One of the best parts about bitcoin and one of the main reasons for its rapid rise in popularity is the digital currency’s alleged absence of regulation. Bitcoin and other cryptocurrencies are now operating in legal limbo. Only a few nations have rendered cryptocurrency illegal (Egypt, Bolivia and Nepal, to name a few). However, most countries, including the United States, presently recognize bitcoin as a form of property. Thus, one of the significant roadblocks with bitcoin may be regulation.
While blockchain-based firms and crypto-related companies are flourishing, government institutions struggle to keep up, and some governments are taking a cautious approach. While this is accurate in some aspects there is no central organization that monitors and regulates bitcoin the vast majority of the bitcoin community believes that there are already elements of both internal and external regulation that are sufficient.
Bitcoin is, by definition, self-regulating. We discussed this briefly earlier in this instructional course when we discussed the technical components of bitcoin mining. When a bitcoin transaction occurs, its hash is generated by calculating the hash of the preceding block in the blockchain. This means we get some kind of digital confirmation that the transaction was valid. What is the procedure for this? If someone tried to impersonate the transaction by utilizing a revised block in the book chain, the hash of that block would likewise change.
The bitcoin community regularly runs hashing functions on blocks that are already stored in the blockchain. So it is highly likely that any such tampering would be flag up very quickly. Even without the community running these hashing functions, it would alter the next block’s hash if the blog is changed earlier in the blockchain (will not alter but render it incorrect). This would continue right down the chain until it was revealed that the most recent block.
In terms of how bitcoin is seen in the financial world, most countries that have enacted rules and regulations regard bitcoin as a financial instrument comparable to gold or stocks. For example, if a person owns bitcoin and the value of that bitcoin rises, they must pay capital gains tax on the earnings made from the rise. In contrast, if the value of their bitcoin falls, they can deduct the losses while filing their taxes.
External regulation is currently attracting all of the attention in the bitcoin space. Some governments seek stricter restrictions and limitations that will make obtaining, storing, and spending bitcoins more difficult. As expected, the larger bitcoin community is strongly opposed to such laws, believing that they will stifle bitcoin’s organic growth as a viable alternative to existing fiat currencies.
Bitcoin Regulation Around The Globe
More countries now realize cryptocurrencies are an inevitable part of their financial system. So they’re starting to regulate rather than restrict.
In terms of legislation, the European Union is on the progressive side, yet regulations in Europe vary across member countries. For example, the European Court of Justice declared in 2015 that cryptocurrency exchanges are exempt from VAT.
All European countries adhere to the 2019 Financial Action Task Force requirements for anti-money laundering and safety. According to them, crypto sites must follow ‘know your customer’ and anti-money laundering regulations and share data with authorities.
Cryptocurrencies are not incorporated into the financial structure of the United States, mainly owing to Securities and Exchange Commission regulation and the suspension of crypto trading in 2020. While both the federal and state governments have addressed the issue, there has been little formal rulemaking.
Regulation varies from state to state. Wyoming, for example, approved legislation exempting cryptocurrency from property taxation, while New York enacted stringent laws that drove many crypto-related businesses out of the state.
While most Russians are crypto-friendly, the Russian government has yet to clarify what Bitcoin and cryptocurrencies are and appear to oppose them. However, Russian authorities accepted a measure on digital financial assets in July 2020, expected to be passed in early 2021. It legalizes bitcoin trading but prohibits the use of cryptocurrencies as a payment mechanism.
Regulation will allow businesses and cryptocurrencies to communicate without fear for the first time. It has the potential to usher in a new golden age of progress, the likes of which we have never seen before. Alternatively, it could have little effect, and things will continue as they are now, primarily unaffected.
In any case, we believe that wise, well-written, and transparent legislation can help cryptocurrencies grow and evolve into vital components of all of our lives.