Why can’t governments regulate cryptocurrencies?

Governments can regulate cryptocurrencies. In fact, regulators from different parts of the world have taken steps in addressing and managing the challenges brought by the rise of virtual currencies, especially that the latter bypass financial institutions, firms and banks, and central and exchange clearinghouses.

According to experts, cryptocurrencies and the activities it entails, such as blockchain initiatives and sales of tokens, have brought a worldwide impact. As technology continues to evolve, which is also the foundation of virtual currencies, regulators from different countries are doing their best to keep up with the pace. Their efforts are critical as it affects goods and services from almost all types of industry.

Moreover, another concern raised by lawmakers and law enforcers is the fact that cryptocurrencies are vulnerable to fraud, tax evasion, terrorist financing, and money laundering. The given scenarios are largely possible as virtual currencies operate outside the legal and conventional systems set by the country.

In the United States, SEC, or the Securities and Exchange Commission and the CFTC or Commodity Futures Trading Corporation, both have taken steps in regulation cryptocurrency.

SEC has not approved any ETFs or exchange-traded products that hold virtual currencies for trading or listing, nor has it documented initial coin offerings. On the other hand, CFTC regarded bitcoin as a commodity. Any fraudulent activity or manipulation related cases with bitcoins will be under its wing. Moreover, the agency will also be handing the regulation of futures corresponding to the said cryptocurrency.

The Internal Revenue Services or IRS also declared that cryptocurrencies should be taxable. This implies that any capital gain or loss must be registered the same way a property exchange works out. Furthermore, virtual currencies must be considered like an inventory, where again capital gain or loss should be documented. Then, if it is used for payment purposes, it will be regarded as a standard currency, though it will be converted. 

Different states in the U.S. also have their own plans of accepting or promoting the use of cryptocurrencies and blockchain technologies. Some of them have also enacted laws, such as Vermont treating blockchain as evidence, Arizona acknowledging smart contracts, and Delaware that has ongoing initiatives in authorizing shares in the form of a blockchain.

While regulating cryptocurrencies have been active in the United States, other countries have also taken their own initiatives. In Australia, digital currency exchanges have been allowed since 2018, as long as it goes under registration. Transactions involving digital currency will also no longer be imposed with goods and services taxes though they will be subjected to incomes and capital gains taxes instead.

Belgium’s National Bank has warned the public and investors about the risk of cryptocurrencies and reminded them that they are not considered legal tender. Moreover, their Minister of Justice declared that they would be imposing strict policies concerning cryptocurrency.

While the first two countries had a direct approach, Canada lawmakers appear to be gearing towards it more lightly by having a regulate-and-embrace policy, mainly focusing on battling money-laundering activities.

Ecuador, meanwhile, has prohibited the promotion, issuance, and circulation of cryptocurrencies. The country is planning to have its own virtual currency, which it will use as a legal tender. Israel, on the other hand, has warned the public against the danger of virtual currencies. The same way goes for Jordan, where virtual currencies are not considered legal tender. The country also prohibited their currency exchanges, banks, financial firms, and payment channels from using them.

In Europe, the European Banking Authority reminded the public of the risks involved with virtual currencies. It declared that it would be applying anti-terrorist financing and anti-money laundering laws to cryptocurrencies.

Indonesia also did not consider cryptocurrencies as legal tender and said that using them is against the country’s electronic transaction, currency, and information laws. Spain reportedly taxes cryptocurrency as an electronic payment method under their gambling law.

More Readings:

Cryptocurrency (Wikipedia)

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