Twelve years have passed since a whitepaper introduced Blockchain and Bitcoin to the world. A lot has changed, not only to its applications but also in how the world perceives them. Cryptocurrencies have worldwide applications, so it’s no surprise that nations took notice and started working on their national frameworks. The first cryptocurrency policy took place in June of 2014. That’s when Canada’s Governor General approved a federal bill which mentioned and labelled the asset as a “money service businesses”. Since then, policy development has exponentially grown as more laws and regulations roll in from several territories in the world.
Here we focus on the road for digital asset policies in the past few years and how some territories have approached crypto. The recent developments into these geographical regions are quite exciting, showing that cryptocurrencies are ready to step into the mainstream. With that in mind, let’s have a look at the policy development in these countries and where they stand today.
Australia was an early adopter of policy frameworks, approaching the influence of crypto in quite a positive light. In late 2014 the ATO ruled them as legitimate and taxable assets, regulating exchanges as “Digital Currency Exchange Providers”. In August 2015, the Economics References Committee released a report called “Digital Currency – Game Changer or Bit Player”. The document advocated for better regulations and the same safe-harbour obligations that would apply to traditional banks.
Australia has embraced the use and distribution of cryptocurrencies in the past two years. AUSTRAC submitted the essential regulation for the current framework in April 2018. It created the first law for digital currency providers, requiring exchanges to register their business and report to its obligations. The measure sought to minimise the risk of criminals using the technology for mainly money laundering and tax evasion.
Similarly, the Australian Securities & investments Commission (ASIC) updated their crypto policies last July. The document establishes that cryptocurrencies are financial assets and can be traded and referenced as products by companies. ICOs can also be founded and traded within Australia, as long as they comply with Australian law. The safety concern has always been a priority in regulations, which is reasonable but also challenging for favourable policies.
The first Chinese crypto policy came as an institute founded in early 2014 to improve the Yuan through Blockchain technology.
Such institutes led to the development of the DCEP, set to be the first national digital currency in the world. In our article about the “Digital Yuan”, we cover the reasoning behind the DCEP as an attempt to fight against crypto adoption in the Asian nation. On October 12th, the Digital Yuan entered its field testing phase, where China distributed approximately US$1.5 million amongst 50 thousand shoppers in Shenzhen to track currency circulation and efficiency. On October 24th, China released a draft on the policies applied to the Digital Yuan. The document recognises the digital currency as money while banning private companies from circulating their virtual assets in the Chinese market.
Although China is about to roll out the first national digital currency, their current frameworks for crypto are far stricter in comparison to what’s under development in America and the EU. In September of 2017 the seven primary financial regulators, including the People’s Bank of China, issued an announcement banning Initial Coin Offerings (ICOs) from circulation in the country. China justified the ban as an attempt to lower the power and circulation of the leading cryptos such as bitcoin and ethereum, which are “public financing without State approval” and therefore, illegal.
Currencies such as bitcoin are not illegal but are also not actual money, according to the Beijing Arbitration Commission. They are “virtual commodities”, not used for financial transactions. As the country prepares to roll out the DCEP, it comes as no surprise that cryptocurrency regulations will gradually become stricter.
The most significant digital asset policies came in 2016, when the Union recognised crypto exchanges as legitimate financial platforms (June 2016). That followed in 2018 by an Action Plan to explore development in finances with Blockchain and cryptocurrencies (March 2018).
The territory regulates and accepts Digital currencies, but not in an exclusive asset category. Since July of 2016, cryptocurrencies are a “digital representation of value that is neither issued by a central bank or a public authority, […] as a means of payment and can be transferred, stored or traded electronically.” It doesn’t have a definition for cryptos although accepted as value for transactions, storage and investments.
That is about to change as the European Commission rolled out a plan on September 24th to develop a full and exclusive regulatory framework for digital currencies. “Regulation of Markets on Crypto Assets” seeks a clear definition of what a digital asset is while developing a legal framework that will envelop all 27 territories of the European Union. If approved, crypto platforms and exchanges will be able to grow the business freely within the EU under the same baseline, much like what America’s federal framework proposes for “digital commodities”.
The US government recognises the use and applications of crypto as legitimate and taxable. There just hasn’t been any national laws to follow it, with no federal framework on how to regulate and label cryptocurrencies. That seems to be about to change as a new bill under the Digital Commodity Exchange Act of 2020, introduced on September 17th, seeks to create an exclusive legal category for cryptocurrencies. Under this proposal, platforms focused on digital currencies are “digital commodity exchanges”. If approved, the act will allow exchanges to operate freely in the entire country instead of complying to each state according to their frameworks. The action will be an enormous step for the US, as it allows crypto exchanges to grow substantially in the territory while facilitating access to potential new adopters.
