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Global Regulatory Framework for Digital Currency

Regulatory framework

December 1, 2020 | 

JOHN K MWANIKI |  0 Comments| 

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The past few years have seen cryptocurrencies become integral to the economy. A decade ago, Bitcoin was a new product with no certain future. It has now become an accepted medium of exchange and transfer of value. 

As digital currencies become part of the economy, they affect different entities. They impact both the traditional currency and investors. For that, different countries give them varying approaches.

This analysis looks into everything about the global regulatory framework for digital currencies. It looks into the various countries' approaches towards crypto regulations. It also has the need and future of regulations.

Different Countries' Approaches to Crypto Regulations 

Cryptocurrencies have been growing worldwide. Every country has been giving it an approach based on the perceived effects. The first case scenario, though, has been to describe the scope of the currencies. As a new invention, it would be hard to regulate what you don't understand. Different countries call it digital currencies, virtual commodities, crypto tokens, and payment tokens. Others also refer to it as cyber currency, electronic currency, and virtual assets.

In trying to define digital currencies, there is always a new invention coming up. For example, stablecoins came up after the first crypto wave. The same is to altcoins and even the privacy coins. Others will keep on coming up. This prompted the European Union Commission to refer to them as crypto-assets. This covers every currency on the blockchain technology. 

The most popular approach to crypto regulation by most countries is government-issued notices. The Central bank notices warn citizens of the pitfalls of cryptocurrencies. They educate the investors on fiat currencies and decentralized cryptos.  

Most government notices tend to mention the risk of volatility. They also let the user understand they invest in cryptocurrencies at their own risk. The citizens understand they won't get any legal recourse in case of any loss.

The countries also warn users about the use of cryptocurrencies for illegal transactions. These countries impose anti-money laundering regulations. They also impose counter-terrorism and organized crime watch on the cryptocurrency market.

Such countries need banks and every other financial service to follow the regulations. They have to ensure due diligence in all operations. The institutions must also notify the authorities in case of any suspicious transaction. Canada and Australia are some of the countries with such laws. 

Several jurisdictions in the world also impose investment restrictions on Cryptocurrencies. Some countries ban any cryptocurrency activities. Such countries include Pakistan, Morocco, and Algeria.

The other option is where a country prohibits crypto use only within the borders. The citizens are free to transact in any crypto asset from a foreign land. Such jurisdictions include Bahrain and Qatar

Still, other countries have a passive restriction approach. These countries don't ban citizens from using cryptos. They stop all the service providers.

These countries stop financial services providers from facilitating any virtual currency transactions within the borders. Such countries are China, Lithuania, Colombia, and Iran.

Several countries are also now starting to regulate Initial Coin Offerings (ICOs). Most countries tend to regulate them, while a few like China bans them. Most of the countries regulate ICOs based on the nature of the offer. They tend to classify them as either securities or debts.  

Still, some countries are all pro-cryptos. They have embraced digital currencies. They have created an environment where cryptos use prospers. Some of such notable countries are Spain, Luxembourg, and Belarus.

Some countries are looking to introduce cryptocurrencies into their systems. They want to develop national cryptocurrencies to compete with the other digital currencies. Top of the list is Venezuela and Lithuania. They tend to use the cryptos to replace the current failing national fiat currencies.

While all this happens, some countries are not bothered by virtual currencies. They believe the cryptos are still too small to have any meaningful impact on the economy. Some of such countries are South Africa and England.  

Major Crypto Regulations Points 

The crypto global regulatory framework has a lot to cover. If it were to involve everything, then it would never come to pass. The crypto market is ever-expanding. It keeps on changing phases as new technologies and coins come around.

For now, the major concern is on taxes. The traditional currency has prospered due to the clear taxation regime. It is time the global regulatory framework clears the same. It should decide the exact category of the crypto assets.

The anti-money laundering laws also come into force. The use of cryptos for illegal transactions is a major concern. The regulatory framework should provide for how crypto service providers operate.

The Future of Crypto Regulations

Cryptos have grown in the recent past due to their decentralization. They have had no central authority determining their supply and operations. This, however, is becoming unattainable as the cryptos become mainstream.

Earlier on, most governments had let the cryptos prosper. They would operate without any interference. Still, this would last for long as the crypto space became a threat. Investors started losing money through scams and hacks. The crypto market also had volatility risks.

The global regulatory framework of cryptocurrencies favors strict regulations. Most of the countries are likely to adopt aggressive regulatory provisions. They want crypto service providers to operate like the traditional stock markets.

It would be a little tougher to start a crypto-financial service. Before, one would not need any authorization. For now, they would need one to meet certain standards before starting operations. They will have to undergo regular audits to ensure compliance.

An indicator of the future crypto global Regulatory Framework is the EU Regulation proposal. The commission provides an elaborate regulatory framework that will guide the crypto assets. If it passes, it will become one of the most detailed crypto documents. Most countries will likely follow suit.

Bottom Line

Cryptocurrencies are revolutionizing the financial systems. They have made cross border transaction so seamless. 

The only concern is on regulations. The global regulatory framework for digital currencies looks to streamline it. The world might end up as one big digital economy. 

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