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Allow can not be banned: the tiger in the bathroom or how to regulate Bitcoin in 2018

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7 years ago

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2017 has become a real “Bachelor Party in Vegas” for cryptocurrency investors. When morning came, the industry was confronted with all the obvious consequences: headache, hangover thirst, strangers [fraudsters and cybercriminals] in bed and Michael Tyson's tiger in the bathroom [regulators].

For a while, no one believed that there could really be a tiger in the bathroom, but this fact soon became undeniable. It is obvious that hundreds of billions have spun in the industry, the number of cryptocurrency millionaires has begun to grow exponentially, and regulators in general, and tax authorities in particular, rushed to snatch their piece of cake.

Given that the launch of a bureaucratic machine takes time, the officials were late for the party, but they caught everyone in a state of extreme vulnerability. In 2018, the industry had to face irreversible consequences, but not everyone was ready to take responsibility.

Last December, and literally the whole world remembers this, the price of Bitcoin reached $ 20,000, after which the market rushed to hell. Steep peak of cryptocurrency continues to this day, and not all survived.

Probably, investors of ICO-startups were the first to be alarmed. They saw that their money was rapidly decreasing, despite the efforts of honest teams [to mention unscrupulous campaigns would be superfluous]. At some point, all these pseudo-investors, who made decisions based on the number of pages in white paper or the complexity of terminology, decided to blame the developers for selling unregistered securities. And those ICOs who have been unlucky to deal with American citizens are faced with the omnipresent US Securities and Exchange Commission (SEC).

USA

Despite the fact that the idea of decentralization lies at the heart of Bitcoin, it would be extremely rash to deny the fact that the US jurisdiction is one of the most important for the development of a cryptocurrency business. Yes, Bitcoin is indeed a censorship-resistant peer-to-peer network, but the largest providers of infrastructure solutions for its users are based there.

Here and the first unicorn of the industry Coinbase, and the newly-minted investment establishment in the face of the Digital Currency Group (DCG), the Winklevoss brothers, the custodian BitGo, the fintech giant Ripple, the Ethereum elite in the face of the startup ConsenSys and other prominent representatives of the sphere. All of them are subject to current legislation, pay taxes and try to contribute to the development of comfortable regulation. Thus, the importance of US jurisdiction is rather difficult to overestimate.

In 2018, the ubiquitous SEC was extremely active in terms of cryptocurrency and ICO startups, which in the first half of the year achieved record fees.

So, in early spring, it became known about the large-scale proceedings of the department in relation to the ICO-industry, in which dozens of subpoenas were distributed. Then the SEC began to seriously understand the structure of tokensails in order to find out whether the standards of initial public offerings (IPO) apply to them.

It is noteworthy that just a month before during the public hearings in the US Congress, the head of the SEC, Jay Clayton, said that all the ICO of which he was aware had offered unregistered shares. This was the first wake-up call for issuers of countless coins, as the regulator of the largest market finally showed a grin.

At some point, Ethereum, the second most capitalized cryptocurrency, fell under the FUD around the SEC. The former head of the US Commodity Futures Trading Commission (CFTC), Gary Gensler, suggested that ICO Ethereum, which took place back in 2014, could violate US laws. Even this assumption drove all Ethereum holders, including simple household miners, to horror, because if the worst scenario were implemented, the implications for the price of the coin would be catastrophic. However, the situation soon subsided, and the SEC clarified that they did not consider Ethereum, or especially Bitcoin, as a security.

According to Gordon Einstein, a partner at the law firm Crypto Law Partners, the nature of tokens is variable. Thus, to assert that the token, which was a security at issue, remains so forever — incorrectly.

Probably, the loudest decisions arrived at the end of the year, when AirFox and Paragon startups agreed to register tokens as securities, pay fines to SEC, and also reimburse part of their investments to US investors without unnecessary legal battles. Thus, a precedent has emerged in which tokens issuers who have been collecting investments in cryptocurrency are forced to return funds in dollar terms against the background of a severe market drawdown. After such a decision, many ICO startups were at risk.

Quite a resounding decision was also the accusations against the operator of the decentralized exchange of EtherDelta Zachary Coburn. The SEC said that securities [ERC-20 tokens] were traded on the stock exchange, so it had to be registered as a national stock exchange. Coburn also humbly agreed to pay the fine, rather than fight with the Office in court. So, you can quite rightly say that in 2018, the SEC quite successfully bit off its piece of cake, sweeping ice on the ICO market.

