The Future of Cryptocurrencies as Legal Tender

By TJEF Editor Kriti Kanchan Sinha

Source: www.earnlite.com

Citizens of Venezuela, both the rich and the poor alike, are increasingly turning to the world of cryptocurrency, specifically bitcoins, to salvage the value of their savings with the Bolivar, their national currency, becoming worthless as a result of massive currency inflation. Similar is the case with Zimbabwe where citizens are exchanging money in form of bitcoins as trust in their own institutions fall and hyperinflation has wiped out the Zimbabwean dollar completely. Reading these, you would probably not be wrong in feeling that cryptocurrency seems to be the go-to currency for countries in political or economic distress.

An Introduction to Cryptocurrency

So, what exactly is a cryptocurrency? Investopedia defines it as a digital or virtual currency that uses cryptography for security. This feature of cryptography makes it extremely difficult to counterfeit as it is pure mathematics and logic and the human factor is negligible. The most important aspect of cryptocurrency that makes it so alluring to many is the fact it is independent of central banks and governments. Cryptocurrency in itself has no intrinsic value which is why it has been denounced by some including Axel Weber, Chairman of the Swiss bank UBS AG, as nothing but a speculative bubble. Further, its supply is not determined by any central bank and is limited in quantity – it is one of the reasons for the price volatility of cryptocurrencies. Bitcoin is the most famous of all but there are multiple others including Ethereum, Litecoin, Tron etc. The below figure provides us with the list of top five cryptocurrencies in terms of their market capitalization.

Source: www.coinranking.com

In this article, let us take a look at the usage of cryptocurrency and its legality in different countries around the world.

How is cryptocurrency being used?

Around the world, cryptocurrency is being traded and speculated. But apart from that, are there any other practical applications of this virtual currency? As we saw in the opening paragraph, world’s first and most popular cryptocurrency – Bitcoin is being used in economically/politically unstable countries like Venezuela and Zimbabwe to purchase necessary services and invest their savings as a means of preserving their value. Despite cryptocurrencies not being recognized as legal tender in most countries and a lack of relevant payment gateways, there are multiple organizations that recognize and accept cryptocurrencies as payment for their services. Richard Branson accepts payments for Virgin Galactic in bitcoins! Cheapair.com was the first online travel agency to start accepting payments in bitcoin. Real estate website MyCOINrealty.com allows you to purchase homes with bitcoin. There are also traders who prefer transactions in bitcoins rather than legal tender because the unregulated nature of cryptocurrency and blockchain technology drastically reduces the processing costs. On the flip side, cryptocurrency, especially Monero which provides increased user privacy, is also widely used in the dark web markets for ransom payments, illegal drugs and other illegal paraphernalia, money laundering, cyber-attacks etc.

This leads us to the question of the legality of usage of cryptocurrency which we will explore in the following sections.

Legality of usage of cryptocurrency

First up are thecountries whose governments have taken notable measures to promote cryptocurrencies and give them an equal status. These countries include USA, UK, Australia, Canada, Germany, Norway, Sweden, Spain, Japan, South Korea and Chile. The United States has the largest number of Bitcoin users and trading volumes in the world with different states having differing views on favouring cryptocurrencies. The Australian government has legalized bitcoin and it can be used as money. According to Germany’s financial regulator BaFin, bitcoins are “units of value” and, therefore, can be classed as financial instruments but not as foreign currency. UK regards cryptocurrencies as private money and VAT is applicable while the same is exempt from VAT in Spain. The Chilean government has funded the country’s first bitcoin exchange and her citizens can exchange pesos for bitcoins. Bitcoin is a legal method of payment in Japan. The governments of Japan & Sweden have also announced their own versions of digital currency – J-coin and E-krona respectively.

The second category includes those countries that are making progress on regulations but still have some barriers. South Africa, Ireland, Russia, Norway and Vietnam are the ones in this group. Russian President Vlamidir Putin has announced his support for cryptocurrencies and has directed the lawmakers to introduce laws in place along with introducing a digital ruble called “CryptoRuble”. South Africa intends to maintain a balanced approach to cryptocurrency regulations whilst keeping in mind the technological innovations and consumer protection, as mentioned by their Finance Minister Gigaba. While in Norway, cryptocurrencies are taxed as per capita gains laws and its largest internet-based bank, Skandiabanken has given its customers the option to link their bitcoin accounts with the bank. Norway’s Central Bank – Norges Bank is also in early stages of researching the issuance of digital currency.

Nations like Mexico, Colombia, Argentina, Zimbabwe, Kenya, Belgium, France, India, Pakistan, Iran, Malaysia, Indonesia, New Zealand and Portugal belong to the third category where governments do not have any legal regulatory framework in place yet regarding these virtual currencies nor have they interfered in the peer-to-peer trading done by the citizens. India’s Finance Minister, Arun Jaitley has clarified that cryptocurrencies are not legal and has warned investors to refrain from investing in such “Ponzi Schemes”. France’s Central Bank has also issued warnings to the investors on similar lines. Norman Mataruka, Director of the Reserve Bank of Zimbabwe, has said that “Bitcoin is not actually legal” for use within the country and they are looking at drawing regulatory frameworks in the future.

The last category comprises of such countries whose governments have actively banned cryptocurrencies and threatened legal action against individual(s) using them. These include China, Bangladesh, Nigeria, Iceland, Bolivia, Venezuela and Ecuador. The Chinese government has ordered a shutdown of the bitcoin and other cryptocurrencies exchanges. Speculation has it that this has mostly to do with the perceived threat of cryptocurrencies to renminbi and the People’s Bank of China has announced that it would be issuing a digital version of the renminbi. Similar is the case with Venezuela where the government has actively cracked down on citizens using cryptocurrencies like Bitcoin but are launching their own state-backed digital currency, Petro. Bolivia’s Central Bank had banned any currency or coins not issued or regulated by the government, including bitcoin and a list of other cryptocurrencies way back in 2013 making it one of the first countries in the world to do so.

So, we can conclude that legality of cryptocurrencies encompasses a wide spectrum, right from acceptance as legal tender in countries like Japan and Australia to complete prohibition in countries like China, Bolivia and Venezuela. We have countries that have banned cryptocurrencies like Bitcoin but are trying to come up with their state-back versions while we also have such nations that not only have legalized bitcoins but in addition, are also coming up with their own digital currencies. The irony here is the fact that people embraced cryptocurrencies because they were not regulated by any central bank or government and there was a certain independence and privacy in its usage! Times are changing and as countries start adopting cryptocurrencies in at least some form or maybe their own versions, regulatory frameworks will be put in place to clarify the status of cryptocurrencies in some and to legalize in others.

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