Government response to bitcoin and cryptocurrencies.
The threat that cryptocurrencies pose to conventional currency in terms of transaction speed and cost, as well as denying governments options to regulate them has seen mixed response by governments to the advance of cryptocurrencies in their territories. Some have panicked and closed down cryptocurrency exchanges while others have remained calm and are in the process of putting regulation in place to govern the sector.
There will not be consensus among governments on how to handle digital currency because we have already seen some governments move full steam forward to adopt crypto in different ways such as Japan, Canada and Venezuela and we expect more to follow suit. Several central banks including the People’s Bank of China and the Bank of England have been said to have the possibilities of issuing their own digital currencies. In my view, this inability for governments to agree a one way forward is the gap that will enable crypto to flourish and take over the world.
Governments are bestowed with the authority to regulate the currency movement in their respective countries. Each government through its main central bank and other government supported bodies ensure a country achieves financial sanity. Hence there should be much concern when a currency finds its way into a country’s borders without the government’s knowledge of its existence, origin and those involved in it. It gets even worse when its value cannot be controlled by the respective regulatory bodies but depends on speculation. The only information that a government has is that crypto currencies are the new financial technology in the world and holders are worldwide, including its citizens.
The Central bank and the regulatory bodies have been issuing warnings against crypto. However, it was quite unbelievable when the president announced his support for the block chain technology and even went forward to form a taskforce to ensure the market is well taken care of. Hence Kenya will soon join other countries such as Japan who have already accepted bitcoins as units of exchange.
Almost every government has at some point opposed cryptocurrencies but the huge public appetite for the same has pushed some to comply with the changing financial technology. 12 countries, namely: Brazil, Indonesia, China, Vietnam, Israel, Morocco, Bolivia, Algeria, Ecuador, Kyrgyz Republic, Bangladesh, and Nepal have tried to ban bitcoins and cryptocurrencies only to meet widespread criticism from their citizens who are already deeply involved with the digital currencies.
China has banned cryptocurrency activities within its borders yet for quite a long time, China has been home to over 80% of the mining companies because of the low energy costs within its borders. However, this is prone to change because of its fierce war through the People’s Bank of China against the mining companies and exchanges facilitating both onshore and offshore cryptocurrency trading. The Chinese government has defended itself, saying that the bans are to prevent money laundering, pyramid schemes and other fraudulent activities that take advantage of the unregulated cryptocurrency technology.
At the start of the year 2018, there was a looming ban in South Korea. The news was received by an uproar from the citizens; forcing the president to clear the air that no ban would be issued on crypto in the country. The news threatened to tear the country politically hence more politicians had to defend the cryptocurrencies. Temporarily, the news affected the bitcoin and cryptocurrency’s price negatively both locally and internationally, due to the large market in the country. From 30th January 2018, the country banned anonymous trading and introduced the real-name system. The government uses this system to monitor and prevent money laundering activities using cryptocurrencies.
However, next door, its counterpart, North Korea, has been trying to benefit from the opportunities offered by cryptocurrencies, which include anonymity and freedom of transactions. The North Korea hackers have been implicated several times in attacks on South Korea cryptocurrency exchanges. There have been reports that Pyongyang University in North Korea is offering courses on cryptocurrencies.
One of the governments that have supported the virtual currency technology openly is Venezuela. The Venezuelan government recently unveiled its own oil-backed currency called Petro and is planning to issue another one backed by gold called Petro Gold. The establishment of schools in Venezuela to train on cryptocurrencies trading and mining is a huge step in the crypto world.
According to the minister, the training institution will be equipped with state of the art crypto currency mining technology, making it the first country to take such an initiative. Plans are also underway to establish mining farms in all universities in Venezuela. The country is the leading in minimum mining costs, with one bitcoin taking only $531 to mine.
In Thailand, the government is in the process of exploring ways of regulating the cryptocurrencies. This is amidst much confusion by different banks whether to acknowledge the cryptocurrency transactions or not. In the recent past, the Bank of Thailand has issued a circular demanding that the banks desist from honoring some transactions arising from engaging in some cryptocurrency activities. While the Bank of Bangkok has even closed accounts associated with some cryptocurrency exchanges, other banks are still actively operating accounts belonging to the exchanges.
In the USA, the authorities have not only allowed citizens to trade in cryptocurrency futures, but the Commodity Futures Trading Commission (CFTC), the body that regulates bitcoin futures, has reportedly given the full go-ahead to its employees trading crypto.
The justice department is in the process of coming up with strategies to regulate cryptocurrencies because it believes they are prone to be used by terrorists, drug dealers, fraudsters and other criminals.
Two states, Arizona and Georgia, have initiated proposals to allow citizens pay taxes in cryptocurrencies. These will include bitcoins among others. In Arizona one bill has already been approved by the senate finance committee.
Central Asian countries are among the leading governments supporting cryptocurrencies. Kazakhstan, Uzbekistan and Kyrgyzstan governments in the region have passed several bills supporting the cryptocurrencies. For instance, Kazakhstan has intentions of creating cryptocurrency backed up assets while Kyrgyzstan wants to use cryptocurrencies in public contracts. The Kazakhstan government has announced intentions to introduce a cryptocurrency that is accepted globally, which will be called G-Global. The cost of mining cryptocurrencies is relatively low in the region, with Uzbekistan leading as the largest electricity producer in the region and has minimum electricity costs. Actually, it is reported that mining one bitcoin costs about $1,790.
