By Larry Wright
Introduction
Cryptocurrencies are an invention that has become known to humanity just at the turn of the 21st Century. Just like all new inventions, the people and the governments are taking their course to come to terms with the new creation.
Cryptocurrencies have the potential to make an important impact on the financial ecosystem and the economic dynamics as big as the internet. Therefore, the debate around cryptocurrency regulations has gained a lot of traction in recent years.
What is Cryptocurrency?
Cryptocurrencies are a form of digital money that works on a decentralized or independent network. The first cryptocurrency, named Bitcoin, was designed as an alternative to paper currency or legal tender.
However, as time passes, the use cases and the utility for different cryptocurrencies are also changing. Depending on their functions and origins, cryptocurrencies can be divided into tokens, crypto coins, stablecoins, NFTs, and even digital commodities.
Cryptocurrencies have popularized the idea of DeFi ecosystems. DeFi stands for decentralized finance, and it presents an idea where people can perform financial transactions independent of centralized banking systems.
However, there are a lot of reservations about the idea of DeFi networks, such that many blockchains are not completely standalone enterprises and are managed by tech companies or developers.
On the other hand, when cryptocurrency users experience any mishap in their operations or usage, they are unable to turn to any legal authority to file a formal complaint and resolve their issues.
Regulations Surrounding Cryptocurrencies
There are many reasons that many cryptocurrency proponents today endorse the idea of implementing regulations on the digital trading markets. The lack of cryptocurrency regulations offers both some benefits and limitations for the international cryptocurrency community.
For the cryptocurrency market to function effectively, the users must be able to protect their reserves and have the proper methods for the security of their products and services. However, on the other end of the spectrum, many cryptocurrency users see the intervention of centralized government structures as a threat to the independent DeFi ecosystem.
Advantages of Cryptocurrency Regulations
Here are some important advantages of cryptocurrency regulations that can bring more stability to the market and help drive more traffic into the crypto market:
Commercial Adoption
Before the government institutions and agencies had not acknowledged cryptocurrencies, most commercial enterprises stayed out of the DeFi system. There are several financial enterprises that not only refrained from investing in cryptocurrencies, but they also discouraged their consumers from indulging in cryptocurrency trading.
The main reason for this abstinence was based on the reason that there was always a strong possibility of government enterprises jumping into the cryptocurrency market and imposing an abrupt ban. Under such circumstances, consumers whose stakes are stuck in cryptocurrencies can suffer major losses.
However, as soon as some government agencies and central banks started to open up to the idea of cryptocurrencies and recognized those on a legal level, traditional financial enterprises were able to use them to diversify their portfolios.
At present, most financial enterprises only allow their accredited and high-risk appetite consumers to invest in cryptocurrencies based on their risk management evaluation of the market.
The situation for commercial adoption of cryptocurrencies is improving as lawmakers are studying the impact of cryptocurrencies in the world and updating the regulations around cryptocurrencies.
Legal Investigation
Cryptocurrencies and blockchains are mostly automated, and therefore they pose a very negligible percentage of error. However, in case of human mistakes or breach of contract, the consumers are unable to seek legal help from the court since cryptocurrencies are not recognized as a legal mode of investment.
On account of the unique nature of cryptocurrencies, the users can face issues when they are trying to make a case in a court of law, such as ownership claims.
The decentralized peer-to-peer networks do not require any legal documentation for user registration. Therefore, consumers can face issues to right a wrong if things go wrong; at the same time, they are also unable to hold the companies liable that are providing them with these cryptocurrency services as most blockchains claim to be decentralized networks.
Therefore, many cryptocurrency proponents have started to recognize the need for getting centralized regulations for the DeFi market so that they have more financial security when trading cryptocurrencies.
Lack of Financial Crimes
Many people have found themselves tangled in one cryptocurrency scam or the other. Take, for example, the infamous Squid Game token that was fashioned after the popular Netflix series.
However, DeFi did not have any affiliation with the writers, directors, or production of the series; many people around the world went on purchase their Squid tokens regardless. Eventually, the token rug pulled people and left them in heavy losses.
In the same fashion, many people are fooled by fake cryptocurrency projects in the name of social media influencers and unbalanced stablecoin projects.
