Yes it is. Regulations concerning the use and legality of Bitcoin differ from country to country. Although more and more nations recognize its existence, the obvious trend in 2014 showed governments trying to control, if not check, the spread of the cryptocurrency.
Bitcoin and cryptocurrency have experienced a rapid evolution of public image over the past three years. From occupying an obscure niche in technology-oriented circles to becoming a major feature of global financial debate, their rise has in many ways been unprecedented.
This rapid transformation has resulted in, and in turn been precipitated by, an explosion in associated socioeconomic activity. Businesses with countless focuses have appeared in order to profit from and innovative on the potential held by Bitcoin and its associated blockchain technology. In fact, an entire ecosystem has taken root which can be found in the majority of the world’s jurisdictions, which has collectively come to be known as the cryptocurrency community.
The practical implementation of cryptocurrency to the point where a certain number of members of this community, as well as lay consumers are using it to transact, has placed it firmly on the radar of international lawmakers. While this in itself is hardly a surprising development, the methods in which jurisdictions are treating cryptocurrency, as well as their overall perspective and degree of permissiveness, vary considerably. In many countries, there are still no clear rules dealing with cryptocurrency at all.
This variability is not simply a reflection of the political situation in respective states; rather, it is seen as a consequence of the challenging nature of cryptocurrency itself. Blockchain technology and the many ways in which it manifests itself in practice create a complex new area for legislators, and the difficulty of regulating cryptocurrency is conspicuous in the fact that, for example, no jurisdiction has so far managed to produce an entirely effective solution.
The challenges presented by cryptocurrency have furthermore been linked by skeptics, sometimes arguably excessively, to illicit activity. A popular belief in March 2015 is that cryptocurrency more easily facilitates achieving of illicit goals by criminals and other bad actors, and even that cryptocurrency by its very nature is somehow bound to heighten criminal activity. While it cannot be said that this is a definitive factor in deciding how policy makers legislate, it is certainly a common argument put forward in government literature on cryptocurrency, as any scan of news resources will confirm.
It is safe to suggest that in considering the concept of effective regulation of cryptocurrency, lawmakers must take into consideration a wealth of factors concerning both consumers and businesses.
The report below considers a number of these factors and provides some background information for perspective on the issue, as well as more in-depth opinion from a range of experts in the field. Long-time CoinTelegraph collaborator Tone Vays also offers his contribution on several important topics, which can be found in the respective sections.
A visual history of cryptocurrency regulation
The infographic below gives a brief outline of the major events to have occurred within the sphere of cryptocurrency regulation internationally, from the first noteworthy incident in Germany in August 2013 to Russia’s announcement of penalties for the use of ‘money surrogates’ in October 2014.
The status of cryptocurrency regulation around the world
The main objective seemingly desired by both regulators and the cryptocurrency community with regard to regulation is to strike an effective balance. This ‘balance’ more specifically consists of allowing for essential mechanisms related to areas such as tax and consumer protection to be applied to cryptocurrencies, while at the same time allowing for innovation within the community to continue unimpeded.
As of March 2015, it is immediately apparent from consulting any relevant analytical material that this balance has not been achieved in any major jurisdiction, and far less so internationally. The infographic below gives an outline of current regulatory practices across the world.
For more detailed information on specific areas, refer to the expert comments included following the infographic. Included are statements relating to positive, negative and contested jurisdictions to give an overall impression of the challenges facing cryptocurrency in each scenario.
Regulatory compliance for business
A lot has been said regarding regulation of money service businesses (MSBs) across international jurisdictions. While often seen as a threat by cryptocurrency community, a substantial part of any legislation is nonetheless involved in security, particularly that of the consumer.
Measures adopted which involve MSBs and therefore could implicate cryptocurrency generally target areas such as fraud protection (from rogue companies and organizations), and prevention of criminal activity such as terrorism and money laundering from being financed. These broad practices are adhered to throughout major markets. As we’ve seen, however, the ways in which they affect cryptocurrency industry do vary between states.
