Cryptocurrencies are decentralized, self-regulated digital currencies whose price is determined by sheer demand and supply.
In other words, no central authority proscribes or enforces cryptocurrency regulatory policies. Or at least, that's the idea. However, the rapid popularization of cryptocurrencies leads governments to issue national regulations that cope with the financial novelty. Only look at El Salvador, where it has recently been announced the adoption of bitcoin as a legal tender, anticipating a surge of policy-making aimed to integrate cryptocurrencies in the mainstream financial system.
This means, however, that the gradual adoption of cryptocurrencies will automatically lead to some institutionalization, where governments will impose regulations on cryptocurrencies that are ultimately misaligned with the very nature of cryptocurrency. For example, the US government is demanding that cryptocurrency companies share the private information of crypto stakeholders, which violates the anonymity that cryptocurrencies — and blockchain technology, in general — advocate for.
New Regulations Set on Cryptocurrencies
To this end, companies that buy, sell, hold, or mine cryptocurrencies will have to implement necessary procedural changes depending on the emerging regulations. Below are the latest policies set on the use of cryptocurrencies.
Cryptocurrency Mining Regulations
The longest-standing criticism of cryptocurrency is the mining process's hefty energy consumption on the proof-of-work blockchains. However, research has proven that bitcoin mining consumes only about 0.5% of the amount of energy produced globally. — far from popular comparisons stating that it consumes about the same amount of energy as an entire country. So what's the real problem? Companies in Asia, for instance, use coal-powered electricity to mine cryptocurrencies. Thus, switching to clean energy sources, such as those in the US, would reduce the environmental impact and position digital currencies as the real holy grail for change-making.
Cryptocurrency Tax Regulations
In countries like the US, the IRS is getting serious about establishing a new taxation framework on cryptocurrency transactions. Last year, the IRS added a new question in Form 1040, "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?" This implies that cryptocurrency traders will have to pay capital gains tax anytime soon.
Companies or individuals who engage in mining and staking in cryptocurrency will be obliged to pay the ordinary income tax. Moreover, companies mining cryptocurrencies will also incur capital gains tax if they trade the cryptocurrencies obtained from their mining activities.
Cryptocurrency Trading Regulations
The Securities and Exchange Commission (SEC) requires platforms for trading digital assets to register with them in the USA. But to trade digital assets with the approval of the SEC, platforms must meet the security standards set by the commission, which, in principle, are meant to regulate the trading of traditional assets.
This not only means that assets need to follow regulations that are not related to their nature but also that traders and investors are requested to disclose their identities one way or another, overriding one of the primal values of blockchain — anonymity.
In reality, as opposed to governmental commissions like the SEC, access to cryptocurrency does not require registering with any government cryptocurrency regulatory agency. Traders and investors only need to register with approved cryptocurrency trading platforms.
How Companies Can Operate Within the Law
Considering the regulations stated above, how can we, individuals and companies, operate within the law? What legal measures do companies need to adapt to protect their interests and that of their investors? Here we lay out some viable solutions.
Keep an eye out for new cryptocurrency regulations. With the rapid evolution of cryptocurrencies, laws will undoubtedly change and adapt quickly to the current landscape. Companies must know how laws affect their performance. Professionals support their team — lawyers and tax experts, to mention a few — who can understand and implement such regulations.
Bear in mind that laws are issued on a national level. Therefore transactions will abide by different legislations. Stay tuned to regulations set worldwide.
Register With the Right Authorities
Registering with the right government agency or commission is a step that platforms trading any commodity type must follow. Countries like the US have stringent regulations for cryptocurrency exchanges. Consult with experts about the agency you should register with.
Since the market is still largely unregulated and volatile, companies using cryptocurrencies need to find ways to protect investors' interest, hence the urge to send transactions with trading companies that are GDPR and CCPA compliant. Compliance with the GDPR and CCPA regulations ensures that investors' rights as cryptocurrency stakeholders are not violated by providing the privacy of their information. Crypto exchange firms can also use blockchain data management to secure the information of stakeholders.
Want to ensure customer data protection as well? Get AIKON's GDPR and CCPA compliant solutions — ORE ID, a secure login tool for blockchain identity management platform, and ORE Vault, multisig cryptocurrency wallet — that leverage blockchain to secure data of enterprise users by enabling them access to DeFi via existing email, SMS and social logins.
Advocate for Better Cryptocurrency Custody Regulations
Companies affecting transactions in cryptocurrencies need to take a step forward and demand regulations that fit the context of digitalization and decentralization. The Commodities Futures Trading Commission (CFTC) has recognized bitcoin and ethereum as commodities, allowing them — and other virtual and cryptocurrency derivatives — to be traded publicly on regulated exchanges. Working with cryptocurrency-friendly government agencies like the CFTC makes it easier to advocate for better cryptocurrency regulations.
Hopefully, with more companies adopting cryptocurrencies, policy-makers will understand that digital currencies are legal tenders and not mere substitutes for regulated financial means. But there is still a long way ahead of us.