John Maynard Keynes, the great economist, advocated for a world currency back in the 1940s. Cryptocurrency is just that.
Cryptocurrency is a form of digital money that is designed to be secure and in many cases anonymous. In the simplest of forms, cryptocurrency is digital currency. Cryptocurrencies use blockchain technology, which is a method of recording data. The big difference from other methods of data storage is that it isn’t just stored in one place, it is distributed across several, hundreds or even thousands of computers around the world, making the records transparent. Bitcoin became the first decentralized cryptocurrency in 2009.
Many regulators are concerned about the decentralized nature of cryptocurrency. The legal status of cryptocurrency is, in most jurisdictions, yet to be determined. In some countries there is a fear that cryptocurrency will be used for the money laundering, tax evasion, terrorism funding and the purchase of illicit goods. In these instances, its use is inherently illegal. However, cryptocurrency is far more complex to legislate when the currency is being used for legitimate purposes.
A recent report by the Council of the European Union found little actual usage of cryptocurrency for illegal activities, due to the relatively high barriers to usage, which concluded that:
“Few investigations have been conducted on virtual currencies which seem to be rarely used by criminal organizations. While they may have a high intent to use due to use VCs characteristics (anonymity in particular), the level of capability is lower due to high technology required. Consequently, the level of money laundering threat related to virtual currencies is considered as moderately significant.”
By way of context, the vulnerability component is assessed according to a four-scale level: lowly significant, moderately significant, significant or very significant. It is apparent, therefore, that the Council of the European Union does not see cryptocurrency as a serious threat.
Whilst the majority of countries do not make the usage of bitcoin (and other cryptocurrencies) itself illegal, its status varies, with differing regulatory implications. Some countries have explicitly allowed its use and trade, whereas others have banned or restricted it. The legal status of cryptocurrency varies substantially from country to country and is still undefined or changing in many of them.
In October 2015, the Court of Justice of the European Union ruled that “The exchange of traditional currencies for units of the ‘bitcoin’ virtual currency is exempt from VAT” and that “Member States must exempt, inter alia, transactions relating to ‘currency, bank notes and coins used as legal tender’”, making bitcoin a currency as opposed to being a commodity.
Japan has recently passed a law that makes Bitcoin a legal form of online payment, removing taxes and setting up a regulatory framework for Bitcoin-based businesses.
Australia has officially confirmed that it will treat bitcoin “just like money” and taken a stance in favour of cryptocurrencies by also removing a double-tax burden that was penalizing average Bitcoin users.
In Taiwan Bitcoin ATMs are banned, but bitcoins can be purchased at over 6000 convenience store kiosks.
Swiss Federal Railways, a government-owned railway company of Switzerland, sells bitcoins at its ticket machines.
However, not all jurisdictions are as accommodating. Ecuador not only banned Bitcoin and all other cryptocurrencies, but it did so while establishing guidelines for the creation of their own virtual currency, thus implicitly accepting the benefits of virtual currency but wanting to regain some form of centralization, regulation and control.
On the other hand, as of 17 January 2017, The Central Bank of Nigeria passed a circular to inform all Nigerian banks that bank transactions in bitcoin and other virtual currencies have been banned. However, during the year, The Central Bank of Nigeria (through its Deputy Director on Banking and Payments System, Musa Itopa-Jimoh) stated: “Central bank cannot control or regulate bitcoin. Central bank cannot control or regulate blockchain. Just the same way no one is going to control or regulate the Internet. We don’t own it”.
Later on, a committee was set up by the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation to look into the possibility of the country adopting the technology driving Bitcoin and other digital currencies.
Other African countries have been more welcoming of digital currencies. In late 2015, Tunisia digitized its national currency using blockchain technology. Senegal has announced plans to digitize its currency this year. The eCFA, as the digital currency will be called, is expected to be used across most of Francophone West Africa.
In September 2017, Elvira Nabiullina (Head of the Central Bank of Russia) has said it is categorically against regulating cryptocurrencies as money, as a means by which payment can be made for goods and services, and against equating them with foreign currency. Deputy Finance Minister of the Russian Federation Alexei Moiseev at the same time said it’s “probably illegal” to accept cryptocurrencies payments.
In China, all Bitcoin exchanges in Beijing and Shanghai were ordered to submit plans for winding down their operations by 20 September 2017. This move followed the Chinese central bank’s decision to ban initial coin offerings in early September.
In September 2014, the Bangladesh Bank officials said that anyone found guilty of dealing with Bitcoin or any other cryptocurrency could be jailed for up to 12 years under current anti-money laundering laws. The central bank went as far as to request citizens not to “spread information about it.”
The Future of Cryptocurrency
The future of cryptocurrency is both uncertain and heavily debated. As long as a cryptocurrency can be accessed and created then its money supply can grow to meet the needs of its user base. However, much of this will depend on the approach of regulators. Any attempt to ban cryptocurrency would require global collaboration. It only takes one jurisdiction to allow cryptocurrency and the internet leaves the door wide open for all.