As cryptocurrencies gain mainstream acceptance, national regulators across the world are turning their weighty brows towards crypto exchanges, startups, and ICOs, and are beginning to create a regulatory framework. Some nations are establishing heavy-handed restrictions. Others are nurturing the new technology with thoughtful rules and self regulation. While crypto exchanges and especially ICOs merit some oversight, regulators that adopt more restrictive policies than their neighbors may risk ceding a technical edge.
The European Union has done very little thus far to regulate cryptocurrency trading, and the EU’s financial services chief recently announced that they may do so in early 2019 only if they see global risks arising but “no clear international response emerging.” But while the EU as a whole is taking a wait-and-see approach, these nations are creating policies that encourage the growth of blockchain technology.
While the rest of the world’s governments seem to have mixed opinions on crypto, making it unclear what the crypto legal landscape will look like next year, Malta is creating rules that will give crypto firms and users some regulatory certainty. Outlined in a new Consultation Document authored by the Office of the Prime Minister, the new policies will provide oversight for brokerages, exchanges and traders in the industry. “The proposed framework will offer legal certainty in a space that is currently unregulated.”
Malta’s early efforts have already drawn several crypto giants and many smaller blockchain-based startups. Binance, the world’s largest crypto exchange by volume, announced plans in March to open an office in Malta, after a warning from the Japanese regulators. Weeks later, the world’s second-largest exchange, OKEx, followed suit. Cryptocurrency TRON (TRX), the ninth largest cryptocurrency by volume, recently registered in Malta after the TRON CEO Justin Sun tweeted that they were “seriously considering invest and operate [sic] in Malta.”
The Netherlands is perhaps the perfect country to become the forefront of blockchain innovation. Amsterdam was recently ranked the best tech startup city in Europe, and the city of Arnhem has created the highest density of merchants accepting Bitcoin in the world. In 2015, the Netherlands Central Bank (DNB) created its own cryptocurrency to better understand how they work. They concluded that “blockchain technology offers a number of advantages over existing technologies. But there are also some drawbacks and barriers to overcome.”
In March, Dutch Minister of Finance Wopke Hoekstra recommended in a letter to Dutch Parliament that exchanges and cryptocurrency firms be required to register with the government and enforce know-your-customer requirements by late 2019. Also in March, a Dutch court classified Bitcoin as a “transferable value” after the court ruled in favour of a plaintiff who was owed 0.591 Bitcoins (BTC). The judgement stated that “Bitcoin represents a value and is transferable. In the court’s view, it thus shows characteristics of a property right. A claim for payment in Bitcoin is therefore to be regarded as a claim that qualifies for verification.”
Given the Netherlands’ enthusiasm towards cryptocurrencies, it’s no surprise that even the 2018 Dutch college entrance exam featured a question on Bitcoin.
France has recently made cryptocurrencies more attractive for its citizens by reducing the capital gains taxes on cryptocurrency gains from a variable rate as high as 45% to a flat 19%. The Council of State determined that crypto profits are “moveable property,” subject to a lower tax rate. Cryptocurrency gains had previously been considered either industrial and commercial profits, or non-commercial profits.
The UK has yet to pass any regulations, but a recent announcement of a “crypto assets task force” and a handful of other fintech initiatives contained some very promising language. A statement from the Office of the Treasury said the the task force “will help the U.K. to manage the risks around Cryptoassets, as well as harnessing the potential benefits of the underlying technology,” and promised that other initiatives would “help new fintech firms, and the financial services industry more widely, comply with regulations by building software which would automatically ensure they follow the rules, saving them time and money.”
As the governments of the world start to look at cryptocurrencies more seriously, they face a choice, with heavy consequences: restrict the development of blockchain technology and drive crypto startups to greener pastures, or embrace the crypto world and foster blockchain technologies at home. We think Cryptocurrencies are the next step in the constant evolution of money, and the path forward is clear.