Crypto Regulation Around the World: Who Is Crypto-Friendliest?
Countries, regions…even cities are considering regulation of cryptocurrencies and associated activities, including mining. Official statements are carefully scrutinised for their potential impact on business and markets. Though the field is new and evolving, certain trends and tendencies are already emerging.
As an industry player, Miner One is also keeping abreast of developments and offers the following overview of the state of crypto industry regulation in select countries around the world.
China. China’s regulators are clamping down on miners, having already announced a ban on cryptocurrency exchanges and ICOs. Officials cite excessive electricity usage, financial risks, and risks of malicious acts like fraud and money laundering. They are not banning mining per say, but are attempting to squeeze mining operations out of the country by withdrawing tax deductions and tightening regulation of electricity consumption, land use, tax collection, and environmental laws. These moves have almost certainly contributed to price swings in cryptocurrency markets, given China accounts for almost 70% of bitcoin-related global hashing power (computing capacity).
South Korea. South Korea caused bitcoin prices to plummet after the country’s police and tax authorities raided several cryptocurrency exchanges for allegedly evading taxes. Soon thereafter, government officials spooked investors by announcing they were drafting a bill to ban exchanges and were looking into banning mining. Since then, they have backpedaled and getting the necessary votes in the country’s parliament could take months or even years. Regardless, the future of mining in South Korea is uncertain, to say the least. ICOs have also been banned in the country since last year.
Japan. Japan is the world’s largest cryptocurrency market, with approximately 61% of the world’s trading volume. Japan has been gradually introducing regulatory solutions that aim to protect investors and stamp out fraud. Lately, Japan has been looking at regulating ICOs. Japanese officials asked a government-led working group comprised of academics, bankers, and lawmakers to chime in. The group has proposed new guidelines that would legalise and regulate token sales with stricter rules and more oversight, all of which the Japanese government is taking under serious advisement and will likely implement very soon.
United States. Back in February, Chairman of the U.S. Securities and Exchange Commission (SEC) Jay Clayton made headlines by stating that basically all ICOs should be treated as offers of securities. Although protecting investors is a good thing, the statement rocked cryptocurrency markets. Given that there is currently no way to register cryptographic tokens as securities, this effectively makes ICOs “off limits” to ordinary American investors.
To date, the SEC has not approved any crypto exchanges or crypto exchange-traded funds, nor has it registered any ICOs. That said, in a recent speech at Princeton University, Clayton rejected the idea that all ICOs are fraudulent, but reaffirmed his view that all ICOs he’s seen qualify as securities However, he noted that “just because it’s a security today doesn’t mean it’ll be a security tomorrow, and vice-versa” and acknowledged that “distributed ledger technology has incredible promise for the financial industry” — statements widely interpreted as signaling a constructive approach to future regulation.
Individual U.S. states and even cities have taken up the question of crypto regulations themselves. Plattsburgh, New York became the first city in the United States to put an 18-month moratorium on mining operations in the city after local residents complained crypto mining was causing their electricity prices to jump. No new applications for commercial cryptocurrency mining are being considered in this town of 20,000 people, where power stations on the St. Lawrence River provide some of the lowest-priced electricity in the world.
Canada. Back in 2014, Canada’s Parliament approved Bill C-31 — the world’s first national law on cryptocurrencies. This put Canada among the most progressive and transparent countries when it comes to crypto regulation. That said, the law is currently not in force, as it would require all businesses dealing with cryptocurrencies to register with FINTRAC. Canadian government officials are looking into updating laws again to reflect the current state of the industry.
Last year, the Canadian Securities Administrators (CSA) (the Canadian equivalent of the SEC) distributed regulatory notices nationwide, advising to approach ICOs on a case-by-case basis when deciding whether securities regulations should apply to them. Overall, Canada has taken the position that the industry needs to be regulated, but it is not taking any drastic measures at the moment so as not to scare off investment.
Where does this leave the Canadian crypto mining industry? Let’s look closer at the current situation in Quebec, detailed below. It shows things are not so simple in the country many believed to be the next big crypto mining haven.
