What Is Cryptocurrency
Cryptocurrencies are digital or virtual currencies that use cryptography for making secure payments. Bitcoin, being the first cryptocurrency, has captured the public eye since its launch in 2009 by the pseudonymous Satoshi Nakamoto. Bitcoin’s success has sparked a number of mushrooming and competing cryptocurrencies, such as Litecoin, and Ethereum.
Most early adopters and financial experts saw cryptocurrencies as having disruptive potential. Bitcoin has majorly disrupted the banking industry, allowing people to access money that’s not controlled by a central government office.
The legal status of cryptocurrency varies from government to government and is still undefined or changing in many of them. The majority of countries do not make the usage of cryptocurrencies themselves illegal with the exceptions of a few such as Bangladesh and Bolivia.
Cryptocurrencies’ status as money or as commodities varies, with differing regulatory implications. While some countries have explicitly allowed the use and trade of these digital currencies, others have banned or restricted them.
Likewise, various government agencies, departments, and courts have classified cryptocurrencies differently.
Russia had previously banned the use of cryptocurrencies, and as of November 2016 declared bitcoins as illegal according to the Federal Tax Service of Russia. The government confirmed in May 2017 that a draft bill would create the legal framework for trading in bitcoin, dash, ether, and other digital currencies.
This comes a year after the same Russian institutions said people trading in these currencies could be jailed. Russia might legalize bitcoins and other cryptocurrencies in order to combat illegal transaction-fraud and corruption in 2018. In the same month, Russian Central Bank reported that the regulator and other ministries were developing a joint position on the status of cryptocurrencies, and would determine how to regulate them.
On the 7th of March, 2014, the Japanese government made a cabinet decision on the legal treatment of bitcoins. The decision did not see Bitcoin as a currency or bond under the current Banking Act and Financial Instruments and Exchange Law, prohibiting banks and securities companies from dealing in bitcoins.
The decision also acknowledges that there are no laws to unconditionally prohibit individuals or legal entities from receiving bitcoins in exchange for goods or services. Taxes may be applicable to Bitcoin. In February 2016, Japanese financial regulators proposed handling virtual currencies as methods of payment equivalent to conventional currencies.
The city of Hirosaki is officially accepting Bitcoin donations with the goal of attracting international tourists and financing local projects. In 2017, the country’s government officially recognized Bitcoin as a method of payment.
Financial institutions and third-party payment providers are banned from accepting, using, or selling virtual currencies. Private parties still do these activities. The beginning of 2017 saw a governmental crackdown of Chinese-based digital currency exchanges, causing a suspension in all withdrawals, causing the market to suffer heavily with China being one of the top Bitcoin markets in terms of trading volume.
The U.S. Treasury Department classified Bitcoin as a convertible, decentralized, virtual currency in 2013. Bitcoin’s legality depends on the individual states. With the Florida House Bill 1379 that was passed this year, state residents were made aware of the definition of digital currency.
The bill was also aiming to regulate and ban the use of cryptocurrency for money laundering.
The Central Bank of Nigeria (CBN) passed a report on the 17th of January, 2017, to inform all Nigerian banks that bank transactions in Bitcoin and other virtual currencies had been banned in Nigeria. However, during the year, the CBN clarified the report and its stance on Bitcoin and noted that the Central Bank couldn’t control or regulate blockchain.
Later on, a committee was set up by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) to look into the possibility of the country adopting the technology driving Bitcoin and other digital currencies – blockchain.
Bitcoin is not banned by any governmental party in Saudi Arabia. The Saudi Arabian Monetary Authority has warned of using it, as it is a high risk asset, and recognized that its dealers will not be guaranteed any protections or rights.
In Estonia, the use of Bitcoin is not regulated or otherwise controlled by the government. The Estonian Ministry of Finance has concluded that there are no legal obstacles to use bitcoin-like crypto currencies as a payment method.
Traders must, therefore, identify the buyer when establishing a business relationship, or if the buyer acquires more than 1,000 euros of the currency in a month. Estonia’s e-Residency program, just announced the program’s proposal to make Estonia the first country in the world to launch its own crypto tokens called estcoins, and launch an Initial Coin Offering (ICO), which could greatly benefit Estonia and its international e-residents.
Launching the cryptocurrency could create an impressive digital investment fund raised through the world’s first government-supported ICO.
The European Banking Authority issued warnings to the public about the risks associated with virtual currencies, and recently indicated it will apply anti-money laundering and anti-terrorist financing rules to virtual currencies.
EU ministers met in December 2016 following the terrorist attacks in Paris and agreed to tighten checks on payment methods used by terrorist organizations. The European Commission is currently conducting a risk assessment on terrorist financing and money laundering, paying particular attention to virtual currencies.
Virtual currencies are not legal tender in Jordan and the Central Bank has warned against their use. Banks, currency exchanges, financial companies, and payment service providers operating in Jordan are prohibited from dealing in virtual currencies.
There is a high risk of devaluation of cryptocurrencies, that their value is highly volatile, that they can be used for criminal activities, and that there is a risk of total loss because it is not backed by a central authority.
Virtual currencies are not legal tender, are unregulated, and deemed as risky. The Central Bank of Malaysia deems Bitcoin as not being legal tender, and does not regulate the operations of Bitcoin.
The public is advised to be cautious of the risks associated with the use of digital currencies.
Regulatory authorities are monitoring virtual currencies, particularly with regard to money laundering. Virtual currency is considered a virtual commodity and is not legal tender.
The Hong Kong Monetary Authority (HKMA) said that Bitcoin is only a virtual commodity.
As of February, 2017, Poland officially recognized the trading and mining of virtual currencies as ‘official economic activity’ according to an article by cointelegraph, revealing what was said by the Central Statistical Office of Poland.
The article continues to say that the status of Bitcoin is still shaky, and that the country has wanted to tax Bitcoin profits.
The Bank of Indonesia officially made this statement in 2014:
“The society is encouraged to be careful toward Bitcoin and other virtual currency. All risks related to the ownership/use of Bitcoin should be borne by the owner/user of the Bitcoin and other virtual currency.”
This article from September 2017 covers how Bitcoin is growing in Indonesia, and echoes the governmental stance that the digital currency is currently unregulated, but that they encourage the public to be cautious.
The acceptance of cryptocurrencies in general, has already led to some companies and countries seriously considering them as genuine investment opportunities, further fueling their journey to becoming mainstream. With many governments making them legal or regulating their use, cryptocurrencies are well on their way to becoming the new norm.