There have been individuals throughout the history of money. This includes the first currency used. The same results have been observed each time a new currency was introduced. It is because of this that regulations were needed to stop currency being used for illegal or illicit activities. Due to its association with illegal activity, cryptocurrency was initially a controversial topic. However, digital currency is gaining more prominence in the financial markets, and more countries are implementing regulations to allow its use. Angelo Babb is a FinTech and cryptocurrency expert, and discusses the legal and regulatory frameworks that are being established in different countries for digital currencies, and what it means for the global financial system.
One day, digital currencies will all be referred to as one group using a common terminology. At the moment, cryptocurrencies are used in different countries. Others refer to digital currencies, while others use virtual commodities.
The underlying regulations that support the assets are the exact same and all are designed to give cryptocurrency a legal foundation as a financial solution. Babb asserts, “Money has been a topic that requires a lot of attention. Although currency has been around for thousands of years, it wasn’t until the 20th century that a global, unifying approach to the issue was developed. The way money is valued changes almost daily.”
The core of regulation is the common thread that runs through all developed countries in the world. It is a law that money cannot be created or distributed by the government. This has made it difficult to accept cryptocurrency as legitimate money.
Since 2018, however, countries have been working to establish regulations to clarify the status of cryptocurrency. Many are now accepting it as an acceptable and viable alternative to fiat.
More than 130 countries have already addressed cryptocurrency legislation. Most of these have created positive regulations to support the emerging ecosystem. Some countries, mainly in the Middle East, have implemented an “implicit ban” on digital currencies.
Babb adds, “The US dollar was initially not well received when it was introduced. It took nearly 100 years for it to be recognized as a valid form of currency. Until then, it was treated in the same manner as Monopoly money, which has all the physical characteristics and no value. In just a few short years, cryptocurrency has experienced a significant increase in government support. Today, more countries recognize digital currency as equal to national currencies.”
Taxes remain one of the most contentious aspects of digital currency. All countries that have legitimized cryptocurrency are not sure how to deal with tax obligations. For example, Israel taxed it in 2018 as an asset, but changed its position to clarify the different tax holdings.
It was initially taxed as a foreign currency in Switzerland, which was one of the first countries that adopted digital currency. The UK requires that individuals pay a capital gains income tax on any holdings. The US has many tax regulations, ranging from the federal to the local level.
The Financial Crimes Enforcement Network (FinCEN), which is leading the effort to regulate digital currencies as currency, has been a key player in the creation of the rules. Babb highlights that FinCEN doesn’t have the legal authority to create financial regulations.
However, its position gives it the ability to make recommendations that have been historically accepted by all developed countries. It has been involved in the development of cryptocurrency policies for the past 24 months and it is expected that digital currencies will soon be comparable to government-issued currency in many other countries.