Canada (Quebec). Quebec is considering a province-wide halt on new mining operations in the region. It seems the influx of Chinese mining operators and the increased demand for electricity has overwhelmed the French-Canadian province. Quebec offers some of the lowest electricity rates in North America, a climate that keeps cooling costs down, and political stability. For now, Quebec has decided to halt cryptocurrency mining for a period of 90 days, to give legislators time to “think about adopting a rule to better formulate construction permits for these types of businesses in our territory,” says Robert Desmarais, Director General of Quebec’s Municipal Regional Council.
That’s the official version. But rumour has it that the ban may be extended because of the Regional Council’s sceptical views about the added value of crypto mining operations. Francois Remy, head of the digital desk at Les Affaires, a Quebec newspaper, notes that “the new position diverges from the utility’s previous efforts to attract companies using large amounts of electricity, such as bitcoin miners,” as reported by CCN.
Sweden. Sweden combines a cool climate, an abundance of renewable energy at some of Europe’s lowest electricity rates, and tax incentives for data centres, including crypto mining. Government officials are not too outspoken about mining, but in general seem to embrace blockchain technology within a friendly regulatory framework.
“Sweden is among the leaders in the global bitcoin market. There’s a very high-level of knowledge about it here, and a high-level of digital competence in the Fintech space,” explains Claire Ingram Bogusz, a researcher at the Stockholm School of Economics.
The political stability, general support for blockchain technology, cool weather, and access to renewable energy makes Sweden one of the best locations for crypto mining.
Iceland. In Iceland, crypto mining is perfectly legal, but bitcoin trading is strictly regulated. Iceland is one of the few countries in the world that legally forbids trading operations in bitcoin. As the Icelandic Central Bank puts it: “it is prohibited to engage in foreign exchange trading with the electronic currency bitcoin, according to the Icelandic Foreign Exchange Act.” That said, Iceland has a national cryptocurrency called auroracoin and is a popular location for crypto mining operations because of favourable climatic conditions. But lately news has circulated that Iceland is on the brink of running out of power, signaling that the crypto mining industry may be hitting the limits of what Iceland can provide.
European Union. For crypto miners in Sweden, Austria, or any other European Union (EU) country, clarification of the industry’s status in the eyes of EU regulators came by way of a recent official statement by Mariya Gabriel, European Commissioner for Digital Economy and Society. She made clear that crypto mining operations are perfectly legal in the EU.
“If the energy consumed for this activity is produced according to law, there is no legal basis to forbid or even limit it….As mining of cryptocurrency is not an illegal activity, the Commission did not put in place any means to track it, so far,” stated Gabriel.
European Commission Vice-President Andrus Ansip has said he wants Europe to become a world leader in digital innovation by embracing blockchain technology. In March, the Commission unveiled plans for a common European regulatory framework that would include crowdfunding and blockchain standards.
Netherlands. A recent Dutch court ruling that bitcoin has “properties of wealth” is a significant step. The Court of Amsterdam ruled in favour of a petitioner who was owed 0.591 BTC by a private mining company. Most importantly, the Dutch court set a precedent for legal recognition of bitcoin contracts. The decision is a positive step towards the acceptance of cryptocurrencies as a means of payment.
Germany. Germany’s Ministry of Finance recently announced that purchases made with bitcoin and other cryptocurrency are tax exempt because cryptocurrencies can be considered legal means of payment. The exemption includes crypto-fiat exchanges and mining fees.
France. While other countries are holding back, France is charging full speed ahead with ambitions to become a global hub for ICOs. Minister of Economics Bruno Le Maire has indicated legislation is in the works that would regulate ICOs.
“France has every interest in becoming the first major financial centre to propose an ad hoc legislative framework that will allow companies initiating an ICO to demonstrate their seriousness to potential investors,” wrote Le Maire on French news website Numerama.
Switzerland. Like France, Switzerland is hoping to seize the title of crypto-friendliest country. Economics Minister Johann Schneider-Ammann has said he wants Switzerland to be “the crypto-nation”. An ICO working group has been convened to consider appropriate regulations and legislation. This February, the Swiss Financial Market Supervisory (Finma) issued ICO guidelines to fill the legal vacuum.
