Cryptocurrency and its legal implications: A comparitive analysis

It has to be noted that, Bitcoins are stored in an electronic space called e-wallets, which is protected by a private key (which has been discussed in Chapter 5). Similar parallel can be drawn with any of movable objects, where the lock and key is tangible unlike e-wallet and private key. Hence, like any movable property it can be stored (in e-wallet) and transferred as per the owners wish and if CCs’ can be classified as goods, it can be taxed and monitored by the State. The term legal tender has not been defined in any of the existing statues in India, what can be gathered is its characteristics, and therefore by analyzing the  features of an object we can identify whether it qualifies as a legal tender or not. Legal tender is basically bank note and other equivalent instruments which is commonly used and is acceptable by the government and banks. Germany’s inclusive legislation of their banking system has perpetuated the adoption of virtual currency in their system without much hassle.

Understand Cryptocurrency and Its Regulations

There is a bill in circulation that prohibits all private cryptocurrencies in India, but it has yet to be voted on. There is a 30% tax levied on all crypto investments and a 1% tax deduction at source (TDS) on crypto trades. Australia classifies cryptocurrencies as legal property, subjecting them to capital gains tax.

what is crypto payment

The new directive has handed power to existing market regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). [7]  A technology which constantly maintains record called blocks, which are connected and secured by cryptography. [41]  It is an independent agency made by the U.S government to regulate future and option market.

In 1998, a computer science graduate Wei Dai developed laid the basis for Cryptocurrency by working on b-money, which would empower online economies to work without tax or threat. The idea did not turn out practicable, but what it laid the groundwork for the future which was later acknowledged by Nakamoto. In 1999 PayPal was established which made internet users comfortable with the fact that money transfers can be done safely online. The RBI’s statement directed financial institutions and payment providers to cease virtual currency transactions and services to entities involved. On April 6, 2018, the RBI declared cryptocurrencies illegal in India, effective from June 6, 2018.

  • In 2021, the number of crypto-related jobs posted on LinkedIn grew by 395 percent over the previous year [4].
  • Cryptocurrency exchange regulations in South Korea are strict and involve government registration and other measures overseen by the South Korean Financial Supervisory Service (FSS).
  • Srinivasa Setty[25] it was noted that, in a case where the cost of acquisition were not ascertainable, the computation mechanism could not come into play.
  • By contrast, in Mexico, Argentina, Brazil, Venezuela and Chile, cryptocurrencies are commonly accepted as payment by retail outlets and merchants.

There are mentions regarding cryptocurrency as a low-cost payment, increase in efficiency, and provide an alternative to people who have limited access to banking services. At that point of time, Bitcoins were just an electronic currency and could not be exchanged for any other currency or commodity. It was observed that Bitcoins are exciting as it shows how cheap a transaction can get (2014, Bill Gates). It is a cryptographic achievement and not to be duplicated in the digital world has an enormous value (2014 Eric Schmidt, ex CEO of Google).

Understand Cryptocurrency and Its Regulations

Singapore issued guidance in 2022 warning digital payment token (DPT) providers to avoid advertising their services to the public. Canada classifies all crypto investment firms as money service businesses (MSBs) and requires that they register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). From a taxation standpoint, Canada treats cryptocurrency similarly to other commodities. A proper regulation or friendly approach towards cryptocurrency will help India or any country to lead in the world of innovative technology and investment. In cryptocurrency or bitcoin give a private key for each person holding cryptocurrency on receiving of the message and secure system through cryptography. The transaction is completed after minors solve complicated mathematics problems and are paired with each hash.

Understand Cryptocurrency and Its Regulations

Only El Salvador and the Central African Republic accept cryptocurrency as legal tender and give it a footing on the same level as national currencies. This will be determined only by how consumers and service providers respond to changes in the economic climate worldwide. Cryptocurrency exchanges are considered legal across the United States, and they are regulated by the Bank Secrecy Act. When it comes to cryptocurrency regulations, the SEC considers them to be securities and therefore applies the rules that govern securities to both digital wallets and crypto exchanges. FinCEN wants all crypto exchanges and digital wallets to share information about the originator and beneficiary of every transaction involving cryptocurrency.