Since DeFi companies intend to exist outside of the purview of the law, therefore financial regulators are unable to impose any type of check or balance on these companies. Therefore, cryptocurrency organizations have started to get registered by financial regulators in their respective operating regions.
At the same time, these organizations have also gone back to complying with regulatory requirements such as user authentication and regular financial audits to protect the rights of retail cryptocurrency investors.
Freedom from Scams
Many people adopted cryptocurrencies as a way to bypass the financial regulations imposed by the government in their regions. Since cryptocurrencies managed to remain outside of the legal purview for a long time, many people used them for illegal activities such as money laundering and tax evasion.
To this end, many financial regulators started to ban or blacklist cryptocurrency enterprises and practices.
However, banning cryptocurrencies is not a practical and correct solution to address the matter. To curb the increasing white-collar crimes in cryptocurrency markets, legal regulators started to recognize cryptocurrencies as a legitimate mode of investment and even added them to the taxonomy laws.
Accountability
Cryptocurrency organizations often claim that their blockchains and DEX projects are decentralized.
However, in most cases, these enterprises are only partially decentralized. Consumers who are using cryptocurrency or DeFi company services are unable to question them about any sudden policy changes or hold them accountable for a hack attack on account of technical errors.
Therefore, many cryptocurrency users have started to acknowledge the importance of cryptocurrency-related regulations to safeguard their interests against private companies.
Disadvantages of Cryptocurrency Regulations
Here are some of the most prominent disadvantages of the cryptocurrency regulations:
Taxation
One of the most frowned upon impacts of cryptocurrency regulations is the introduction of taxes on consumers. Before the presence of any cryptocurrency laws, the consumers were not accountable for listing their cryptocurrency reserves and capital gains declaration.
However, after the cryptocurrency laws were introduced, consumers did not have to pay any taxes on their revenues or profits generated from cryptocurrency trading.
However, now in many regions of the world, governments have imposed heavy taxes on cryptocurrency traders to keep discourage them from investing in DeFi and redirecting their revenues into the stock market and Forex markets.
Lack of Financial Independence
Centralized financial networks are harmful to consumers who are not agreeing with all the policies of their government. It can seem like all the policies of a state are necessary to keep the peace in the community.
However, there are also fascist regimes such as North Korea. On the other hand, some elements in the state can become overpowered and resort to harmful means of retaining their influence. Therefore, many people understand and appreciate the need for independent financial networks such as DeFi.
However, if DeFi enterprises will start to conform to regulatory guidelines provided by the government, it can take away the financial independence of the cryptocurrency investors.
Blockchain Utility
Decentralization is one of the biggest selling points for cryptocurrencies and blockchains. However, if these independent cryptocurrency enterprises will also become regulations compliant, it would take away the most wanted quality of cryptocurrencies.
Possibly, many people can lose interest in cryptocurrencies if they start to act just like any other centralized enterprise and have no financial freedom to offer anymore.
What Makes a Country Crypto Friendly?
Here are some important factors that cryptocurrency investors should look for when they want to assess if a country is crypto-friendly or not:
The government should recognize cryptocurrencies as legal and legitimate investment options.
Financial regulation agencies in the region should provide a detailed procedure for the registration of cryptocurrency organizations.
The taxes on capital gains generated from cryptocurrency investing should not be exorbitantly high for retail investors.
There should be a suitable legal definition to define the cryptocurrency proponents such as miners, brokers, investors, commercial users, etc.
Law enforcement organizations in the region should upgrade their operating procedures to be able to diagnose digital currency crimes and mishaps.
Top Crypto-friendly Countries in the World in 2022
Switzerland
Switzerland is home to the Zug, or cryptocurrency valley of the world. Several cryptocurrency startups, companies, and enterprises are birthed in the region. At the same time, there are also some regions where cryptocurrencies are recognized as legal tender.
However, in every state or canton of the country, there are different laws for cryptocurrency trading and commercial adoption. In 2008, Swiss banks became the first in the world to allow corporations to open crypto custodial accounts.
El Salvador
El Salvador is a developing country that has struggled with massive legal tender devaluation for many years. However, the newly elected president of El Salvador put the country on the world map by adopting Bitcoin as a legal tender in addition to USD in 2021.
Today, the smallest and the biggest businesses in the region are bound to accept Bitcoin as payment as per local laws. The country also issued a state-sanctioned digital wallet called Chivo and incentivized the adoption of Bitcoin by offering $30 Bitcoin for every new sign-up.