That’s not the only good news for US policies that came out nearly in the same day. The country might be behind in federal guidelines. Still, it recently hit a tremendous global milestone for crypto, the first of its kind. On September 16th crypto exchange Kraken became the first in the world to receive approval to launch its own banking institution, under the regulations of the state of Wyoming. The bank, which will be called Kraken Financial, will be the first cryptocurrency institution in the world to operate under the same rules as a conventional bank.
In a nutshell, American policy-making is moving slowly while simultaneously making enormous progress. A bit confusing, but heading in the right direction. The American scenario for crypto adoption had an interesting update on October 19th. That’s when the International Monetary Fund released a report on Central Bank Digital Currencies (CBDC) which was backed by Jerome Powell (image), President of the American Federal Reserve. Powell spoke for roughly an hour during the IMF’s annual meeting on the same date, whose main topic for the year was the creation of national digital currencies. The Federal Reserve president stated that “it is more important for the US to get it right than to be the first.” The country sees the release of a CBDC as a possibility but is currently proceeding with great caution on the matter.
Notable mentions of governance in cryptocurrencies
Dubai – In January of 2020, Dubai created a “crypto valley” in their tax-free zone. It is used as a way to promote investments amongst crypto businesses and individuals. In July 2020, the city debuted UAE’s nationwide Blockchain data platform. The first implementation of its kind, the platform revolves around customer data. More than 130 companies are currently utilising it.
New Zealand – In September 2019, the country became the first in the world to legalise cryptocurrency salaries on workers’ paychecks. The decision came as a surprise for many adopters since no previous crypto regulations were established by the government.
Singapore – The city-state is emerging as one of the central Asian crypto leaders. The government incentivises crypto investment in the territory, developing blockchain software for national payment methods and even government systems. As of October of 2020, 234 blockchain companies operate within the city.
Challenges for digital asset policies
There are two main reasons for the slow governance implementation of cryptocurrencies; concerns for their safety and disruptive nature.
The reasoning for safety concerns is relatively straightforward. In their early days, bitcoin was mostly for online black markets as anonymous means of transactions with full confidentiality. Despite the unequivocal presence of crypto in the current global market, the safety concerns of validating crypto within a nation are still very present in policy discussions. Safety is the very first thing brought up as an argument against bills that seek to regulate cryptocurrencies. It is the idea that crypto not only encourages fraudulent transactions but also put citizens at risk of being scammed. However, it is worth noting that the root cause doesn’t lie on the Blockchain technology itself.
Society faces schemes and fraud since the dawn of time with any situation involving trade. Introduced in the 1970s, credit and debit cards were a way to fight against the wave cheque forgery. To this day, credit card fraud is a prevalent issue that impacts any place accepting of them. These problems are not exclusive to cryptocurrencies, bound to happen continually.
Cryptos are also disruptive in nature against the sovereignty of central banks and government control. That’s because federal banking systems see cryptocurrencies as a non-surveilled competitor that provides a gateway off existing legacy systems. Their decentralised model and autonomous encryption displaces adopters from banking control. It makes it quite challenging to pass digital asset policies on crypto adoption under a heavily-centralised framework. Despite the barrier, several banks are following the trend and implementing the purchase and trade of cryptocurrencies into their structure. In the US, it came through a policy rolled out by the Office of the Comptroller of the Currency. The document allows banks to provide banking services involving bitcoin, another tremendous step in the road towards crypto adoption.
What lies ahead for digital asset policies
The near future holds some exciting prospects on what society can expect for crypto governance and digital asset policies.
Recently, the European Central Bank trademarked the term “Digital Euro”, a sign of interest into developing their own digital asset. About the trademark, president Christine Lagarde stated that the EU must prepare to issue a digital euro, should the need arise.
The Securities and Exchange Commission of the US recently proposed the regulation of cryptocurrencies for investments qualified as security transactions. It means that the commission must register any company or individual involved in blockchain and crypto services. SEC labels digital currencies as “a digital representation of value that can trade digitally and functions as a medium of exchange.” The Digital Commodity Exchange Act will standardise the definition once it creates a federal concept for the technology.
Australia recently rolled out the country’s planning for blockchain in the upcoming years. “National Blockchain Roadmap” details Australia’s focus on founding Blockchain committees for research and policies on safe and efficient implementations of the technology. The goal by 2025 is to have a national program for Blockchain start-ups to promote global expansion while investing in internal programs to introduce potential crypto investors to Australia.
Despite the challenges, it is clear that the world’s governments are moving slowly but surely towards proper policies for cryptocurrencies. Discussions about bitcoin and other cryptos no longer happen outside of the public opinion. The spotlight has arrived for digital currencies, a legitimately groundbreaking technology which is here to stay.