Last updated on March 29th, 2024 at 02:43 pm
Cryptocurrencies have evolved immensely in recent years, and from a niche technology known only to a small part of people, it has become an essential global financial industry. Bitcoin was the first digital asset created, which paved the way for many other virtual coins, each with unique features and use cases. Although plenty of other cryptocurrencies exist on the market, people are still interested to buy Bitcoin, as it is the biggest digital asset by market cap and will always have the first-mover advantage.
But as the crypto usage increases, so does the regulation around it. As the crypto space is an ever-evolving ecosystem, governments worldwide need to find solutions to regulate the transactions made with digital assets. In this article, we will further discuss crypto regulations around the world.
Table of Contents
Diverse Approaches to Regulation
Crypto regulations differ from country to country, which shows numerous concerns and opinions surrounding widespread adoption. Around the world, some countries have embraced blockchain and digital assets to foster investment and innovation, and in this way, they have become technology hubs. Others have adopted a more cautious approach and banned crypto-related activities.
- Crypto-friendly countries: Nations like Estonia, Malta, El Salvador and Switzerland have become crypto hubs, as they offer a supportive environment to digital assets, thus attracting crypto and blockchain businesses. All these countries aim to find the perfect balance between maintaining investor protection and fostering innovation.
- Regulation-heavy countries. Nepal, China, Bolivia and Algeria have strict regulations against digital assets, banning several activities, such as trading and initial coin offerings (ICOs).
- Balanced approaches: The European Union and other parts around the world have opted for a balanced approach. They recognize the potential advantages of cryptocurrencies and blockchain technology, so they have also implemented regulations to address the risk associated with transacting virtual coins, including money laundering.
What is the role of international bodies?
Cryptocurrencies have a global nature, posing unique challenges for regulators worldwide. Transactions with virtual coins occur without needing banking intermediaries and across several borders. This is why international cooperation and coordination are critical to addressing regulatory issues effectively.
International organizations like the Basel Committee on Banking Supervision and the Financial Action Task Force (FATF) are working to create global standards. They aim to establish a level playing field, ensure that digital assets do not encourage illicit activities and reduce the risk of regulatory arbitrage.
What are the challenges in crypto regulation?
The crypto regulatory landscape is a complex phenomenon for a couple of reasons, including:
- Diverse technological advancements. The blockchain and crypto are evolving rapidly, which makes it difficult for regulators to keep pace with each development.
- Diverse approaches. Around the world, countries have adopted different regulatory approaches. But in this way, they have created inconsistencies that can cause difficulties for companies operating internationally.
- Lack of clarity. The present regulatory framework is subject to interpretation, which leads to a lack of confidence and uncertainty for investors and businesses.
- Borderless technology. Cryptocurrencies run on blockchain technology, which is global. Thus, it is challenging for governments to ensure compliance across borders and enforce regulations internationally.
What are the crypto regulations present around the world?
Some countries have introduced specific crypto-use laws, while others have brought digital assets under the existing anti-money laundering taxation systems and legislation. Several countries are in the process of making changes in their laws, which can be done with the involvement of multiple financial regulatory bodies and governments, as is happening with the UK and the US.
Canada was the first country to approve legislation related to digital assets, which came under the jurisdiction of provincial authorities and Canadian Securities Administrators (CSA). In 2014, the Canadian AML/CFT and the Proceeds of Crime and Terrorist Financing Act were supposed to cover the laws of virtual coins. In 2017, the CSA provided further guidance for initial token offerings (ITOs) and initial coin offerings (ICOs). Then, in 2020 and 2021, additional regulations were put in place, which required companies to keep records of the crypto-border transactions, register with local regulators and report suspicious activities.
Australia also started including crypto in its licensing, consumer protection, and existing taxation in 2014. Then, in 2017, further legislation expanded the present AML/CFT rules, and in 2019, the Securities and Investments Commission adopted new licensing regulations. In September 2023, another change happened in the legislation of Australia, when the new senate rejected the Digital Assets (Market Regulation) Bill, which was introduced before by the opposition.
El Salvador is known worldwide as a country supporting cryptocurrencies, as it was the first nation to pass legislation that declared Bitcoin a legal tender. In August 2021, the Bitcoin Law was approved in El Salvador and came into effect the next month. The law declared that Bitcoin is accepted as a form of payment and that the country guarantees automatic convertibility of the digital coin to US dollars. Furthermore, the legislation creates rules for preventing money laundering and guidelines for virtual asset service providers.
Estonia has a regulation that is still evolving. It was the first country to issue crypto licenses in 2017, a huge advantage as it let numerous companies receive an Estonian license, with which they could operate anywhere. In this way, Estonia became one of the most important crypto hubs and hosted over half of the registered crypto service providers worldwide. However, since then, it has toughened its rules and revoked hundreds of licenses that didn’t comply with the new legislation.
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Concluding thoughts
The crypto regulatory landscape around the world is an evolving and dynamic space. Even if there are some challenges around this part, better regulation could bring digital assets into the mainstream financial system. If governments would collaborate to develop more balanced, clear and coordinated rules, the crypto sector could continue to grow while reducing the concerns of regulators and governments.
