- China is reportedly the first to issue an outright ban on ICOs
- India has never laid out any regulatory laws that favor digital assets even though they embrace blockchain technology
- Over 19 countries are on the outlook towards issuing state-owned digital assets as part of their approach to digital asset adoption
Since the advent of Bitcoin and cryptocurrency, peer-to-peer digital assets have gained considerable interest. Bitcoin is issued on a public decentralized network that has no central control, nor related to any government entity.
Bitcoin and cryptocurrencies have improved the global payment systems – especially in cross-border settlements. Though its credibility has also been questioned and equally criticized as many consider blockchain and cryptocurrency to be relatively in its infant stage.
Law enforcement agencies and regulators nationwide are still debating on the best practices concerning crypto adoption: whether Bitcoin is a legal entity or not? There are no clear-cut answers to this question, it is best answered within a particular geopolitical zone.
In this article, we take a closer look at the approach towards digital asset adoption of select few countries in the world.
The United States’ Approach to Digital Asset Adoption
So far, the United States has found it to be a daunting task to bring together a consistent approach to the adoption of cryptocurrency. Rules and regulations governing crypto exchanges differ in various geopolitical zones, and the interpretation of the word “cryptocurrency” by federal authorities also varies.
To date, the Financial Crimes Enforcement Network (FinCEN) seems to have disregarded cryptocurrencies as a legal tender. However, since 2013, exchanges have been regarded as money transmitters (subject to their jurisdiction) on the grounds that tokens are “other value that substitutes for currency”.
In contrast, the IRS recognizes cryptocurrencies as property and thus has laid out tax guidance accordingly. The major regulatory body in the United States – the Security and Exchange Commission has in the past, cracked down on some cryptocurrencies in which they perceived to be securities. The SEC has gone ahead to lay down laws to oversee Security Token Offerings.
However, the Commodities Futures Trading Commission (CFTC) has issued a friendly approach to most cryptocurrencies, describing Bitcoin as a commodity and allowing cryptocurrency derivatives to trade publicly.
In summary, the regulatory stance in the United States is still very uncertain as various authorities struggle to find common ground.
The People’s Republic Of China
China is generally known to have one of the strictest approaches to digital asset regulations. On September 4th 2017, Initial Coin Offerings were banned outright in China. This was the result of the joint forces of seven government regulations.
The statement reads, “ICO financing that raises so-called ‘virtual currencies’ such as Bitcoin and Ethereum through the irregular sale and circulation of tokens is essentially public financing without approval, which is illegal.” This abruptly declared tokens issued in an ICO as an illegal tender and lacks the capacity of being used as money.
This is not the first time China had taken a firm stance against cryptocurrency. As early as December 3rd 2013, the People’s Bank of China issued a notice to the public about the associated risk involved with bitcoin trading.
The circular defined Bitcoin as “by nature a special virtual commodity” which “does not have equal legal status as currencies” and “cannot and should not be circulated in the market as a currency.” It further prohibited banks and payment institutions from dealing with Bitcoin nor provide direct or indirect services related to Bitcoin.
Despite these tough regulatory concerns around cryptocurrencies, 65% of Bitcoin mining hash rate is generated from China and blockchain has found increased use cases within this region.
In a recent press release, the president of the people’s republic admonished the country to “seize the opportunity” afforded by blockchain technology, while maintaining its stance on cryptocurrencies. In conclusion, China seems to be at the center of attention in terms of the innovation that blockchain brings but not cryptocurrency itself.
Being the 5th largest economy in the world, India’s regulatory approach to cryptocurrencies hasn’t been a favorable one either. On November 13 2017, the Supreme Court of India issued a notice to the Ministry of Finance, Minister of Law and Justice, Ministry of Electronics and Information Technology, Securities and Exchange Board of India and Reserve Bank of India. The petition called for “a regulatory framework’’ to be laid down on Cryptocurrency.
Fast forward to December 29th 2017, the Ministry of Finance made a press statement that cautioned investors about the “real and heightened” risks of trading in cryptocurrencies such as Bitcoin, labeling it as an investment that bears the same risk as Ponzi Schemes.
Another press statement on February 1st 2018, revealed the position of the Indian government and the Reserved Bank of India (RBI). The report stated that “the government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of payment systems.’’
The reports further stated that “but the government will explore the use of blockchain technology proactively for ushering in the digital economy”.
This approach clearly suggests that although the Indian government recognizes the inevitable disruption that blockchain brings out, however it frowns upon the adoption and use of cryptocurrency.
With the introduction of the concept of Central Bank Digital Currencies (CBDC) in 2019, there is currently a hot debate as to which approach is better in adopting cryptocurrencies. Most lawmakers seem to strongly advocate for the adoption of a favorable cryptocurrency law, stating that “inclusion of cryptocurrency is inevitable”.
The Central Bank Digital Currency (CBDC)
The introduction of the Central Bank Digital Currencies by India has made many nations to start developing a framework concerning digital assets.
“Central banks are responding to the reality that digital assets, either privately or publicly issued, will be an unavoidable part of the global monetary system,” says a report by the Official Monetary and Financial Institutions Forum and IBM.
In light of this development, countries like Singapore, Iran, Venezuela, Senegal, Tunisia, UAE, Saudi-Arabia, Peru, and France are already developing their digital currencies. While China, Thailand, Israel, Canada, The Bahamas, Uruguay, The Netherlands, Norway, Sweden, Eurasia are still researching the best approach to digital assets.
It would be interesting to see how this plays out in the near future. Most blockchain proponents think the adoption of CBDC will pave way for a fairer playing ground for Bitcoin and other cryptocurrencies.