The growing popularity of digital assets has resulted in various countries introducing mechanisms to regulate cryptocurrencies. The purpose of exercising control over them is primarily to protect investors and prevent money laundering and terrorist financing, which are the main risks associated with the sector. In the following article, we look at the current cryptocurrency regulations around the world.
Cryptocurrency regulations – vary from country to country
Given the increasing use of cryptocurrencies and related blockchain technology, there is a growing need to develop a regulatory framework for the innovative digital asset market. More and more countries are ready for Bitcoin regulations and other cryptocurrency regulation to protect investors’ interests, minimize the risk of money laundering and reduce terrorist financing. With cryptocurrency regulation the implementation of cryptocurrency regulations, confidence is increased in a previously operating out-of-control sector. The mechanism for regulating Bitcoin and other cryptocurrencies varies from country to country.
Regulation of cryptocurrencies around the world – current regulations
Some countries have adopted more and others less restrictive rules to minimize the risks associated with digital assets. Below we take a closer look at the cryptocurrency regulations around the world.
Japan is among the pioneers in the adoption of digital assets. It was one of the first countries to recognize cryptocurrencies as legal tender. In the Land of the Cherry Blossom, a particular Payment Services Act sets the rules for cryptocurrency regulations. Cryptocurrency exchanges are subject to licensing before starting operations, reporting on transactions carried out, ensuring the security of funds, and adhering to AML (Anti-Money Laundering) and KYC (Know Your Customer) procedures.
The FCA (Financial Conduct Authority) oversees the Bitcoin regulation and cryptocurrency regulations in the UK. A register of cryptocurrency companies has been introduced to minimize risks, in which the duty is to prevent money laundering and combat terrorist financing actively. In addition, rules for promoting cryptocurrencies and taxation of transactions involving digital assets have been detailed. According to the announcements, the digital asset industry must be covered by the same regulations as traditional financial markets.
China has introduced the strictest cryptocurrency regulations in the world. The country’s government has imposed significant restrictions on the operations of cryptocurrency exchanges, virtually blocking the development of the market by banning cryptocurrency exchanges from operating in China. In 2019, the Chinese government also banned cryptocurrency mining to control energy consumption and protect the environment. In addition, the planned introduction of the digital yuan and its replacement with traditional cash is expected to give the state better control over financial transactions. It is worth mentioning that the PBOC, the People’s Bank of China, oversees all cryptocurrency transactions to reduce the risk of money laundering and terrorist financing. Despite these restrictions, some Chinese investors still engage in cryptocurrency trading. Some use foreign cryptocurrency exchanges or VPN virtual private networks to bypass government blockades.
A significant player in the cryptocurrency market is also the United States, which is also implementing various mechanisms to improve Bitcoin regulation and more. USA cryptocurrency regulation boils down to, among other things, mandatory registration of cryptocurrency exchanges and their application of anti-money laundering and counter-terrorist financing measures. In addition, the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) agencies oversee the trade.
Estonia is listed among the leading countries associated with cryptocurrency regulation on the European continent. Established for this purpose, the FIU (Financial Intelligence Unit), the Estonian authority responsible for crypto regulation, supervises transactions and prevents money laundering and terrorist financing. For cryptocurrency companies, a required share capital has also been set, and they are charged a one-time license application fee.
In Germany, BaFin, the Federal Financial Services Authority, is responsible for cryptocurrency regulations, including holding Bitcoin. It requires companies operating in the crypto market to obtain a license and sets rules for the taxation of digital asset transactions.
Famous for its innovative solutions in the financial market, Switzerland has also developed crypto regulations applicable to players in the emerging sector.
The Swiss Financial Commission (FINMA) sets rules for taxing transactions and oversees cryptocurrency companies, which must identify their customers and report suspicious activity.
South Korea has also introduced regulation of Bitcoin and other cryptocurrencies. This Asian country has imposed mandatory registration of cryptocurrency exchanges. The security of transactions is overseen by Korea’s Financial Services Commission (FSC). Rules have also been clarified for verifying the identity of exchanges’ customers and preventing money laundering.
Challenges for cryptocurrency regulators
The market for digital assets is in constant flux – attracting new investors, giving rise to the need to Bitcoin regulations and other cryptos. Given the massive importance of crypto in global economies, more and more countries are choosing to implement rules for the innovative sector. The challenge for governments is to regulate cryptocurrencies in a balanced way – on the one hand, ensuring a due level of protection against risks, and on the other, allowing the market to develop freely. There is no doubt that cryptocurrency regulations around the world are necessary to shape properly the new way people use virtual assets. Time will tell whether regulations will tend toward uniformity.