In recent years, the use of cryptocurrencies as a means of investment and payment has gained popularity and acceptance. Bitcoin is already available through PayPal, while Mastercard intends to integrate cryptocurrencies into its payment system.
Despite their growing popularity, consumer protection and legislation for cryptocurrencies are limited.We will examine the problems with cryptocurrency regulation and current measures.
Comparing the Crypto Laws of Different Nations
It's not that local government agencies or global regulatory organizations have not been working on this issue; in fact a lot of progress has been made. Some nations (including Japan and Switzerland) have updated or enacted new laws governing digital assets and the companies that produce them, while other countries are still in the drafting stage. National authorities have often adopted unique strategies for regulating crypto assets.
Below examines the current legal position of crypto assets in the US, UK, and EU.
United States
In 2022, the United States introduced a new framework allowing additional regulation of cryptocurrencies. The Securities and Exchange Commission and Commodity Futures Trading Commission, two existing market regulators, were given authority under the new mandate.
With the recent 2020 lawsuit against Ripple alleging that the company took in more than $1.3 billion by selling its own cryptocurrency XRP in unregistered securities transactions, the SEC has already taken some steps to regulate the industry. Recently, the SEC has started going after exchanges with cryptocurrency products such as Coinbase and Binance. In addition, the SEC has spoken out against cryptocurrencies, calling them the "Wild West."
United Kingdom
According to a recent survey, 6.2% of the UK population own cryptocurrencies, with more than half having made investments in the past year.
The Financial Conduct Authority (FCA) is a regulator and works to maintain specific statutory objectives, including maintaining financial markets' integrity and protecting consumers. It has the power to take action against firms, individuals, and products that jeopardize these goals in the area of traditional financial services, using a range of regulatory and enforcement powers.
However, the FCA does not have the authority to take action or issue regulations on the basis of consumer protection concerning crypto assets and organizations. Its mandate is strictly limited to monitoring crypto providers' compliance with AML laws.
Although no laws specifically regulate cryptocurrencies in the UK, the country considers crypto assets property rather than legal tender. Furthermore, trading in cryptocurrency derivatives is also prohibited in the UK.
Know Your Client (KYC), Anti-Money Laundering (AML), and Countering Terrorist Financing (CFT) standards all include reporting requirements specific to cryptocurrencies. Although investors continue to pay capital gains tax on income from cryptocurrency trading, taxability often depends on the cryptocurrency activity conducted and the individuals involved in the transaction.
The Office of Financial Sanctions Implementation (OFSI) reporting requirements took effect in August 2022 for cryptocurrency exchange providers and custodial wallets. As a result, crypto companies must now immediately notify OFSI if they know or suspect that a person is subject to sanctions or has committed a financial sanctions offense.
The British Parliament officially recognized cryptocurrencies as regulated financial instruments in October 2022. As a result, the current laws governing instruments with a payment-oriented purpose will expand to include stablecoins in the new bill.
European Union
Most of the European Union (EU) has legalized cryptocurrencies, while individual member states determine the governance of exchanges. In addition, taxes in the EU vary from 0% to 50%, depending on the jurisdiction.
The Markets in Crypto-Assets Regulation (MiCA), a framework that strengthens consumer protection, sets explicit rules of conduct for the industry, and adds new licensing requirements, was proposed by the European Commission in September 2020. It was enacted into law in 2022.
Legal Concerns Around Cryptocurrency Use
According to a cyber-digital task force study, the following are the main issues with cryptocurrencies:
- Individuals are using cryptocurrencies to commit crimes and fund terrorists;
- Individuals are using them for money laundering purposes and tax evasion
- There are many thefts and frauds in this industry
A common legal concern associated with cryptocurrencies is the level of anonymity they can provide, as they offer the ideal framework for illegal activity. To make it more difficult to trace transactions, cryptocurrency developers are now offering anonymous currencies (AECs) such as Monero, Zcash, and Dash, which increase anonymity.
Silk Road
The notorious dark-web marketplace Silk Road is one of the best-known instances of how cryptocurrency may be used to carry out illegal activities. From 2011 to 2013, the website served as a marketplace for illegal products and services such as drugs, fake documents, ransomware, and others.
In order to protect user identities, the website was specifically created to accept Bitcoin as payment. The founder of Silk Road, Ross Ulbricht, was found guilty in 2015 of a number of offenses, including trafficking illegal drugs and planning to launder money.
Cause for Caution With Crypto Investing
The same features that make cryptocurrencies so enticing also make investors hesitant. Because transactions are anonymous, cryptocurrency exchanges can become a target for hackers since it is difficult to trace and recover stolen Bitcoin.
In 2014, cryptocurrency exchange Mount Gox was hacked, costing investors hundreds of millions of dollars in Bitcoin. Unfortunately, little could be done for those who held their cryptocurrencies on the exchange.
Cryptocurrency is not backed by the government or a central bank and is not recognized as a legal tender anywhere in the United States. As a result, its value is mostly determined by demand. Bitcoin and other cryptocurrencies have generated significant returns as investments but are also incredibly volatile.
Conclusion
It is too early to predict the likely response to particular challenges, such as terrorist financing, money laundering, and tax evasion. However, major efforts have been made to regulate this space and stamp out criminal activity through the medium of cryptocurrencies in many jurisdictions.
It is important to protect crypto users while encouraging innovation. The appeal of the digital asset market is only likely to increase in the meantime, given the volatility of investments in more established financial systems.
