Is Cryptocurrency Really the Future or Will it Fade Out With All of These New Laws, Regulations, and Bans.

Digital currency and cryptocurrency are popular buzzwords on the internet today. And with multi-billionaires like Elon Musk and countries set to accept bitcoin as legal tender, it seems the future of cryptocurrency is practically assured.

However, with all good things, there are a few detractors.

Governments that are set in their ways of control and cryptocurrency users who want their financial freedom without governmental control are not ready to give way to new laws that may keep cryptocurrency from evolving into a globally acceptable legal tender.

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. (Investopedia, May 2021)

The use of cryptocurrency revolves around the creation of a digital wallet or e-wallet which stores all the users passwords and consumer data and can be housed on your smartphone, desktop computer or online. It allows the user to make cashless payments and receive funds without needing a bank account or physical bank. Purchase of cryptocurrency is done through exchanges like Coinbase, Robinhood or BinanceUS.

This ease of use comes with a few benefits and a few problems.

Advantages of Cryptocurrency

Lack of government oversight - This means your payments and funds are no longer overseen by a government or financial institution. As your transactions are virtually anonymous, your purchases are less likely to be linked back to your personal identity. Unless they used IDVerify, then all bets are off.

Less bank fees - Once declared as legal tender, you get all the benefits of money without the bank holding fees and transaction costs.

Accessibility -You no longer have to request to have access to your own money. Once you have access to the internet, you can conduct financial transactions from anywhere and at any time. It eliminates the long wait times and paperwork for money transfers and currency exchanges which is a great benefit when travelling or working abroad.

Disadvantages of Cryptocurrency

Strong Security - Why is this a disadvantage, you may ask. This is because of the “all sales are final” feature of cryptocurrency. Once you complete a transaction, there is no going back. It is meant to prevent tampering by hackers and fraudsters, but this security feature can become a nightmare if a simple human error was made.

No regulation - Wasn’t that a benefit? Yes and it's also a problem. Lack of government oversight means cryptocurrency can end up in the hands of terrorists, human traffickers and drug dealers. It also has the potential for tax evasion resulting in a decrease in government revenue.

Environmental concerns - Mining requires large amounts of electricity and this high cost on the carbon footprint is the reason that few countries are willing to house miners.

Leading Types of Cryptocurrency

There are more than 10,000 different types of cryptocurrencies being traded publicly according to coinmarketcap.com. Types of cryptocurrency are defined by their purpose..

Store of Value - The ability to maintain its purchasing power in the long run

Digital Currency - How well it can be used for everyday transactions

Utility Token - Used for redeeming a service/good

Security Token - How well it works a token representation of a real-world asset

The functionality of different types of cryptocurrencies defines their availability. It's the reason why not every kind of cryptocurrency is widely acceptable.

Six of the current leading cryptocurrencies according to coinmarketcap.com are:-

Bitcoin was the first peer-to-peer digital currency developed in 2009 by Satosh Nakamoto and still is the most popular today. Represented by BTC on the NYSE Stock Exchange, bitcoin is backed by its store of value, token of utility and digital currency.

Ethereum (Ether) is a cryptocurrency also backed by its store of value and is great for logistics and marketplace tokens to back other crypto based currencies.

Bianance coin (BNB) is created as a utility token and was previously under Ethereum network until it was launched in 2017 on its own exchange via an initial coin offering (ICO). One of its special features is that it allows you to convert dust coins i.e. coins too small to trade into BNB coins.

Ripple (XRP) claims to be more eco-friendly than other currencies by reducing the energy cost associated with mining and proof of work. The fifth largest cryptocurrency was first released in 2012 and works similar to other cryptocurrencies, but has measures in place to allow de-anonymization which can allow interested parties the means to identify persons by decryption.

Tether is fiat backed and aims to keep other cryptocurrencies stable and trades under the USDT symbol. Because it is a stablecoin, it is often used by investors who wish to avoid the risk and volatility associated with other cryptocurrencies.

Dogecoin, which has a Shiba Inu dog as its mascot, started off as a joke to poke fun at rampant speculation that surrounds cryptocurrency, but has skyrocketed in value. Unlike bitcoin, there is no limit to how many coins are created.

The Banned, The Accepted, and The Unknown

As you saw before, not all cryptocurrencies are created nor treated equally, and this means, not all cryptocurrencies are accepted in every country. Bitcoin is the most generally accepted digital currency, but this giant has been barred from entry in Morocco, Russia, Vietnam, Bolivia, Colombia and Ecuador.

China, the world's second largest economy, has banned the use of all cryptocurrency in May 2021, with a few industry bodies citing, “Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order”.

Though this may be true, this was not China’s first ban. They did so in 2017 by shutting down its local cryptocurrency exchanges and June 2019 with the People’s Bank of China issuing a statement that they would block access to all domestic and foreign cryptocurrency exchanges and initial coin offering websites.

However, in an unsurprising move, China has launched its own digital currency, the digital yuan or e-CYN or its official name, Digital Currency Electronic Payment (DCEP) which is centrally controlled, unlike other cryptocurrencies, and it is set to replace all other forms of physical money thereby reducing storage and security costs.

Taking a page from China’s books, India has announced its plans to ban private cryptocurrencies and establish its own centrally regulated cryptocurrency. Previously in 2018, India took a strong stance against cryptocurrency by establishing a ban that had offenders facing 10 years in prison that was removed in 2020. (CNBC.com)

According to a BBC News report, the Bank of England is also considering its own form of digital currency that would exist along with bank notes and other forms of currency and carry the same value as the pound.

