Explained: The Inconsistent Country-wise Legality Of Cryptocurrency

The Inconsistent Country-wise Legality Of Cryptocurrency

The Ebb And Flow Of Cryptocurrency

Early on June 8, Bitcoin fell by 10 percent to $32,000, from trading at $40,000 at the end of last week. The current value of the entire cryptocurrency market has dipped to below $1.5 trillion, a recurring theme in the saga of the ebb and flow of crypto prices. Many news outlets correlate the latest dip with former US President Donald Trump calling it a scam against the dollar”. Moreover, the impact of the recovery of Colonial Pipeline Co.’s ransom by the Federal Bureau of Investigation (FBI) proves that crypto prices are possibly susceptible to government control.

The volatile nature of cryptocurrencies is associated with the way we perceive their value, often tipping between “a store of value” and “method of value transfer”. A store of value is similar to the way we trade with gold – an asset that can be saved and exchanged for goods and services in the future and the value of which is predictable to an extent. Whereas, a method of value transfer is anything used to transmit property in the form of assets from one party to another. The undefined terminal value makes crypto prone to swing to news events. The repercussions of government rules on Bitcoin prices were observed in May 2021, when the Chinese government barred financial and payment institutions from dealing in cryptocurrencies, which led to a 30 percent plunge in value. Apart from this, Elon Musk’s opinion is often cited as a crucial element that determines crypto’s rise and fall in value.

The Tale Of Two Countries

While China has implemented a strict crackdown on Bitcoin trading and mining-related social media accounts, El Salvador has become the first country to adopt it as legal tender. El Salvador President Nayib Bukele has tied up with digital wallet company Strike, to build a modern financial infrastructure using Bitcoin technology.

There is an ongoing battle in many countries regarding the future role cryptocurrencies will play in their financial institutions. For many, the decentralised nature of cryptocurrencies makes it difficult to protect their national currency and protect investors. Crypto is often the source of funding for many illegal activities related to terrorism, drug rings, money laundering and tax evasion due to its semi-anonymous nature. The Federal Trade Commission data found that Americans have lost more than $80 million in cryptocurrency investment scams since October 2020, a 1,000 percent increase from fall 2019. 

Countries like Egypt, Nepal, Angola and Morocco have banned the use of cryptocurrencies due to their inability to regulate it. However, countries like China, Canada and Saudi Arabia, despite the cons, keep crypto legal and issue regulations like a banking ban where financial institutions are not allowed to facilitate Bitcoin transactions. Similarly, the US treasury will implement stricter rules for cryptocurrency markets and transactions, with transactions exceeding $10,000 to be reported with the Internal Revenue Service.

Is It Illegal In India?

Bitcoin is not illegal in India, however, the government did consider proposing a bill that would criminalise possession, issuance, mining, trading and transferring crypto-assets. The Indian government is trying to regulate crypto-assets by deeming it mandatory for companies to disclose crypto trading and investments during the financial year. Finance minister Nirmala Sitharaman has assured that the centre was looking into experimenting with digital currency, affirming that “there will be a very calibrated position taken.”

Is Cryptocurrency Here To Stay?

Blockchain is a secure database technology that is the foundation of cryptocurrency but also a system that experts say could revolutionise global payments. Cryptocurrencies were created using blockchain technology as a means to limit the presence of third-party financial institutions. Its decentralised nature allows them to exist outside the control of governments and central authorities. People globally continue to invest in crypto to establish autonomy from fluctuating national currency values, its inflation resistance and transparent system. Banning cryptocurrencies will not end their usage, due to their highly portable nature that is not bound by physical borders. 

The reason many governments view cryptocurrency as a threat is due to the lack of their ability to control it.  The rules on cryptocurrency in various countries will continue to change as the crypto market matures and extensive research progresses into how they can be controlled and monitored by governments. Recently, the Bank of International Settlements (BIS) conducted research on Central Bank Digital Currency (CBDC), a centralised electronic record or digital token to represent the virtual form of a fiat currency, issued and regulated by the competent monetary authority of the country. BIS general manager, Agustin Carstens believes that CBDC is a way of collaboration and not a competition but can be a worthy alternative to privately issued cryptocurrencies, which are not coordinated internationally with societal objectives in mind. Pilot research and development programs on CBDC are already in the works in US, China, Japan, Australia, France, Sweden and the EU, however, these systems will take time to be implemented.

The speculative mania behind crypto makes it hard to know which crypto company is legitimate. This fear needs to be tackled by creating policy interventions that focus on regulating cryptocurrency, while protecting citizens and encouraging innovation.

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