Malta. The tiny EU island-nation is throwing its hat into the same ring and proclaiming it wants to be Europe’s “blockchain island”. The country’s Financial Services Authority has already released two papers with proposals to tackle the question of the legal status of initial coin offerings, virtual currencies, and related service providers, with plans to move forward soon after a period of consultation with the industry. Two of the world’s largest cryptocurrency exchanges — OKEx and Binance — have announced they are setting up shop in Malta.
Belarus. Belarus appears to have embraced blockchain and cryptocurrency. By decree of the country’s president, all crypto-related business and trading are to be legalised, including exchange services, ICOs, mining operations, smart contracts etc. as a comprehensive governance framework for the crypto-blockchain industry is introduced. If you think this sounds too good to be true, remember Belarus is a dictatorship. This means changes could also be decreed with little warning or recourse. But for now, at least, Belarus is rolling out the red carpet with friendly regulation and tax incentives.
Kazakhstan. Kazakhstan appears headed in the polar opposite direction. The country’s central bank has announced it has finalised legislation that will prohibit the sale and purchase of cryptocurrencies as well as crypto mining operations. Daniyar Akishev, the chairman of the National Bank, cites protection of people’s rights, speculative risks, and tax avoidance as major reasons for the strict approach to cryptocurrency. This came as a shock to the citizens of Kazakhstan who, according to a recent study by Yandex, were just getting interest in cryptocurrency.
India. According to recent media reports, India’s central bank (RBI) has ordered the institutions it regulates to stop working with companies that offer cryptocurrency services, stating “entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [cryptocurrencies]. Lending institutions have been ordered to close accounts of companies dealing in cryptocurrencies. Cryptocurrency-related businesses are already heading for the exits, according to reports.
Venezuela. Venezuela made headlines in 2017 for cracking down on mining operations, accusing them of sapping power from the national grid. But the country has had a big change of heart, declaring cryptocurrency mining “completely legal”. Late last year President Nicolás Maduro announced the creation of a national cryptocurrency called “petro”. Petro has been on shaky ground, though, since it’s not possible to mine it in the conventional sense, merchants are unable to process it, and the United States has banned anyone using the U.S. financial system from using petro, calling it an attempt to circumvent sanctions and lend credit to the Venezuelan government. Even Venezuela’s Parliament is not on board. It has declared the petro an illegal debt issuance. It is being called “the worst investment ever” and a “worthless token”, with most people unable to comprehend what it is and the Venezuelan government apparently unable to get its story straight.
Ecuador. Ecuador was one of the first countries in the world to roll out plans for a national cryptocurrency back in 2014. It simultaneously banned all other digital currencies, although lately seems to have backed off somewhat, announcing that buying and selling them is not illegal, just using them for payments is. As of early this year, the country’s central bank halted downloads of the mobile electronic payment wallet for the national cryptocurrency, announcing that it plans to transfer administration of the platform to the private sector. Whether the system survives this interruption remains to be seen.
Indonesia. Indonesia passed legislation late last year that bans all cryptocurrency-related transactions. Indonesia’s Central Bank Governor Agus Martowardojo says the aim is to protect the country’s fiat currency — the rupiah.
Some places are proud to be crypto-friendly, while others give crypto the cold shoulder and are even cracking down on it. Still others are taking a neutral or “wait-and-see” approach. Some even dramatically change their minds (like Quebec and Venezuela).
According to a comprehensive list compiled by Coin Dance, bitcoin is unrestricted in 107 countries, but is illegal in at least 10, including Bangladesh, Bolivia, Macedonia, Morocco, and Qatar.
Clearly, the fast-growing popularity of cryptocurrencies is forcing regulators and investors around the world to seriously reconsider basic assumptions about finance and economics, and find a way to ensure principles of fairness and accountability apply to new instruments that do not fit neatly into existing legislative and regulatory frameworks.
All in all, it’s an exciting time to be involved in supporting the technology that promises to disrupt traditional ways of doing things. An exciting time to be involved in Miner One!