Introduction
According to a report, more than 100 million crypto investors in India. A much bigger number than in any other country. The USA is at the second number. And 27 million. And then Nigeria with 13 million, as per this report.
So, it’s quite obvious if our government comes out with any statement regarding crypto, many people will suffer heart palpitations. Some days ago, it was reported that crypto MAY be banned entirely in India. A complete ban on Bitcoin and all other cryptocurrencies. Then our finance minister said that photos of the older Crypto Bill were being circulated on social media. The New Bill is yet to come.
But they wouldn’t need all crypto to be used as currency in the country. One thing is certain, the government would try to regulate cryptocurrencies in India somehow. Because the Ministry of Finance had said that Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is under the Cabinet for finalization. But the question arises,
- what kind of crypto regulations would be introduced?
- Which regulations would benefit the country?
- Will banning cryptocurrencies help the country?
- Or will making it a completely legal tender be beneficial for the country?
We will get the answers to these questions when we try to understand the crypto regulations around the world. Come, let’s find out. “The Crypto markets crashed following news of the Government introducing a Bill in Parliament to prohibit all private cryptocurrencies in India barring a few exceptions.” “Crypto Bill was actually part of the over 20 Bills to be introduced in the upcoming Winter Session.” “Awareness Issue or alert, if I can use the word, has been issued, so that people are very cautioned that this may be a very high-risk area…”
Defining Cryptocurrency
Before making a law on any matter, it is very important to define it. But it is not an easy task to define Cryptocurrency.
Is it a currency? If it is a currency, how many countries can one use it as such? Only one country allows cryptocurrencies to be used as legal tender. That’s El Salvador. So if it isn’t a currency, what is it then? Is it a commodity? That you can buy and trade. Like the Pokémon cards you used to buy and then trade in your childhood. Or the WWE cards that you’d buy to trade. Or is it an asset? In which you can invest with the hopes that the value of your investment would grow in the future and you’d get better returns. Like you invest in property and treat the property as an asset. This is why regulators use the term Cryptoassets for cryptocurrencies in many countries.
Why Regulation?
Secondly, What is the need to regulate cryptocurrencies? Governments say that cryptocurrencies and Bitcoin are used for money laundering. For criminal funding activities by criminals and for tax evasion. Actually, if you look into cryptocurrencies’ foundational ideas, the basic idea is Decentralization. Today, every government controls the monetary system of its country through its country’s Central Banks.
And because Bitcoin and cryptocurrencies are so decentralized, they are out of the control of the governments. But the governments do not want to give up their control. In May 2021, the largest oil pipeline system in the US was targeted by a ransomware attack by hackers. They named it Colonial Pipeline. They shut down the entire pipeline for a few days, And they asked for Bitcoins as ransom. These hackers knew that Bitcoins were anonymous, and they could not be traced to the source or destination of the payment or the receiver’s location, so they planned to accept the payment and leave without any fuss.
But within some weeks, the US government actually traced these hackers and recovered the Bitcoins. This was very surprising. Because up till this point in time, many people believed that Bitcoins and cryptocurrencies were actually anonymous. No one would get to know the source or location of the Bitcoins or how they are used. The reason was that the US government has a lot of resources to trace the IP addresses to recover Bitcoins.
The same cannot be said for the governments of other countries. If we talk about money laundering, then according to the Enforcement Directorate of India, ₹40 billion was laundered outside India in the last year using cryptocurrencies. Money laundering, attacks by hackers, terror financing are legit concerns regarding crypto. These are cited as the reasons why there’s a strong need for regulations. Let’s talk about regulations.
What have the other countries done to regulate crypto?
In most countries, friends, Bitcoin, and cryptocurrencies, though legal, aren’t legal tenders. Meaning that they can’t be used as currency but for other purposes. It is legal to buy, sell and use them as assets. For example, Bitcoin is legal in the USA, taxed as property. In countries like Germany, even banks are permitted to buy and sell cryptocurrencies. In fact, the European Union does not charge any VAT or GST on crypto.
Cryptocurrencies are treated as property in Australia as well. So that Capital Gains Tax can be levied on them. On profits arising out of it. On the other hand, in countries like Turkey, it is legal to trade in cryptocurrencies and hold them after buying, but using them for banking is banned. It is completely illegal to use it as currency. Whereas in the other countries that I talked about, if someone there says that they would accept payments in Bitcoin, that is allowed. Some people may accept it as currency. So overall, in most countries, the rule is that cryptocurrencies are accepted as digital assets and commodities. And they are even taxed. But then there are countries like China, which has a complete ban on cryptocurrencies.
As of November 2021, according to the Library of Congress, only 9 countries in the world have an absolute ban on cryptocurrencies. Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia. Since China is the largest country among them, let’s focus on China.