Furthermore, there are no taxes on Bitcoin trading or capital gains. At the same time, Bukele also has plans to plug some mega projects using Bitcoin, including a thermo-electric plant that can increase the utility of Bitcoin.
Germany
Germany is not only the leading country in the world in terms of economic contribution, but it is also the leading contributor to the European Union nations. The main reason that Germany is attributed as one of the most crypto-friendly countries in the world is that it is tax-free.
Cryptocurrency proponents on a commercial and retail scale who wish to take advantage of this opportunity want to be associated with the German territory and cryptocurrency services.
Portugal
Portugal is considered one of the top countries in the world to perform cryptocurrency trading and Bitcoin mining. Cryptocurrency investors who are not citizens of the region can also benefit from its tax freedom legislature. The only tax levied on cryptocurrencies on profits generated from crypto trading.
All crypto transactions are taxed free, and at the same time, the government of Portugal also companies in the region reimburse their employees in cryptocurrencies. At the same time, cryptocurrency investors have a wide variety of local platforms to sell and purchase cryptocurrencies.
The government has also launched Golden Visa Program to encourage more cryptocurrency traders to come to the region and gain citizenship through crypto investing.
Malta
Malta is a European and Mediterranean country that has some amazing perks for cryptocurrency investors. Malta is considered home to several blockchains and also a Binance crypto exchange. Malta’s government has been on a mission to become one of the top cryptocurrency destinations in the world since 2018.
Therefore, several major cryptocurrency organizations have selected Malta as their HQs. At the same time, the regulatory infrastructure for commercial cryptocurrency organizations and retail investors is seen as an ideal option. Additionally, the crypto taxation laws in Malta are also very relaxed.
Belarus
Belarus is often present in the news on account of its geographical location. This country is the connecting link between Russia and Europe. In 2017, Belarus President Alexander Lukashenko granted legal status to cryptocurrencies.
Furthermore, the state also made cryptocurrency trading and transactions tax-free until 2023. Cryptocurrency investments and mining operations are some of the most popular operations in the region.
At the same time, the government has also granted a tax exemption to the people in terms of cryptocurrency capital gains.
Bermuda
Bermuda Stock Exchange listed the Hashdex NASDAQ crypto ETF, which is often regarded as one of the top cryptocurrency exchange-traded funds in the world.
In 2018, the Bermuda government passed the Digital Asset Business Act that laid the foundation for the cryptocurrency-related legislature, defining the legal requirements for cryptocurrency buying, selling, mining, and other functions as part of the legal stratosphere in the region.
Additionally, Bermuda is tax-free for cryptocurrency investors and does not charge any taxes on crypto capital gains or trading. Therefore, some of the biggest cryptocurrency enterprises in the world are also present in Bermuda.
Cyprus
Cyprus is another Mediterranean region that entered into a cryptocurrency declaration alongside 7 other EU nations in 2018. The Central Bank of Cyprus does not regulate cryptocurrencies but it has issued regulatory guidelines for investors to minimize risks and prevent fraudulent crypto scams.
The Securities and Exchange Commission of Cyprus has also created the Innovation Hub to promote blockchain-related technologies and ensure the open sharing of knowledge. The corporate taxes for cryptocurrency organizations operating in the region are very low.
At the same time, the process for registration and approval of cryptocurrency enterprise issuance is also not straightforward.
Netherlands
The Caribbean nation, also informally known as Holland, is known for its association with the Dutch National Bank, which also borrows its cryptocurrency regulations in the region. The nation has also set up a financial Action Task Force FATF to prevent the implementation of any burdensome legislative guidelines in the region that oppose cryptocurrency adoption and businesses.
There are also cryptocurrency and blockchain research centres in the region that invite developers from all parts of the world to participate and share their latest innovations.
Conclusion
Cryptocurrency investors are currently facing a harsh time in terms of the ongoing crypto winter. At the same time, the notion that cryptocurrency and blockchain are going to face a massive backlash from the government is often the biggest point of worry for most cryptocurrency traders.
Therefore, looking at the list of developed nations in the world highly invested in cryptocurrencies indicates that cryptocurrencies are here to stay and have a strong potential to transform the existing financial infrastructure of the world.