David Koriahin, FK-204i, KNEU
As more and more people are getting involved with cryptocurrencies in some way or the other, particularly retail, professional investors and regulators have taken special interest in the industry.
Let’s begin with understanding what cryptocurrency is.
Cryptocurrency is a digital asset designed to work as a medium of exchange wherein individual coin ownership records are stored in a ledger existing in a form of computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. It typically does not exist in physical form (like paper money) and is typically not issued by a central authority. Cryptocurrencies typically use decentralized control as opposed to centralized digital currency and central banking systems.
However, it is not just bitcoin that most people are looking at the space of cryptocurrency has developed with many coin offerings. This was explained in a special report by CNBC some years ago explaining the feature and block chain technology that is used in many big corporations. The developments have brought different responses from regulators all over the world in many different areas. Every authority has looked at other parts of the world from trading to mining and analyses how the same should be regulated.
So, now it is a bit more clear what is cryptocurrency.
Then, we have a next question: How its legislation can benefit to us?
Regulations will help transform cryptocurrency from purely speculative to usable assets.
Knowing the parameters in which they can operate, cryptocurrency projects will be able to move beyond current tightly-controlled pilot programs and sandbox testing and offer Big Business customized solutions to existing problems without having to fear a backlash from regulators.
The lack of current regulations limits the use cases of most current cryptocurrencies as mostly theoretical, in the absence of practical validation. Large corporations are fearful to implement virtual assets into their operations, worried about attracting the kind of condemnation that Libra (Facebook cryptocurrency project) received.
On the other hand, financial institutions are already integrating blockchain technology into the very fabric of their operations, as can be seen by permissioned distributed ledger technology (DLT) implemented by the likes of JP Morgan and Wells Fargo. By gaining regulatory approval, they will also be able to develop specific financial instruments that will result in more fungible assets.
There are thousands of projects build with a help of blockchain technology, which can be helpful in different aspects of our daily life. But they cant move on so fast because of the problem with legislation of cryptocurrency.
Lets talk about some examples:
Golem’s “supercomputer” gets its power from both small personal laptops and giant data centers spread around the world. And as a user of Golem’s platform, you can run a website, do energy-intensive scientific calculations, run a long code, or do CGI rendering. So, you can use power of the global network of computers, instead of buying the new one (for some scientific calculation, it will be real breakdown).
Golem supercomputers will run when the user pays GNT tokens. These tokens will be given to people who have rented out their extra computing power on the Golem network.
IOTA is another cryptocurrency which claims to be the next generation of cryptocurrency.
IOTA has the potential to change the way we do payments because it offers completely free transactions which are not possible with other cryptocurrencies.
These are only 2 projects, but the idea they try to implement can completely change our world.
Not least to say would be about the modern problem of cybersecurity. As we can observe, everyday some hackers steal the data from big corporations, businesses and even from governments. This is possible because the data is stored on ordinary computers and data servers. But using the blockchain method to encrypt data will make the data almost impossible to steal for every hacker, does not depend on his computer computational powers.
Going back to our main topic, lets see how many regions are legislation cryptocurrency.
The investors in Asia have been a major in cryptocurrency trading especially with respect to bitcoin. Over the past few years, different type of Asian countries have played important players in the cryptocurrency markets. A few years back China was a major player in the cryptocurrency investment.
Later, a regulatory crack down took on the cryptocurrency markets and soon the second largest economy of the world changed the position. Japan and Korea became the largest drivers of the crypto markets. In the year 2013, China was one of the biggest drivers of bitcoin price. The Chinese soon saw that at that time it was alternative investment to the stock market and housing market were becoming very risky.
Since then, Chinese regulators have had a negative feeling about cryptocurrency. In the year 2014, the Chinese regulators ordered the banks to close accounts that are opened by investors trading in important currencies. In 2017, China banned the bitcoin trading and since then China continued to screw other parts of the cryptocurrency industry. A similar situation took place in Japan and South Korea as well (Dodgson et al., 2015).
While Asia is regarded as the biggest drivers of cryptocurrency, the United States has become an important place for new investment in the Europe market. Most of the major economies in the West is introduced with important laws as part of the cryptocurrency. The approach of the United States in regulating cryptocurrency has been in association with the present laws instead of introduction of the new ones. At the end of 2017, the Securities and Exchange Commission issued a warning notice to the investors in the US.
There has been many debate in the US about the cryptocurrency regulation rules and Securities and Exchange Commission has clearly stated that bitcoin cannot be regarded as securities any further. However, some coins created out of the ICOs can be treated as securities. It is not just the ICO market that the US is looking for, there has been many other changes that have taken place from professional institutional investors who want to get involved in the cryptocurrency space. Due to the lack of regulation and problems in buying crypto assets on exchanges, the same has been laid off. Many people feel that the regulations did not offer proper protection and thus, the investors did not bother to make investment in cryptocurrency (Fung and Halaburda 2016).