Companies operating in major markets such as exchanges and trading outfits as of 2015 strictly adhere to best practice measures. These either allow them to operate legally within their chosen jurisdictions, or act as ‘future-proofing’ which will allow them to operate with cryptocurrency in future if they do not already do so.
In the US, the steps described below have become mandatory for new and existing businesses with regard to regulatory compliance.
Despite divergences, it must be remembered that cryptocurrency-based operators impose new challenges for policy makers, and that teething problems (such as those witnessed through the creation of New York’s BitLicense scheme, for example) are to be seen as a natural stage on the path to suitable regulatory environment.
BitLicense: a test case for cryptocurrency regulation
BitLicense is notable in being an advanced ‘test case’ for how regulation of cryptocurrency could progress globally. While having a set of rules focused on one small jurisdiction is disadvantageous, the highs and lows of the development period have provided useful insights to be taken on board by other authorities looking to deal with the issues surrounding lawful business use of cryptocurrency.
BitLicense was created by the New York State Department of Financial Services (NYDFS) and was a major effort of its Chief Superintendent, -Benjamin Lawsky. From its inception in late 2013, Lawsky has been the main proponent of the scheme, and accompanied many of its major milestones. Public reaction, particularly from within the cryptocurrency industry, has been notorious, and Lawsky has had to adapt the proposals considerably since the first draft was made available in August 2014.
Below is a timeline of the main events surrounding BitLicense, along with links to relevant articles from each stage by CoinTelegraph.
Cryptocurrency and consumer protection
When considering the issue of consumer protection, what is immediately conspicuous is that the nascent state of the cryptocurrency industry means that it still differs considerably from traditional finance in this respect. Whereas strict rules have governed businesses in the latter sector for decades, cryptocurrency remains an area where there is a major impetus to engage in consumer protection compliance, but little enforcement of it. This results in an uneven environment full of risk to consumers. However, as technology improves and best practice procedures gain popularity, the landscape is quickly changing.
A current standard (as of March 2015) for cryptocurrency businesses is the use of multisignature technology as a way to secure funds and user information. This has been shown to greatly decrease the ease with which assets can be compromised by third parties (and, indeed, internally), but more recently it has been proven not to be entirely effective.
By contrast, other industry operators are proponents of alternative methods such as cold storage, but this comes with its own risks and necessitates placing additional trust on those in charge of assets.
What is the regulator’s role in consumer protection?
As with any area of cryptocurrency, the current climate dictates that regulators attempt to strike a workable balance between suitable protection which is in line with accepted standards, while allowing room for innovation and experimentation on the part of the cryptocurrency industry.
Similarly, in this area as in others, governments are taking various stances, with some seemingly open to the above approach, and others either presenting extensive, possibly premature guidelines (eg. New York State) or banning development altogether.
In addition to the attitudes of regulators themselves, it is interesting to consider the consumer’s perspective when gauging an overall impression of public opinion in a certain jurisdiction.
The above infographics display the results of a survey by CoinDesk of consumer attitudes towards regulation in selected major markets.
Conclusion: a note on regulation and the future
While the international community is currently in a state of flux regarding cryptocurrency regulation, it is a widely held belief – even a foregone conclusion in 2015 – that regulation is a certainty in the future. It is this belief which has resulted in the many calls for a balanced solution from senior figures within the cryptocurrency sphere.
As has been seen with the BitLicense proposals as a test case for the regulatory process, the need for transparency and ample public consultation is particularly conspicuous. While such an approach can lead to protracted drafting periods and a raft of differing perspectives, as well as feedback which is not always constructive, it is the principal method by which cryptocurrency can make legitimate inroads into mainstream consumer society.
For the moment, however, the rate at which this could occur, as well as the regulators’ role in assisting this, remains inconsistent across the globe. While cryptocurrency is making progress in many countries, it is notable that in those with no formal legislation its practical application is being quickly realized, examples of this being Kenya and Botswana. It is thus notable that cryptocurrency development is currently occurring in two spheres: one with regulation, the other without it. In each case, different sections of society are benefitting from the effects of this new technology.