Bitcoin Regulation

By Othman Darwish

Since its invention, Bitcoin challenged regulators all over the world, different regulatory options and actions taken by jurisdictions, such as public awareness/warnings, research papers and case studies, regulations for specific digital currency stockholder (e.g. exchanges regulations ), others regulatory trying to adapt existing regulations and interpret it in way that fit digital currencies nature and properties , some regulatory  went extremely and  found  Bitcoin a real threat to their nation currency and capital control , thus prohibit or ban it . Bitcoin facing different regulatory concerns on different levels, capital and currency control is main concerns for some countries (e.g. Chain and Russia), other jurisdictions pay more attention on other aspects, such as consumer protection, taxes evasion, and AML/CTF activates (e.g. USA, UK, Australia).

Although existing regulations already in place to protect investors/consumers, prevent fraud and ensure illicit funds does not get laundered, Regulators should reach a consensus when regulating digital currency like Bitcoin, for example, U.S Treasury Department FinCEN issued regulations on March 2013 addressing digital currency like Bitcoin as convertible currency “either has an equivalent value in real currency, or acts as a substitute for real currency”. According to FinCEN, Bitcoin exchanges are considered as Money Service Business (MSB), FinCEN issued “guidelines” regarding Persons Administering, Exchanging, or Using Virtual Currencies: “In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.” As a “financial institution”  MSBs are required to comply with Bank Secrecy Act laws and regulations, including AML (Anti-Money Laundering) requirements. They also need to comply with KYC (Know Your Customer) rules. From another hand, U.S Tax Authority IRS classified digital currency as tradable property to serve the purpose of federal taxation, In Nov 2016 IRS sought information from Coinbase on a group of “John Doe” bitcoin users that allegedly avoided or failed to pay taxes on cryptocurrency transactions. Clarity and unambiguity in legal terminology is essential, different and sometimes conflicting legal classifications for digital currency is a major barrier for this newly innovated technology and lead to legal and regulatory implications.

As newly innovations are continuing process, and the industries/businesses continually evolving, law maker and regulators are also needed to keep creating rules that reflect the specific situation of the digital currency, creating more “relaxed” regulations framework to understand this new technology is important ,for example in UK Financial Conduct Authority’s (FCA) created the concept of sandbox, where FinTech businesses, working collaboratively with regulators, have appropriate “space to breathe” in developing and testing innovative solutions without fear of enforcement action and regulatory fines . Globally collaborated dedicated team should be formed from different regulatory bodies and regimes across domestic and international jurisdictions. 

Regulatory concerns about removing conflict between market completion and efficiency, protecting consumers and investors, governments have the powerful imperative to fight money laundering, terrorist funding, fraud, and corruption. Digital currency innovators need to keep the needs of society and consumers in mind, and businesses need to ensure legal compliance to protect their community and ensure trust and safety.