IMF also added that it would make it difficult for the country to avail loans from IMF as well. Cryptocurrency exchanges are legal in Brazil but the country is yet to come up with designating a regulatory body or regulatory policies for it. The Brazilian Federal Reserve Bank warns that these cryptocurrencies are neither issued nor guaranteed by a central or responsible money authority and therefore all risk lies with the holders. In 2018, laws were introduced by the Australian Transactions Report and Analysis Centre (AUSTRAC) which required exchanges to ensure proper customer KYC procedures. They also had to maintain a record of the transactions and comply with anti-money laundering laws. Many exchanges were also forced by Australian regulators to delist an anonymous cryptocurrency referred to as privacy coins in 2020.

In December 2017, the National Tax Agency ruled that gains on cryptocurrencies should be categorized as ‘miscellaneous income’ and investors taxed accordingly. Australia has established a pattern of proactive cryptocurrency regulation, and these latest regulations illustrate the country’s continued effort to provide a clear framework for crypto businesses to operate in the coming years. In May 2019, the Australian Securities and Investments Commission (ASIC) issued updated regulatory requirements for both initial coin offerings (ICOs) and cryptocurrency trading. Similarly, in August 2020, Australian regulators forced many exchanges to delist privacy coins, a specific type of anonymous cryptocurrency. As cryptocurrency usage increases, so too do cryptocurrency regulations around the world that are put in place to govern them. The crypto landscape is constantly evolving and keeping up to date with the rules in different global territories isn’t easy.

This can take up to 6 months to obtain and the exchange will have to be AML and CTF compliant and have robust and fail proof cybersecurity measures in place. The Japanese Virtual Currency Exchange Association (JVCEA) and the Japan STO provide guidance to yet to be licensed cryptocurrency exchanges on compliance. Japan’s Financial Services Agency recognized bitcoin as a legal mode of payment. However, despite several news agencies reporting it as legal tender, it is not accepted as one. Recent amendments to the PSA and to the Financial Instruments and Exchange Act (FIEA) in May 2020 introduced the term “crypto-asset” (instead of “virtual currency”).

This will help you make informed decisions about when to buy and sell different cryptocurrencies. Cold wallets include hardware wallets, which are basically little plastic devices specifically designed for keeping someone’s private key safe. If you wrote down your 64-character private key on a notecard and someone gained access to it, they’re basically able to send your cryptocurrency wherever they please. Coinbase built its reputation as a leader in the cryptocurrency exchange space by drastically simplifying how users buy cryptocurrency. With a market capitalization of over $900 billion, Bitcoin dominates the rest of the cryptocurrencies with the lion’s share of the total cryptocurrency market cap.

Although investors still pay capital gains tax on crypto trading profits, more broadly, taxability depends on the crypto activities undertaken and who engages in the transaction. Cryptocurrency regulations are pretty relaxed across the world with most of the countries globally having accepted it for the benefits it provides, a decentralized, private, tamper-proof and secure system for transactions. However, there are concerns linked to it, owing to its volatile nature and its non-applicability as a legal tender or actual replacement for currency.

The operation of these platforms will continue as it was with perhaps authorized regulations and guidelines. The Government has also hinted that the policy it is adapting with regards to cryptocurrency is leaning towards protecting the investors’ money, but it might happen that cryptocurrency is classified as an asset than an actual mode of currency. Taxing cryptocurrency has already taken place, as it provides the government a way to generate revenue from the platforms. Many long-standing institutions have begun to offer consumers the option of buying crypto. These platforms also allow users to purchase other financial products, such as stocks and bonds. Traditional brokers tend to offer low trading costs but fewer crypto-specific options than cryptocurrency exchanges.

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