A blockchain (or distributed ledger) is a peer-to-peer distributed and public (or private/permissioned) immutable ledger that maintains a record of all transactions occurring on the ledger. Such records are saved in a chain of units called blocks. In most blockchains, each new block contains cryptographically hashed data and is built upon the previous block in the chain, enabling the data in the blockchain to be trustworthy. Blockchain technology enables the decentralization of the movement and management of data and digital representations of assets or other value. More specifically, due to the distributed nature of a blockchain and its ability to enable trustable transactions between computers through its distributed consensus mechanism, blockchain technology enables the authentication and settlement of transactions without centralized intermediaries or authorities.
Cryptocurrencies are the most famous applications of the promising blockchain technology, and these disintermediated digital currencies have put significant power in the hands of the people. However, the central banks, regulators, and governments around the world aren’t always equally enthused about crypto assets.Around the world, the legal status of cryptocurrencies, and the regulatory framework around them varies. Since blockchain is the underlying technology, the regulatory status of cryptocurrencies in a country also has a direct bearing on the progress of the technology there.
Why regulations are important?
In recent years, with the uncontrolled evolution of the internet and all its applications, the main objective of governments around the world has been to protect consumers and businesses against the poor management of sensitive information. However, this just scratches the surface of something even more complicated. In the early years of the internet, we did not need any particular regulations to create an online market, to sell or buy products or play online. Every ‘online’ activity reflected another one already performed in the real world and, thus, already subject to regulation.Nevertheless, the internet has evolved, and a growing number of activities done via the web and technology do not have an exact reflection in the real world. Technology is growing more independent, and the goal of these new inventions, as Ivan Illich explored in his book,Tools for Conviviality, in 1973, was to make men more self-sufficient, more liberated, more suited to satisfying their own particular goals. At first, it was important to configure apparatuses (advances, establishments, connections) for the administration of man, instruments fit for freeing human potential and inventiveness. They partitioned men into masters and slaves, experts and slave.
If the technologies around us are designed to channel our actions toward certain limited behaviours which can be measured and then analysed, managed and transformed into future consumption forecasts, then our contractual power over these technologies is very low, and our efforts, our ‘individual response,’ the attempt to resist the manifold possibilities provided by technologies is weak or irrelevant.
Some of us will also be able to find the right personal balance between the benefits of digital technologies and the time they take from other more social activities, but these attempts will only be exceptions .For these reasons, should we allow the evolution of technology to remain totally independent? Or should the states take an active role in that evolution and regulate its processes? Technology is not supplementary to our lives anymore. We are becoming an essential part in its development. This independence, and growing dependence, will become the main problem facing regulators in the near future.
Who should be the right authority to enforce such regulations?
Governments can attempt to impose regulation on a currency or the entire industry, such as tax reporting rules or prohibitions on using digital currencies for certain transactions. But, it is difficult to enforce laws concerning a mechanism that is decentralised and redundant. Currencies are most important aspect of an economy. These are regulated by Central finance corporation and government . So every transaction I getting recorded on bank server on that you pay some charges for using the services and government too have access to your data .That is basically a regulation.
Now the problem arises that if people are transacting through Bitcoin this is getting recorded in public ledger or block chain if you called ,But government and banks are not involved so you don’t have to pay charges .However when you transfer Bitcoin or other Cryptocurrency you pay a little charge to mining computers who are processing your transaction.
Where is the problem
Suppose if all the money is replaced by Cryptocurrency, All the banks will bankrupt and government will no longer making any income through it.
That’s why China and Russia already have a plan to launch Cryptocurrency. Already Ripple is the only Cryptocurrency which is centralised by many of UK banks.
So basically all that comes to an end , Governments will be in deep problem if people will start using Bitcoins and other currencies there would be no PayPal and Western Union in the world.
Indeed Cryptocurrencies are in the beginning stage as the email was in the beginning of Internet. But it would be amazing to see how governments will come up with regulations and how big financial institution will compete with Bitcoin and Ethereum.
No can can or does regulate enforce regulations. Although there are ways to trace a transaction or punish a user, the lack of any nexus or controller means that it is impossible to stop a transaction.
Regulations all around the world
At the G20 summit held in Buenos Aires, Argentina, the topic of cryptocurrencies and blockchain was discussed in depth. With no global regulator existing as of now, the need of discussing such an issue at the G20 summit was paramount. The Financial Stability Board also asked countries to cooperate and ease regulatory laws when it comes to cryptocurrencies, thus going hand in hand with the International Monetary Fund’s view on the matter. Even though some people believe that cryptocurrencies could be used for malicious intent, the underlying blockchain technology has the potential to disrupt the industries. Also, IMF and FSB believe that more cooperation on the part of countries can be beneficial for the controlled growth of this sector. International agencies including United Nation are working on the effective use cases of blockchain technology.
