Crypto rules are in a fog, but this week’s G20 meeting might clear things up
As Group of Twenty financial leaders meet in Buenos Aires on July 19th and 20th, the blockchain and cryptocurrency industry awaits their recommendations for universal regulations on a promising yet volatile technology.
Member nations have already committed to applying standards for anti-money laundering countermeasures set by the Financial Action Task Force (FATF), an international organization that links crypto-assets to potential money laundering risks as they may “permit anonymous funding.”
Amid uncertainty on regulations around the world, there is reason for optimism that blockchain-friendly rules will result. Here’s a look at where G20 member countries stand on cryptocurrency regulations.
Cryptocurrency in Five Countries
Japan
Japan, with the world’s largest Bitcoin trading volume, has been a voice of clarity, providing requirements for a “virtual currency provider” to operate there. “Japan has said, ‘Here we are, you want to run an exchange, and this is what you need to do,’” Alex Sims from the University of Auckland’s Department of Commercial Law told Blockstreet HQ in a phone interview. “Everyone knows where they stand. I think for a cryptocurrency exchange, that looked really good.” However, recent large-scale hacks have called for strengthening of regulations, leading giants such as Huobi Pro to pull out of the country.
United States
The U.S. is no stranger to controversial regulations such as New York’s oft-criticized BitLicense, a business license for cryptocurrency-related activities issued by the New York State Department of Financial Services. It has led many cryptocurrency companies to halt activity in the state, which history now remembers as the Great Bitcoin Exodus.
However, the tables have been turning, especially for blockchain, the technology underlying cryptocurrencies. For the first time, the U.S. has included cryptocurrencies in its annual Economic Report of the President, which describes blockchain as “a potential tool for securing America’s digital infrastructure.”
Several states are showing an interest in the technology, such as Wyoming, which in March passed five bills to attract crypto-related businesses. Wyoming Rep. Tyler Lindholm claimed the state was the first to identify utility tokens as a new asset class. “The Wyoming Money Transmitter Act was being used to essentially regulate Bitcoin and other digital currencies so the large exchanges would not operate in the State of Wyoming. So that was one of the first hurdles we cleared out of the way,” he said during an interview with CNBC.
In Seminole County, Florida, Mr. Joel Greenberg’s office became the first tax collector and U.S. government agency to accept Bitcoin and Bitcoin Cash this May. “For years, paying taxes by credit or debit card meant using a third-party processor with heavy fees. The blockchain allows the Seminole County Tax Collector to eliminate much of those heavy fees while improving payment accuracy, transparency, and efficiency which ultimately benefits Seminole County tax payers,” his office said in a statement.
Canada
In June, the state-owned electricity company Hydro-Québec halted cryptocurrency mining projects to reconsider requirements and fees for participating entities. The company’s Distribution President Eric Filion said in a statement that the government needed new rules to ensure mining companies were expanding the economy rather than creating higher electricity prices for residents.
However, local media reported that the government will lift its moratorium on the sale of electricity to cryptocurrency miners. “They [regulators] realized the benefits of cryptocurrencies. If you want these really cool things on blockchain, a lot of them require cryptocurrencies to work,” says Sims.
China
With China banning ICOs and cryptocurrency exchanges, Chinese companies have searched overseas for friendlier regulatory environments. Switzerland, Gibraltar, Singapore and Hong Kong have become preferred destinations for Chinese companies trying to avoid complex regulations within their own country. “You can still speak Chinese, but you can operate in a more favorable regulatory environment,” says Ben Yates of RPC Law Firm, describing Singapore and Hong Kong.
However, Chinese President Xi Jinping went as far as calling blockchain a “breakthrough technology,” emphasizing his country’s interest to be the center of science and innovation.
South Korea
South Korea issued a serious warning against ICOs last September due to speculative overheating in the cryptocurrency market, but the warning is understood to have no legal basis as it was never legislated. A Financial Services Commission (FSC) official, who asked to not be named, told Blockstreet HQ during a phone interview, “No laws were amended following our warning, but ICOs can be viewed as illegal funding or fraud, and therefore punishable by existing laws such as the Financial Investment Services and Capital Markets Act.”
Like in China, South Korean firms have gone abroad to launch ICOs such as Hdac, an IoT contract and payment platform backed by Hyundai BS&C that set up shop in Switzerland. However, this might prove to be a risky decision, as Article 2 of the Financial Investment Services and Capital Markets Act says, “Activities conducted in a foreign country shall be governed by this Act, if the effects of such activities extend to the territory of the Republic of Korea.” Meanwhile, lawmakers in a special committee on tech promotion submitted recommendations to lift the government’s stranglehold on ICOs, but researchers in parliament suggested a lift of the so-called ban should be accompanied by stronger monitoring.
What’s Next?
The crypto-asset market’s rapid growth last year has forced the topic onto the discussion table at this week’s G20 Finance and Central Bank Deputies Meeting. As member nations are already applying the FATF’s anti-money laundering standards, we can expect them to come up with unified recommendations on Anti-Money Laundering and Know Your Customer procedures for verifying users’ identities. “I don’t expect the regulations related to the cryptocurrency market to be much different from the current status afterward, but preparations for regulating cryptocurrencies as assets and securities might accelerate,” analyst Lim Dong-min of Ost Investment said on the popular international investment fair, Seoul Money Show.
Sims suggested important issues to consider when creating cryptocurrency regulations should be consumer protection and support for smaller companies. “The big businesses buy smaller innovative businesses like Google and Facebook do. So if a country wants a vibrant high-tech economy, you want smaller companies experimenting because they’re much more likely to do it than bigger companies,” he said.
Article by Yohan Yun
Illustration by Kenny Ferreira
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