The Office has also repeatedly postponed the decision on Bitcoin-ETF, despite the active involvement of interested companies, including the Chicago Option Exchange (CBOE), in the work on all sorts of nuances. Despite the fact that the significance of this event is often overestimated, the SEC is in the hands of an excellent lever of influence not only on specific startups, but also on the market as a whole. It is assumed that the final result of the community will announce until February 27.

However, while the SEC is a nightmare ICO, cryptocurrency entrepreneurs are sent to jurisdictions with softer regulation of the industry. Back in April, BlockchainJournal prepared a special project “ Blockchain and Law ”, in which he analyzed in detail all the legal nuances of working in such a difficult field in different countries.

10 European countries for successful ICO https://t.co/wPDPf9LGCH #ICO # cryptocurrency # regulation pic.twitter.com/kDJUYnzzFU

– BlockchainJournal (@BlockchainJournal) November 2, 2018

Malta and STO

It is Malta that comes first to mind when thinking about the soft regulation of the cryptocurrency industry. In 2018, three laws were passed here at once: “The Law on Digital Innovations”, “Act on Innovative Technologies, Agreements and Services” and “Act on Virtual Financial Assets”.

After that, Asian giants like Binance , OKEx and ZB.com moved to the island. At the same time, both Binance and OKEx, in partnership with the Malta Stock Exchange, announced the launch of a platform for security tokens produced during the so-called offers of security tokens or simply regulated ICOs.

Malta sheltered the Polish BitBay, and also attracted the attention of the project Waves and the American Bittrex .

It can be noted that the leading in terms of trading volume, the Binance platform also appeared in the jurisdictions of Liechtenstein and Singapore , which speaks in their favor as blockchain hubs. And, despite the tightening of regulation almost worldwide, the head of Binance Changpeng Zhao promised to open from 5 to 10 exchanges supporting Fiat throughout the year to cover all continents.

“All the money is still in Fiat … We have to open this gateway,” he added.

Russia

Unfortunately, in 2018 in Russia at the legislative level it was not possible to come to some kind of consensus, despite the approval in the first reading of the draft law “On digital financial assets” developed by the Ministry of Finance of the Russian Federation.

The document equated cryptocurrency to property in digital form, which cannot be legal tender on the territory of Russia, and also established a procedure for conducting transactions with it, including through a smart contract, defined as an electronic contract.

Then it became known that the bills “On digital financial assets”, “On crowdfunding” and “On introducing changes to the Civil Code of the Russian Federation” will generally remove the concepts of “digital money” and “digital currency”. In addition, “Bitcoin” and “mining” no longer appear in the text of the bill, since, according to the chairman of the State Duma Committee on the Financial Market, Anatoly Aksakov, cryptocurrency is waiting for a sad end because of their “insecurity”.

Probably, the State Duma of the Russian Federation will return to the consideration of the draft law “On digital financial assets” in the spring of this year, but so far the chances for any changes in the text of the document remain miserable. By the end of the year, BlockchainJournal turned to leading experts to find out how competently the deputies drafted bills and what possible consequences they could have for the country's economy.

Also, the situation around crypto-ruble remains unclear, as contradictory statements from officials of various ranks continue to sound, but President Vladimir Putin said this summer that Russia, by definition, cannot have its own cryptocurrency.

Belarus

If you look at what happened in other countries of the former Soviet Union, in terms of regulation, the community was pleasantly surprised by Belarus, where President Alexander Lukashenko signed the decree “On the Development of the Digital Economy”.

This document officially allowed the residents of the High-Tech Park (HTP) to buy, sell and exchange cryptocurrency, operate as a crypto platform operator or exchange office operator and work in other areas in the blockchain and cryptocurrency technologies.

This summer, BlockchainJournal was able to talk with representatives of the HTP about the impact of the decree on the country's economy and the free development of the cryptocurrency industry in the country.

Belarusian HTP: how blockchain and cryptostates operate after the adoption of a resonant decree

By the end of the year, the HTP Administration developed the rules for regulating the cryptoindustry in the country, coordinating them with the National Bank and FATF standards.

According to the new requirements, cryptoplatform operators must conduct mandatory customer identification (KYC) in order to comply with AML / CFT rules and provide reports on funds in each customer’s accounts. The authorized capital of cryptocurrency platforms was set at 2 million Belarusian rubles, and for ICO operators – 500 thousand.

