United States senators have requested information from Silvergate Capital regarding the firm's association with FTX.
While Bitcoin was the original cryptocurrency to put blockchain on the map, we’ve seen countless projects emerge over the last decade. From fungible cryptocurrencies (where each token holds the same value as the next) to the ever-booming non-fungible token (NFT) market, the adoption rate of the innovative technology is explosive.
The global growth of cryptocurrency has skyrocketed, boasting a whopping 881% increase in adoption over the last year.
What is blockchain?
At the heart of it, a network on blockchain technology refers to a decentralised platform that makes use of a database shared across multiple computers (nodes). Instead of information resting on one centralised storage system, blockchain distributes the same information across the world at a peer-to-peer level; offering a completely transparent network that is secure from manipulation and hacking. It removes the need for a middleman (like a bank) and gives individuals the ability to control their own finances and transactions without relying on an intermediary.
Cryptocurrency and government regulation
The biggest use-case we’ve seen for blockchain application lies in cryptocurrency – but this has been met with resistance from governments and authorities with concerns of regulation. This is because with blockchain, although everything is transparent, it is also anonymous – leaving room for illicit behaviour like money-laundering and black market and silk road purchases. As Bitcoin and other cryptocurrencies have become more popular as a means for investment and cross-country transactions, there have been three different approaches from government authorities:
- Regulation with broad acceptance
- Regulation with restriction
- Blanket bans
The quick rise in attention adoption of cryptocurrency has put governments across the world under pressure to make decisions on how cryptocurrencies can be implemented in the country without risking the protection of citizens and their funds. While Bitcoin and the concept of cryptocurrencies are already a decade old, the market itself is still constantly shifting in price, regulation, and transaction volume.
The volatility of Bitcoin lends itself to a risky asset in investment, but it reduces the effective use-case for cryptocurrency to exist as a legal global tender as it stands. Other cryptocurrencies like stablecoins are designed to mitigate the volatility, but they still rely on fiat (or national) currencies to draw value from – offering a digital alternative to traditional cash but still suffering from relying on only country’s economic stability.
Countries where cryptocurrency is legal
Despite Bitcoin’s volatility, there are countries leading the charge to accept the cryptocurrency as either an alternative asset or a legal way of transacting.
As it stands, El Salvador stands as the only country to have accepted Bitcoin as a legal tender in the country. The law was implemented in June 2021 and was received mixed feelings from citizens in the country. A few months after the Bitcoin Law was passed, however, businesses have started increasing trading volume through Bitcoin.
Other countries with a positive stance towards Bitcoin and are looking at how the cryptocurrency can be regulated and implemented include:
The United States
While there is not a unified opinion on Bitcoin from the State, the United States is working on how to guide and regulate Bitcoin since just after its launch in 2013. Major businesses like Dish Network (DISH), Microsoft, Subway, and Overstock (OSTK) accept and welcome payment in Bitcoin. Additionally, Bitcoin has been accepted in the country’s derivatives markets. Currently, Bitcoin has been defined as an asset that is not a currency, but a money services business.
The Australian government considers Bitcoin as an asset class that can be used for capital gains tax purposes. Like the US , Australia does not consider Bitcoin as money nor as a foreign currency. As an asset for capital gains, Bitcoin offers a legal asset in the country.
The European Union
The European Union member states as a general treat Bitcoin as a digital currency that is considered a supply of services. The European European Court of Justice (ECJ) has ruled that trading cryptocurrencies are exempt from VAT in EU states. However, individual countries within the EU have taken their own regulation towards Bitcoin:
- Finland has given Bitcoin a financial service classification and the cryptocurrency is treated as a commodity and an investment asset.
- Belgium is similar to Finland, making Bitcoin VAT exempt and a commodity.
- Cyprus authorities have neither controlled nor regulated cryptocurrencies at the time of writing.
- Bulgaria has included Bitcoin under its existing tax laws, bringing the cryptocurrency into national regulation.
- In Germany, Bitcoin is seen as a legal investment asset but is taxed depending on the transaction, platform, gains, and users.