The Indian government is still at crossroads on how to handle the growing investments in cryptocurrencies within its borders. Despite it issuing regulations regarding crypto transactions, more people are getting involved in it. It has gone as far as issuing notices to cryptocurrencies holders to pay tax. Its efforts to regulate or ban the several exchanges in the country have also been deemed futile.
Given the widespread cryptocurrency activities in Ukraine, the State Financial Monitoring Service is under pressure to legalise and regulate the virtual currencies. In the latest news, the financial watchdog gave its stand on cryptocurrencies by publishing a statement to clarify that it is in a constant process of collecting and analysing data, including crypto-related information. It has made it clear that it is considering changing the legal status on cryptocurrencies.
Japan took the lead by legalising cryptocurrencies as a method of payment in April 2017. It is among the leading countries supporting the virtual currencies by licencing exchanges, a process that was started in September last year. So far 16 exchanges, and has allowed another 16 to operate while waiting for the licences. Currently, over 100 companies are waiting for the Japanese Financial Services Agency to register them to operate cryptocurrency exchanges, as reported by the Japanese media.
In Ecuador, despite the government futile efforts to ban cryptocurrency since 2014, a group of its citizens has rebelled bravely by opening crypto ATMs, which the government has opposed. It is clear that the government has failed in its war against cryptocurrency. Earlier this year, its central bank issued a warning that cryptocurrencies were not an accepted means of exchange. However, it made it clear that trading of the virtual currencies in the internet is not prohibited.
A bill to regulate cryptocurrency transactions has been successfully approved by the lower house in Mexico. The bill which is awaiting the president’s signature, seeks to promote financial stability and prevent money laundering. The cryptocurrency exchanges in the country have welcomed the move, which will see cryptocurrency operators being approved by the Bank of Mexico as Financial Technology Institutions. According to the Director of Operations at Mexican cryptocurrency exchange, those FTIs approved with the central bank will legally operate in cryptocurrencies and will allowed to work with all financial institutions, just as banks.
In recent news, German has announced that it will not tax bitcoins as they are just a means of payment. Rewards from mining and some exchanges have been exempted too. In a report issued by Germany’s Federal Ministry of Finance, outlining its tax regime regarding bitcoin, the government implied that the bitcoin is a legal tender of payment, thus exempting it from typical usage tax. Germany is taking the lead in EU members concerning cryptocurrency regulation.
The European Union has shown displeasure in the slow global action towards the digital currencies regulations and has even threatened to continue with its own regulations if other countries do not act fast.
Currently bitcoin is completely legal in the United Kingdom. However, despite it being VAT exempt, in some situations traders are required to pay capital tax on it. The UK government is exploring ways to regulate the technology.
Cryptocurrency usage has been widely accepted in Canada and the government gains immensely by collecting taxes on them. Cryptocurrency traders are required by law to pay taxes and file returns on all gains from their trades.
With the Canadian government supporting Cryptocurrency mining, Canada is poised to become the number one destination for mining activities. The availability of cheap eco-friendly energy in the country has attracted a number of mining companies, which are shifting from China following a crackdown by the Chinese government.
The colder temperatures in Canada are also a huge investment enabler in the mining process, which requires a cooling process because of the large amount of heat produced .
The government of Canada is exploring ways to use block chain technology in its operations. The national Research council is conducting a trial on using the Catena Blockchain Suite, a Canadian-made product built on the Ethereum blockchain, to publish funding and grant information in real time. According to the research council, the technology provides transparency and makes it admirable to organisations seeking to do transparent business.
Belgium has added to the list of the governments taxing cryptocurrency investors. According to Belgium tax authorities, anyone speculating on crypto markets is expected to pay 33% tax on their gains. This is despite the fact that virtual currencies are not regulated or legalized in the country. The government is also seeking to tighten its regulations on cryptocurrencies following their vulnerability to cybercriminals and scammers.
The Czech Republic
Czech is another country that has adopted bitcoins and ethereum transactions. The citizens prefer storing their wealth in cryptocurrencies and the financial authority has approved it.
In a recent report, the Financial Action Task Force, the gulf co-operation council and the EU member representatives who met in Paris from 18th to 23rd February agreed to create policies governing cryptocurrencies to curb money laundering activities. FATF comprises 35 member countries including China, France, Germany, India, Japan, South Korea, Russia, South Africa, Sweden, Turkey, United Kingdom and the United States. With the responsibility to set global anti-money laundering policies, FATF was asked to revise its policies regarding digital currencies and it promised to deliver results during the G20 finance ministers’ meeting.
It is evident that the world’s view on cryptocurrency technology is fast changing as many countries seek to regulate or adopt the activities. In a world where commerce and capital competition is cut throat, no country is ready to be left behind when a new technology that can facilitate trade is introduced. Likewise, no individual would want to be left behind concerning a new technology. Crypto is here to stay. Don’t be the left out! Get in and move with it!