Other countries that have recently banned cryptocurrency include; Turkey, Nepal, Algeria, Egypt, Qatar, Bangladesh and Nigeria which is one of the African continent's largest cryptocurrency markets.

Across the globe, many countries, like a few countries on the African continent and most of the Caribbean have neither barred nor accepted cryptocurrency either due to a lack of demand, digital infrastructure, trust, too much choice, uncertainty about its return, and/or knowledge.

It is no secret that the US, which has the most cryptocurrency ATM’s per capita according to Statistica, the European Union, and Canada have almost fully accepted the use of some cryptocurrency. Some other countries who have accepted at least Bitcoin include; New Zealand, Australia, Costa Rica, Nicaragua, Mexico, Argentina, Jamaica, Trinidad and Tobago, United Arab Emirates,Chile and Venezuela.

On June 9th 2021, El Salvador became the first country to adopt Bitcoin as legal tender. Making it an official form of currency which will be widely acceptable throughout the country by October 2021.

New Laws Governing Cryptocurrency

In the beginning, there were very few laws governing the use of cryptocurrency. Therefore, its distribution and usage were mainly based on acceptance by merchants as a legal tender and investors willingness to purchase coins. Primarily, the countries who have accepted cryptocurrency, like the US, have regulated the use of its digital currency under the Financial Crimes Enforcement Network (FinCen) have subjected the transaction of cryptocurrency under the Bank Secrecy Act and Patriot Act. In the European Union, steps have been taken to trace buyers and sellers of cryptocurrency.

As the years progressed, fears of a decentralized unit of account, as well as other potential criminal factors, have pushed the need to safeguard global monetary security and ensure currency control and distribution is always in the right hands.

To this end, the International Monetary Fund (IMF) and the World Bank which have long warned about the volatility and lack of transparency involved in blockchain technology and cryptocurrency have made steps to ensure continued financial security and stability by enacting Anti Money Laundering (AML) and Counter Terrorism (CTF) laws. Once a country has adopted these laws, the next step is to become financially compliant by meeting the Know Your Customer (KYC) and Know Your Business (KYB) requirements.

With the oversight of the Financial Action Task Force on Money Laundering (FATF), the implementation of these laws in the digital space means the days of buyer and seller anonymity in cryptocurrency exchanges may soon be a thing of the past.

A New Digital Currency For All

With such governmental opposition, the acceptance of cryptocurrency as legal tender on a global scale has some ways to go. Though the actions of China and India may push the acceptance of digital currency, it does not fully fulfill the promise of decentralized control which is the core reason behind most cryptocurrency investments. Fully accepted Bitcoin as legal tender like El Salvador will have a better effect on future acceptance especially when its purchase includes VAT exemption.

Installing more CryptoATMs to make the purchase of cryptocurrency easier is a good idea, but how can it enhance global acceptance in developing and undeveloped nations where many of them lack knowledge or interest in digital currency.

One of the main drawbacks of the worldwide acceptance of cryptocurrency is the lack of regulation and trust. Countries with small GDP’s aren’t willing to risk losing much needed revenue to an unregulated body. Neither are they willing to put trust in the cryptocurrency market's current instability.

Therefore global acceptance comes down to those two factors and to build trust there must be regulations and laws. However, the founding of crypto currency has its base in anti-establishment and lack of trust in centralized governing bodies is the reason behind cryptocurrency’s growth. With that in mind, financial regulatory bodies like the IMF, may have to make some concessions in their new policies.

Perhaps with a few incentives countries and potential investors will embrace cryptocurrency faster.

Removal of VAT for miners. - In Ireland, mining is exempt from VAT by their current law because of low economic activity. This practice should be encouraged to maintain cryptocurrencies’ stability. When China changed the rules and forced miners to pack up, it caused a drastic crash in the cryptocurrency markets.

Less government or centralized control - Yes, there should be some taxation and regulations, but to please crypto investors, maybe there should be more consideration on who controls what. Perhaps there can be a few cryptocurrency stakeholders involved in creating the regulations and taxation plans.

Energy tax exemption for countries that house miners - Given that mining requires a lot of energy, countries with the ability to house them and with the natural energy requirements should be given special consideration.

Educate - Cryptocurrency was born out of computer science and though everyone knows how to use a laptop, very few know how to fix one. Education should take top priority when reaching out to new investors.

No taxing for currency exchanges. - If you wish to convert cash to Bitcoin in Singapore or in the US, there’s a tax for that. But according to European Law, there is also no tax on currency exchanges. In the future, let there be one rule of no to taxation.

Closing

As a businessperson, government or investor, you can see where all the laws can improve security, trust and reduce the risk involved in investing in cryptocurrency. But, it also eliminates the privacy factor that most crypto enthusiasts enjoy. And though taxation is a necessary evil and shows that cryptocurrency has potential for future normalcy, abundant heavy taxation on currency exchange can drive lower income earners away from the digital revolution.

Instead of simply dictating new laws and taxes on an industry that sprung up as a counter to government order, perhaps governments and crypto enthusiasts should be using it.IDMERIT As an independent cost-effective, identification verification solution, we can be a more seamless way to verify, protect, validate and reduce the risk involved with crypto investment. Hopefully, preventing a different kind of revolution and paving a way forward for a stronger, stabler and safer digital currency.

SOURCES:

https://coinmarketcap.com/

https://www.investopedia.com/

https://www.statistica.com/

https://www2.deloitte.com/ie/en/pages/tax/articles/cryptocurrency-and-vat.html

https://www.coindesk.com/singapore-government-how-we-intend-tax-bitcoin