RUSSIA AND CRYPTOCURRENCY
Russia has struggled to pass cryptocurrency reform for over two years, since January 2018. Various government agencies and the central bank worked on several different bills—including the law on digital financial assets and the law on crowdfunding—without regularly consulting one another. While the law on crowdfunding passed this August, going into effect on Jan. 1, 2020, the law on digital financial assets was fought over until the term “cryptocurrency” was removed from the bill, making the bill’s regulatory scope unclear and nebulous.
Russian Prime Minister Dmitry Medvedev set the newest deadline for the bill on digital financial assets for November 1, 2019. The bill no longer has the terms “cryptocurrency,” “token,” or “smart contact” and was adopted in its first reading in May 2018 and again in March 2019.
The latest version of the law does contain the concept of “digital operating symbols,” a term defined as a set of electronic data or digital code for the purpose of organizing the circulation of the digital financial assets (without being digital financial assets themselves). Their use and release needs to be determined by the Bank of Russia.
The law specifies that the operator of digital financial assets and their exchanges have certain requirements. However, these requirements are not specified and will require further acts to explain them.
In May 2018, Russia’s Ninth Arbitration Court of Appeals recognized cryptocurrency as valuable property as part of a bankruptcy case. Later that month, it was decided that cryptocurrency would fit in the legal category of “other property”.
In 2019, a Russian Supreme Court plenum became the first time that cryptocurrencies were officially documented, by way of a plenum on money laundering.
In March 2019, a bill amending Article 128 of the Russian Civil Code was passed in the third reading, which introduced the concept of digital rights as a type of property rights. A previous draft had contained a provision for digital currency, but that had been removed before its passing. Article 309 of the Civil Code also now includes the stipulation that smart contracts can be used in specific circumstances.
CHINA AND CRYPTOCURRENCY
The Standing Committee of the 13th National People’s Congress in China passed a cryptography law that is effective on January 1, 2020. The announcement came immediately following Chinese President Xi Jinping calling on the country to seize opportunities in blockchain technology.
China currently bans cryptocurrency trading and its national digital currency is not yet hatched. However, the integral underpinning of blockchain technology, cryptography, are seen as key to the country’s push to be more competitive in emerging technology spaces.
The new law aims to tackle emerging regulatory and legal challenges in commercial cryptography use-cases as these have an increasingly important role in developing the Chinese economy.
Proponents hope the new law will encourage research and development on commercial cryptography technologies, while building up an inclusive standardized regulatory system for the market. It is also hoped that the new law will also encourage nationwide educational efforts, such as public exhibitions, to promote cryptography among government officials, companies and social groups.
The Chinese congress released a draft proposal for the new law in July, soliciting public comments. The proposal includes a range of issues from how compatible the industry standards should be with other international cryptography systems, to whether companies should voluntarily verify their commercial use-cases with authorities.
FACEBOOK AND LIBRA
Facebook’s plans to launch its very own cryptocurrency was met with heavy opposition last week. CEO Mark Zuckerberg’s Libra proposal to Congress turned into a hearing of the company’s past mishandling of data and information. Without a clear structure for regulation, there is significant concern that the Libra project could undermine the national dollar, as well as contain loopholes for criminals to exploit.
Facebook touts that the value of the Libra coin would remain relatively constant. Unlike other cryptocurrencies like BitCoin, Libra wants to be backed by real-world currencies, namely the US dollar, Euro, Japanese Yen, Singapore dollar and British pound. Libra would somewhat reflect the overall economic status of these five nations. Unless there is a global recession, Libra should remain steady. With over 2 billion users active Facebook service users worldwide, Libra could bring all users together with a single currency. Digital payment apps are currently regionally localized or have to account for conversions.
The currency is also watched over by a Libra Association, a group of global companies, but many companies have since pulled out. Paypal, Mastercard, and Visa are among the company that left Libra’s internal governing association.
However, a user base this size does not put Libra in competition with other cryptocurrencies, but with banks. With the involvement of money and a lack of regulation, Facebook would have access to the spending habits of billions of people.
Beyond transparency, the lack of regulation and oversight also makes cryptocurrencies a useful platform for black market deals and illicit activity. The difficulty in monitoring cryptocurrency transactions allow for various forms of tax evasion, among other issues.