China vs. El Salvador
Since 2013, 8 years ago, China had started putting restrictions. In 2013, they said that banks aren’t allowed to do cryptocurrency transactions. 4 years later, in 2017, they said that the payment gateways that do cryptocurrency transactions would be banned. That’s the reason why Binance, the largest crypto-exchange platform in the world, although launched in China in 2017, it relocated its headquarters outside China to the Cayman Islands. But in 2021, China made its rules stricter.
In June, they banned the mining of crypto. Bitcoin can’t even be mined in their country. And then put up a wholesale ban. Every activity related to cryptocurrencies is now banned in China. In fact, the rule states that this rule is applicable even outside the borders of China. If any cryptocurrency platform caters to the Chinese population, it would be banned. Even if it’s doing so outside China.
What was the impact? As of April 2021, two-thirds of the Bitcoin mining in the world was based in China. But by July 2021, this Bitcoin mining moved out of China. The Bitcoin miners started operating from Kazakhstan, the USA, or Canada. They moved out of China. Or they simply sold off their equipment. And left the industry. In a way, this industry exited China. Many experts believe that China did this because China wants total control over everything. The Chinese government is a dictatorship. They cannot tolerate the existence of something decentralized.
Out of the control of the Chinese government. They want to have absolute control over everything. The second reason is that the Chinese government has introduced its government-backed digital currency. And the government doesn’t want to let Bitcoin compete with their coin. Publicly, the reasoning by the Chinese government was that Bitcoin hurts the environment. It isn’t actually wrong; the electricity consumption of Bitcoin, and the environmental impact, are very harmful. But the experts believe that this is just a superficial reason by China. The real reason is to establish their control.
On the other hand, countries like El Salvador and the Bahamas are opposite China. El Salvador was the first country to make Bitcoin legal tender. Before that, only the US Dollar used to be legal tender in their country. It means that not only is Bitcoin legal, but it can also even be used to buy other things.
The simple reason behind doing this is that El Salvador’s economy relies largely on remittances. The citizens of El Salvador, that reside outside El Salvador send a lot of money into El Salvador. And that is a major contribution to their economy. In 2020, the total remittances to El Salvador from outside the country were $5.9 billion.
One-fifth the GDP of the country. And $400 million out of this were only transaction charges. Because the companies like Western Union, Money Transfer, and MoneyGram charge a lot of money for international transactions. But if the money is sent through Bitcoins, the transaction charges would fall to nearly zero, and more money could come into the country. This is said to be a major reason behind this. Apart from this, the President of El Salvador hopes that foreigners would invest in their country because their economy is so open to Bitcoin.
The Bitcoin miners from other countries would want to live in their country and bring in more money. The people who got rich by trading in crypto would also want to live in their country. In fact, El Salvador is planning to build the first Bitcoin City globally. An entire city that revolves around Bitcoin. One thing that’s very clear here the countries that completely ban cryptocurrencies have to bear economic loss due to it in some form or the other. The crypto-traders and crypto-miners left China. Or they moved their money out of the country.
The investments in the crypto industry have moved out of China, and countries like El Salvador are benefitting from it. Suppose it is completely eradicated from a country. In that case, the innovations that will happen in the future, the various areas that will use Blockchain and cryptos in the future, and countries that have banned crypto will have to bear these losses.
Use of Blockchain
- It can be used in elections.
- In healthcare,
- education,
- to make the existing systems better
And many countries have started doing this. But the biggest point here is the tax revenue of the government. For countries like China, there is no more tax revenue from cryptocurrencies. But what’s happening in other countries? In the European Union, the USA, and Australia, people invest in crypto, profit from it, and pay Long Term Capital Gains Tax on it. It is a good source of tax for the government. Countries like China will have to lose out on it now.
Cryptocurrency in India
If we initially talked about India, the government tried to ban it as soon as possible. The RBI had banned cryptocurrencies in April 2018. But this ban was legally challenged in court. And the Supreme Court, in its landmark judgment, struck down this ban in March 2020. The Supreme Court held that the business opportunities from cryptocurrency exchanges are threatened by the ban. And banning everything is not the solution.
They accepted that there are negative points related to cryptocurrencies that they can be used for wrongful purposes, but it doesn’t call for a ban. Proper Regulations are needed instead. And finally, the government has started to understand this point. That’s why there are discussions on framing regulations for it. Time will tell what these regulations would entail. What’s your opinion here? How should the regulations be framed? The regulations should be similar to which country’s regulations?
Conclusion
In my opinion, following El Salvador would be quite extreme. There’s no need to have such open regulations. Who knows what unexpected risks would follow? But the steps were taken by the other developed countries in Europe or the USA; if such regulations are framed, then it would be the best option for the country. And it would be a good option for crypto investors as well. The negative points of cryptocurrencies can be prevented through processes such as Know Your Customers (KYC). At the same time, in the future, the potential of crypto-innovations would increase, and it would be fostered in the country.
Abdul Qadeer is highly experienced in creating engaging content that adds real value to a blog, website, or brand. He is creating content for multiple niches like technology, SEO, Marketing, Health, Education and Career Development, etc.