Europe

Last year, the European Union adopted the General Data Protection Regulations (GDPR), which strengthened and unified the protection of personal data of all persons in the EU, which created a number of obstacles to the implementation of the blockchain technology, which suggests that the data cannot be changed or same to remove.

In an exclusive material for BlockchainJournal, former head of Blockchain Practice Juscutum JS Nestor Dubnevich and junior lawyer of TMT Practice Vladislav Nekrutenko understood the nuances of the new European legislation.

At the same time, the European Parliament approved a package of measures to combat money laundering in the European Union countries, including strengthening control over Bitcoin and other virtual currencies. To prevent anonymity, the exchange platform cryptocurrency, virtual wallets and banking institutions are required to exercise customer control, including customer verification requirements.

Meanwhile, the leading EU member states, France and Germany, also distinguished themselves by a number of interesting decisions.

Thus, the former deputy chairman of the Bank of France, Jean-Pierre Landau, led the working group on regulation of cryptocurrency. Her responsibilities included countering money laundering, tax evasion and the creation of criminal schemes based on digital assets. In addition, after a brief debate in the French parliament, they refused to soften the strict tax regime for cryptocurrency holders.

This spring, the community was pleasantly surprised by the German authorities, who did not impose value-added tax on purchases for cryptocurrency, which brought Bitcoin closer to the definition of a means of payment, not a product.

We add that the Federal Ministry of Finance also refused to regulate mining. According to representatives of the ministry, the mining of new Bitcoins by miners does not constitute payment for their work, since in this case it is impossible to determine the final consumer.

In 2018, cryptocurrencies reached the G20 meeting. In the final declaration, the countries participating in the summit noted the need to regulate cryptocurrency and the creation of a unified tax system for digital assets.

China

Chinese regulators grabbed the cryptocurrency in a stranglehold in 2017. This trend has not changed in 2018. In particular, the country's central bank discovered that ICOs continue to flourish in the form of covert eirdropes, and made them their next target.

The PRC Cyber Security Directorate (CAC), the country's chief Internet censor, also presented a draft law on information blockchain services management, which provides for tougher regulation of service providers related to distributed registry technology.

Despite such an aggressive attitude towards the industry, in 2018 there were several interesting court decisions. Thus, an Internet court in Hangzhou China ruled that evidence stored using the blockchain technology can be used as evidence in court proceedings. This was soon confirmed by the Supreme People’s Court of China.

Note that as early as last January, the Beijing District Court recognized the right of citizens to freely trade Bitcoin at their own risk, and in October, the South China branch of the China International Economic and Trade Arbitration Commission in Shenzhen ruled that China’s laws do not prohibit owning Bitcoins, but residents have the right to send / receive bitcoins.

Japan and South Korea

Traditionally important jurisdictions for bitcoin and the entire industry, Japan and South Korea in 2018 were not idle. The decisions of the authorities in these jurisdictions were strongly influenced by hacking of several crypto-burgers : Coincheck , Zaif , Coinrail and Bithumb .

For example, in Japan, anonymous cryptocurrencies were officially banned , since the hackers who hacked Coincheck used Monero to trap money trails. The Financial Services Agency (FSA) then pointed out the need to identify preventive measures in the context of burglary and promised to tighten regulation. As a result, by the end of December, the ministry published unified rules that all cryptocurrency service providers must follow.

In South Korea, meanwhile, anonymous crypto-trading was banned , obliging every trader to identify himself through a bank account. Then the cabinet of ministers excluded companies related to the sale of digital assets from the category of venture business.

After the Bithumb incident, the authorities announced plans to accelerate the implementation of the regulatory framework for the industry and impose a ban on cryptocurrency exchanges without complying with the security standards that apply to financial institutions.

What's next?

The cryptocurrency industry has been going through a teenage period over the past few years. However, the bureaucratic machine is gaining speed and time is coming to take responsibility. Considering that the G20 drew attention to the need for regulation, it is hoped that a reasonable and balanced approach awaits us, but at the same time remain ready for more unfavorable scenarios.

Bitcoin is based on the concept of financial freedom for everyone, and this is not at all what the current system offers to people. Therefore: regulation is more aimed at curbing the distributed potential or distorting the idea, so we have a tough battle with the empire ahead. However, for the first time in history we are armed.

Nick schteringard

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