Japan: One of the most progressive regulatory climates for cryptocurrencies, where Bitcoin is widely considered to be legal tender and a law passed in mid-2017 recognizing cryptocurrencies as legal property. In early 2018, reports came of efforts to create self-regulating bodies for crypto markets to preempt the government. In late 2018, Japan approved self-regulation for the crypto industry. By April 2018, the Japanese Virtual Exchange Association (JVCEA) was formed. The JVCEA emerged mostly as a reaction to the January 2018 Coincheck hack with the theft of more than $530 million in NEM (XEM) tokens. The association focuses on the Japanese crypto trading arena, working together with the country’s Financial Services Agency to enforce strict compliance among its members. JVCEA has worked to enforce regulations for hot wallet use and limits for crypto margin trading. The association became a recognized SRO in October 2018.
China: Currently has one of the most restrictive environments in the world. China banned bitcoin transactions in 2013, as well as ICOs and crypto exchanges in 2017─though many have found workarounds through sites not yet firewalled. Before the “crypto frenzy” of the late 2017, China was the only major market to have issued any definitive ruling in the form of a ban on digital currency trading and initial coin offerings (ICOs). In the aftermath of the meteoric rise in crypto prices and the subsequent increase in global consciousness, the start of 2018 begun to see more serious government consideration of the market.
South Korea: As early as February 2018, Cointelegraph reported that the Korean Blockchain Association (KBA) was already considering the creation of a self-regulatory framework for local exchange platforms. At the time, regulators in the country had already started taking stringent measures against crypto exchanges. By April 2018, the KBA had finalized rules for the self-regulation of cryptocurrency exchanges. The rules focused on Anti-Money Laundering and Know Your Customer compliance. The KBA framework also mandated that its members manage client funds separately from their own while maintaining minimum equity of $1.8 million. Exchanges under the KBA also have to publish regular audits and financial statements.
EU: Cryptocurrency and exchange regulations in the EU are determined by individual member states, and are considered legal across the bloc. Switzerland has one of the most open climates for cryptocurrencies and exchanges in Europe. In 2016, the city of Zug, known as “Crypto Valley”, started accepting bitcoin as payment for city fees. Swiss Economics Minister Johann Schneider-Ammann announced his goal in 2018 to make Switzerland the world’s first “crypto-nation”.
UK: Crypto stakeholders in the United Kingdom also joined Asian countries in pioneering self-regulation for the industry in early 2018. Formed in February 2018, CryptoUK is the first-ever self-regulating trade body for cryptocurrencies. Coinbase, CEX.IO, eToro and other major crypto businesses came together to form the association. With the U.K. having no cryptocurrency regulations, CryptoUK has sought to lobby members of Parliament to create favorable laws for the local crypto industry.
Both Canada and the U.S. take a similar approach to cryptocurrency legislation at the federal level, as both countries view cryptocurrencies as securities. However, provincial and state regulations differ widely in their taxation requirements of profits from crypto investments.
US: Crypto exchange and custody giants like Coinbase, Bittrex, and Kraken established the Crypto Rating Council (CRC) in the end of September 2019. The CRC is an independent body that provides insight on whether crypto tokens can be classified as securities or not. In its first crypto ratings, the CRC examined 20 different cryptocurrencies, classifying crypto’s like Bitcoin (BTC), Litecoin (LTC) and Monero (XMR) as not securities. CRC is a country-based SRO focusing on how to carefully navigate unclear regulations about which crypto tokens constitute securities.
The U.S. Securities and Exchange Commission (SEC) has consistently maintained that most ICO tokens are securities, causing some U.S. platforms to geofence tokens or create separate local exchanges that list only tokens deemed not to be securities.
Before the CRC, U.S. crypto exchange platform Gemini proposed the formation of an SRO for digital commodities. Gemini was joined by Bittrex, Bitstamp, and bitFlyer USA to establish the VCA or Virtual Commodity Association. VCA would focus on nonsecurity crypto tokens.
In the past, several commentators have called on the crypto industry to pursue self-regulation.
Regulations throughout Latin and South America run the full legislative spectrum.
Bolivia: Unilateral ban on cryptocurrencies and exchanges
Ecuador: The first country to launch its own token; ban on all cryptocurrencies aside from its government-issued SDE token (Sistema de Dinero Electrónico = electronic money system)
Mexico, Argentina, Brazil, Chile: Cryptocurrencies
widely accepted as paymentVenezuela: Cryptocurrencies widely accepted; this makes
sense, considering the economic crisis and subsequent freefall of
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