Much of what happened in the US regarding cryptocurrencies was repeated in the United Kingdom as well. There was no legislation but many warnings about the associated risks were signalled at. The Financial Conduct Authority stated that ICOs are very high-risk speculative investments. It focuses on the fact that ICOs are much unregulated and it offers no protection to the investors. They have huge volatility rate and it may become a source of fraud.
British lawmakers have been taking interest in the crypto space. The parliament of UK has launched digital currencies and has distributed the same as part of block chain. The aim was to analyse the impact of the new technology and examine the response of regulatory from the FCA and the Bank of England (Iansiti and Lakhani 2017).
The European Union comprises of at least 28 nations all of which has regulations related to cryptocurrency. The law makers of the EU have passed a new law as per which money laundering shall be tackled in an effective manner and protection for the same shall be granted. The law however has still not come into existence making cryptocurrency volatile as part of investment.
As to Ukraine, I have heard from news, that The Ministry of Finance of Ukraine believes that the legalization of cryptocurrency transactions may bring additional opportunities for the development of the Ukrainian economy. At the same time, there are some risks that cryptocurrency will be used for money laundering.
Also, approximately one year ago The Verkhovna Rada of Ukraine has registered a bill on the legalization of cryptocurrencies. It defined the basic terms and prescribed taxation.
The main changes in the regulation of cryptocurrency come into force on April 28, 2020 in terms of preventing and combating money laundering. Parliament amended the law on financial monitoring or the “AML law”. These changes were ambiguously perceived by the cryptocurrency community. Opinions were divided. Part of the community supports the new law, as it is another step towards the adoption of cryptocurrency as a legal tender. There are also those who are negative about change, because cryptocurrency will lose its main advantage – anonymity.
Also, Ukraine has implemented FATF recommendations, which are already in force in many countries around the world. Thus, Ukraine is faced with a choice: to ban cryptocurrency or to introduce appropriate regulation. Ukraine has chosen the second option. Amendments were made to the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Financing of Terrorism and Financing of the Proliferation of Weapons of Mass Destruction.” The changes are as follows:
1) Cryptocurrency, as a virtual asset, was defined, namely: a digital expression of value that can be traded in digital format or translated, and which can be used for payment or investment purposes.
2) The legislator has given definitions to service providers related to the circulation of virtual assets. This is any natural or legal person who performs one of the following activities:
– exchange of virtual assets;
– transfer of virtual assets;
– storage and / or administration of virtual assets or tools that allow you to control virtual assets;
– participation and provision of financial services related to the issuer’s offer and / or sale of virtual assets.
According to this definition, providers of services related to the circulation of virtual assets are not only cryptocurrency exchanges and exchangers, but also companies that conduct ICO (Initial Coin Offering).
3) It is necessary to identify the parties to transactions with virtual assets, if the amount of the transaction exceeds UAH 30,000. Providers of services related to the circulation of virtual assets may require verification, even if the transaction amount is less than UAH 30,000
4) Providers of services related to the circulation of virtual assets must provide special reports in the prescribed form to Finmonitoring on the operation in excess of $ 400,000, if there is reason to believe that these operations:
– conducted by politically significant persons;
– carried out by a party registered in one of the countries of the list of sanctions;
– are aimed at transferring funds abroad;
– are carried out with the use of cash.
5) The Ministry of Digital Transformation in Ukraine has been appointed the regulator for virtual assets.
The new financial monitoring rules are aimed at implementing the best international standards for combating and combating money laundering and terrorist financing. The Ministry of Digital Transformation of Ukraine claims that the changes are only the first step towards establishing the legal framework of the cryptocurrency industry, and the next step is changes in tax legislation.
The idea of this law is to legalize the cryptocurrency business and give cryptocurrencies, exchangers and other representatives of the crypto industry access to the banking system. So far, there are more questions about its implementation than answers.
Cryptocurrencies and cryptocurrencies are encouraged to partner with various think tanks, hire a qualified compliance officer, analyze clients’ business activities and the origin of funds, and are more careful about writing AML policies on the site.
The draft law defined the basic terms: “virtual asset”, “cryptoasset”, “operation with cryptoassets”, “distributed ledger”, “token” and “token-asset”.
In my view, it is the right way for Ukraine to legislate cryptocurrency and start to implement it in the spheres, where it will be useful. This would make life or ordinary Ukrainian citizen more convenient, does not depends whether he is businessman, school teacher, policeman or doctor.
To conclude, it should be said, that collective efforts are made by the regulators and governments to understand the future of cryptocurrency and the block chain. Some countries such as China have come done while some others, particularly the small nations and territories have welcomed them warmly. Every person is approaching technology in a different manner. However, one thing that seems to be clear at the end of the discussion is that over the course of time and especially in the coming year new laws will be made and the same will come into consideration as cryptocurrency brings the blockchain and cryptocurrency as part of the regulatory world.
These regulation would be breakout for the planet to new technological era, which will change almost every process in our everyday life.