From the most restrictive to the most liberal. We take a look at how crypto is regulated in different countries around the world.
Despite decentralization (and to some extent, deregulation) being an important feature of blockchain technology, government intervention—as with any new field or industry—is inevitable.
However, laws and regulations have been historically slow when it comes to adapting to technological advancements, and it’s no different for crypto and blockchain technology. While some countries have made considerable progress in this area, others are seriously lagging behind.
In this blog post, we look into how notable countries have been regulating crypto within their jurisdictions—from countries that may be considered a crypto believer’s paradise to those where it has been banned or made illegal.
Welcome to crypto paradise. This September 2021, El Salvador formally adopted Bitcoin as legal tender in the country. This means that business establishments in the small Central American country are now required to accept Bitcoin as payment for goods and services.
Its current president, Nayib Bukele, has also been a vocal supporter of crypto and even proposed the construction of a “Bitcoin City” near a volcano for the purpose of drawing its geothermal energy for Bitcoin mining.
The Swiss government’s attitude towards crypto may be described as encouraging and positive. Switzerland is home to some of the largest initial coin offerings (ICOs) in the world due to its crypto-friendly regulations and the technological expertise of its government regulators. Its Zug-Zurich area has been dubbed as “Crypto Valley” and is considered to be one of the world’s leading ecosystems for blockchain or distributed ledger technology.
Here is another crypto-friendly European country on the list. In October 2019, Lichtenstein passed the Token and Trusted Technology Service Provider Act aimed at attracting crypto companies and investments in the country.
The law is a comprehensive regulation on the crypto and token economy which has managed to provide clarity on the legal status and treatment of cryptocurrencies, tokens, and other digital assets.
Luxemborg officially started recognizing cryptocurrency as legitimate assets as of 2020 with their digital assets law. There are no restrictions on trading crypto and low taxes so quite a few companies have started setting up headquarters in Luxembourg.
Portugal has become a popular destination for crypto users due to their unstable currency system. The Portuguese Public Ministry’s Financial Crimes unit has publicly given their support to Bitcoin and blockchain technology. Portugal has even started to incorporate the blockchain into public services and online voting.
Japan has a progressive attitude on crypto regulation. For instance, the country’s Payment Services Act, considers coins and “utility tokens” as property. Hence, they are not covered by securities law which often have stricter regulations.
In fact, this delineation is made clear by Japan’s Financial Instrument and Exchange Act which differentiates a crypto asset from that of a “security token” which is a digital representation of a company share, a financial interest, or some other form of security. Security tokens are subject to securities regulation while crypto assets and properties are not.
On the other hand, non-fungible tokens (NFTs) which do not have a similar function to those mentioned above are not presently covered by the present regulatory regime.
The mere use of cryptocurrencies and tokens as a substitute for money is not a regulated activity in Germany. However, when other financial activities like the deposit, investment, and commercial trading of crypto are involved, licensing requirements may come into play. German laws on banking, anti-money laundering, and investment activities will thus apply to these types of crypto transactions.
India’s legal view on crypto was seemingly liberalized in 2020 when the Indian Supreme Court India reversed a 2018 circular from the Reserve Bank of India which banned financial institutions from dealing with, facilitating, or transacting with crypto.
Regulations on crypto remain to be hazy in India and it is uncertain as to whether government institutions will adopt a stricter or more liberal approach in the future.
UK law, like most jurisdictions, don’t consider crypto as legal tender but rather, as a form of property. The state of cryptocurrency and other digital assets are also uncertain in the UK but there have been positive indicators that the government will adopt a more progressive policy on the subject matter.
In 2018, the UK government assembled a Cryptoassets Task Force composed of representatives from the UK Treasury, the Financial Conduct Authority and the Bank of England. In its final report, the Crypto Task Force recognized crypto’s “potential to deliver significant benefits in financial services and other sectors in the future” and stated that it “will continue to support its development” in the future. In 2019 the UK’s HM Revenue & Customs published Policy Papers for both businesses and individuals to update the tax guidelines for crypto taxes on securities tokens and exchange tokens.
As of this year, all crypto asset firms (including exchanges) with a presence or market product in the country must register with the Financial Conduct Authority and comply with AML/CFT reporting and customer protection obligations, as well as the latest FATF guidelines.
US laws and regulations on crypto are also not clear-cut. But they appear to lean towards more stringent regulations. The SEC, for example, has stated that coins or tokens offered and/or sold in Initial Coin Offerings (ICOs) may be deemed as “securities” and be regulated as such. On the other hand, the IRS treats “virtual currency” as property for income tax purposes and has stated that crypto transactions may have “tax consequences that may result in a tax liability.”
Meanwhile, a provision in the recently enacted Infrastructure Investment and Jobs Act (IIJA) mandated “brokers” of digital assets to report certain information to the IRS. There are also several pending bills in Congress which we covered in our previous blog post.
A crypto millionaire would do well to avoid China as a retirement destination. While the ownership or use of crypto is not technically prohibited or illegal in the country, the regulation on the matter is very stringent.
In 2017, the People’s Bank of China together with other state-level authorities issued a joint circular and warned that initial coin offerings (“ICOs”) may be regarded as “illegal financing activities.”
Moreover, while the mining of cryptocurrency has not been made expressly illegal in the country, the Chinese government has been actively discouraging such activities. In 2018, a Chinese agency dealing with “Internet Financial Risk” encouraged local governments to assist crypto mining companies to formally exit the mining business. Mining activities are also monitored in the country. Earlier this year the National Development & Reform Commission spoke out against bitcoin for producing carbon emissions. In this most recent cracked down on against crypto mining the NDRC said they would be increasing energy prices for any institution participating in crypto mining.
Lastly, cryptocurrency exchanges and trading platforms are banned in the country. Holders of crypto coins and tokens in China have to do their trading activities offshore because of this nationwide ban.
Egypt beats China in terms of being inhospitable and unwelcoming to crypto and blockchain technology. In 2018, Egypt’s main Islamic legal advisory body, the Dar al-Ifta al Misriyyah, declared crypto as prohibited under Islamic law.
Although this fatwa (legal opinion on Islamic law) is not legally binding, the country’s banking laws in September 2020 were amended to prohibit cryptocurrency transactions without the appropriate license from the Central bank of Egypt. Hence, regulations on crypto in Egypt continue to be restrictive.
A company that issues, deals, or transacts with crypto has to stay up to date with thousands of laws and regulations in order to be legally compliant. This fact underscores the need for a legal solution that stays on top of the latest legislative developments on crypto around the globe.
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