: whether it is a software tqesting outsourcing company or shipping provider, they have to be sure their payments are safe and secure.

Therefore, regulation and stability are the main conditions to make cryptocurrencies a trusted means of international trade.

So far, regulators worldwide lack effective instruments to address the risks of unlawful cryptocurrency operations.

In this article, we’ll review what steps have been taken to regulate the use of cryptocurrencies and discuss their productivity.

International regulations for the cryptocurrency use

In 2019, FATF, or The Financial Action Task Force, also known by its French name, Groupe d’action financière introduced guidelines for the countries to access and mitigate the unlawful use of cryptocurrencies.

In their 2019 guidelines, they called for service providers to register according to the local laws.               

Were these guidelines practical?

As reported by FATF, only a quarter of countries worldwide have adopted and implemented these regulations.

Yet, most countries that legalized crypto work on their own regulation mechanisms.

Corporate attempts to make crypto trading safer

Besides legal measures to make trading in cryptocurrency safe, private initiatives and services worldwide also try to add extra security to crypto trading. Platforms like Safetrading may be taken as an example.

Regional regulations

Countries are working on mechanisms to make cryptocurrencies equal to traditional money. Here’s what we have so far:

–          The United States. In the US, cryptocurrency is legal, meaning you can use bitcoins to pay for goods and services. That also means that the Federal Government taxes virtual currencies. The regulations for this were issued in 2013 by the Department of Treasury. Another document regulating crypto is Donald Trump’s tax reform law.

–          China. Since 2017, Bitcoin has been illegal in China, and the country went the opposite way; instead of regulating bitcoin for a profit, it banned it altogether.

–          Japan. In Japan, cryptocurrencies are defined as legal property and taxed. The tax rate for cryptocurrency income is progressive and ranges from 5% to 45% on profit. The government agency responsible for Bitcoin regulation is called Financial Services Agency (FSA). The main regulatory document is the Payment Services Act. This document may be considered one of the world’s most successful attempts at cryptocurrency regulations so far and can be taken as an example.

–          Europe. Most countries in Europe have legalized cryptocurrencies. Yet, the debate regarding their regulation lasted since 2012, as the European Central Bank issued a report titled “Virtual Currency Schemes,” in which it defines bitcoin. The latest and the most essential document in the EU regulating bitcoin (and other virtual currencies) is the 5th AML Directive. According to this directive, the virtual currency exchanges have to register with the corresponding AML authorities, monitor transactions, identify users, and give broad access to information in case of investigations. In other terms, EU legislation tries to bring cryptocurrencies under the umbrella of general anti-money laundering legislation. Yet, in the EU, cryptocurrencies are exempt from VAT, as they are treated as a currency, not as a commodity like in some other countries.

–          South America. Generally, there are no restrictions on cryptocurrencies in the countries of South America, and the only exemption is Bolivia which compared cryptocurrencies to a pyramid scheme and banned them in 2014.

–          Australia. Australia legalized cryptocurrencies in 2017 and subjected them to taxation. The miners, traders, and exchangers should register with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Besides other standard regulations like registration and user identifications, exchangers in Australia should report on transactions that involve large amounts of cash over $10,000.

Attempts to unify measures

As we see, according to the treatment of cryptocurrencies, all the countries of the world may be split into four groups:

1.   Countries that ban cryptocurrencies in general, like China or Bolivia, where bitcoin is considered illegal.

2.   Countries like Argentina have no legislation regarding cryptocurrency regulations; therefore, there is no legal basis to prohibit bitcoin trade there.

3.   Countries that started the development of cryptocurrency regulations on the legal level, like SAR.

4.   Countries that can boast comprehensive cryptocurrency regulations like Japan.

Yet, there is no unified approach regarding cryptocurrency regulations. Therefore, different financial bodies, like the International Monetary Bank, World Bank, and others, call on countries to develop comprehensive international standards.

The measures to be taken may include:

–          Registration of cryptocurrency exchangers and traders

–          Transparency of transactions

–          User authorization

–          Open access to information in case of crime investigations

–          Taxation

Whatever of these will be accepted internationally is still to be discussed. Yet, implementing rules for safe trading and protection for users and owners of cryptocurrencies will be generally beneficial.

Author’s bio: Anastasiia Lastovetska is a technology writer at MLSDev, a software development company that builds web & mobile app solutions from scratch. She researches the area of technology to create great content about app development, UX/UI design, tech & business consulting.