Acceptance in Japan
Even though Japan accepts currencies such as bitcoin in the form of legal tender, recent events have dampened the spirit of Japanese investors. A reported USD 530 million worth of NEM coins was stolen from a Japanese exchange in January, which has resulted in a consideration for stricter regulation on exchanges and intervention from the Financial Services Agency.
Since Japan is the biggest market for Bitcoin, it certainly stands as one of the most liberal countries toward cryptocurrency and blockchain technology, as of now. Japan is also pushing to become a world’s blockchain capital.
Rejection in China
On the other end of the spectrum, China is one place which has not taken the bitcoin and cryptocurrency boom too well. Both currencies and exchanges are currently illegal in China, with ICOs also being banned in 2017, and domestic crypto exchanges being shut down. China, due to the aforementioned facts, appears to be the strictest place when it comes to blockchain and cryptocurrency regulations. Even though at first sight these policies may seem narrow-minded, it is perhaps in the best interests of the nation, as wiping out corruption and stemming the outflow of capital is higher on China’s priority list.
Despite this crackdown on cryptocurrency exchanges and trading, China wants to be a front runner in blockchain technology.
FINMA and the European Union
In recent news, the President of the European Central Bank, Mario Draghi, rejected Estonia’s bid to launch its own currency, estcoin. This was due to the fact that no states can establish their own currencies, and that the currency of the EU is the Euro and nothing but the Euro. The legal status of exchanges depends on the country under consideration, for instance, Estonia is one country that has adopted a very open approach towards blockchain and cryptocurrency. EU and the Swiss Financial Market Supervisory Authority have stated that they will keep track of developments in this sector on the global stage, along with other stakeholders.
Depending on the state, currency exchanges are legal in the US, but not currencies as legal tender. The IRS actually states that cryptocurrency is not a currency, but a property (this was said back in 2014). Similarly, the Commodity Futures Trading Commission reports that bitcoin is a commodity and not a currency. This view of currencies as securities can pose a bit of a problem to investors, thus, they need to be aware of state-wise policies on currencies and exchanges, in order to minimize risks of losing money and ending up on the wrong side of the government.
South Korea’s Financial Services Commission makes it mandatory for exchanges to register with it if they want to proceed with crypto trading. About 4 percent of the daily volume of bitcoin is traded in South Korea, although, it does not believe cryptocurrencies to be legal tenders.
ICOs and SAFTs
With the emergence of blockchain and crypto, ICOs have become the most efficient methods to raise money for new projects and developments. Due to the nature of currency being described as securities in a few countries such as the US, it has become necessary to comply with various restrictions and regulations. In order to prevent the hassle, a Simple Agreement for Future Tokens (SAFT) has been announced by Protocol Labs, which will soon conduct the first token presale using the SAFT. The concept of SAFT comes into play when a company is actually raising funds with the premise of releasing their tokens at a later date, thus classifying their ICO as a token presale. This agreement aims to streamline security and regulatory restrictions to make it convenient for companies to accept investments from funders.
Regulations in India
The Indian government has been signalling its discomfort with all things cryptocurrencies for several months now. It did this by decisions taken by various arms of the government and regulators to make trading in virtual currencies more and more difficult. It was only on April 5 and April 6 that it announced and clarified with no room for doubt that it was serious about keeping virtual currencies out of India.
To impartial observers of the cryptocurrency scene in India, the April notifications from banking regulator Reserve Bank of India were not surprising: financial regulation in India has always erred on the side of caution and the ministry of finance and RBI were only keeping to its conservative stance.
But, here’s the rub: it is not just the cryptocurrency investors, platforms and others who get hit by the latest government decisions. Developers and companies working on open blockchain projects that need and use tokens will face a tough time doing so, too — virtually signalling that blockchain technology in India will die before it grows out of its infancy.
This needs to be a wake-up call for a government that has publicly stated its “cryptocurrencies are bad, blockchain technology is good” position on the decentralised, publicly distributed technology, say experts. As they tell us in this story, never can the twain be separate.
Let’s back up a little first: in its April 6 notification, ‘Prohibition on dealing in Virtual Currencies’, the RBI covered all commercial and co-operative banks, payments banks, small finance banks, NBFCs and payment system providers when it said: “In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/ sale of VCs.”
In other words, nothing in the world of real currencies (called fiat) would be allowed to touch the world of virtual currencies. At least, legally. There would be illegal modes of cryptocurrency conversions always available but, if you were to play by the book, there would be no way to be able to play in cryptocurrencies. To be sure, there are a few options open like PayPal and others today but it’s only a matter of time before the government’s long shadow falls on them.
Conclusion — Future of Blockchain Regulation
Blockchain technology implementation and regulation poses minimal to no danger to businesses wanting to embrace the technology, while we still have to see what the future holds for the global adoption of cryptocurrencies and ICOs. Furthermore, Western governments encourage blockchain implementation in public services and welcome the usage of technology in the corporate sector.
Leave your comment below if you’re waiting for the regulations to work out or feel free to reach out to us at firstname.lastname@example.org if you are wondering how to use blockchain with all the regulations in place.