Blockchain technology and related cryptocurrencies (virtual money, such as Bitcoin) are developing rapidly and are being used on an increasing scale. The use of blockchain technology offers all kinds of opportunities. However, there are also risks involved. Currently, cryptocurrencies are not subject to regular financial supervision in some countries. Also, cryptocurrency prices fluctuate enormously, with associated volatility risks and other uncertainties for investors. Governments and financial regulators grapple with the question of whether regulation is necessary and, if so, what it should look like.
Although governments are facing the same technology, they deal with it in different ways. In this contribution, we examine how different countries approach the regulation of blockchain technology. We juxtapose the approaches of Japan, the USA, Germany, Switzerland, Estonia, and Singapore for their cryptocurrency regulations. This comparison provides further insight into the possibilities for regulation and to what extent one can learn from the approaches in different countries.
In Japan, cryptocurrency can be officially used as a payment method. Cryptocurrencies are referred to as “crypto assets” in Japan. The implementation of auditing standards for cryptocurrency exchange is currently in progress. The Ministry of Economy in Japan has a framework for analyzing blockchain startups.
Banks that work with cryptocurrencies: Bank of Yokohama, SBI Sumishin Net Bank, and Bank of Japan
Taxation: Crypto assets are taxed at a high rate of 55% in Japan.
*Japan intends to tighten its cryptocurrency laws by enacting new rules by the Financial Action Task Force on Money Laundering (FATF). According to the Financial Services Agency (FSA), this will help fight money laundering in Japan. The FSA said the FATF rule would be in place by April 2022. The ruling requires all virtual asset service providers to exchange transaction data between senders and recipients of crypto assets.
The USA has a complicated system with three types of crypto statuses -namely, alternative transaction method, asset, and trade commodity. This country approached its cryptocurrency regulations from the side of securities and mining.
Banks that work with cryptocurrencies: Ally Bank, USAA, Simple Bank, and Goldman Sachs
Taxation: Tax budgeting has its own set of programs, such as an income tax of 15-35% or full tax exemption based on the scope of usage.
*While Bitcoin is legal in the United States, some banks are not so kind to the idea of cryptocurrency; they might question or even stop deposits made on crypto websites and exchanges. While most banks allow deposits, it is a good idea to check whether they allow deposits on the exchange of your choice. Cryptocurrency, such as Bitcoin, can be used to pay the salaries of government employees and tax people in Miami.
Cryptocurrencies are now legally recognized as financial assets in Germany, by which any monetary value is denoted in digital form. The legal requirements of the legislation are near completion.
Banks that work with cryptocurrencies: Financial institutions were told to stay away from cryptocurrency transactions unless all points are settled. Solarisbank and Sparkasse are among some of the German banks that support digital currencies.
Taxation: Generally, only business transactions, including the transaction of coins within a limited timeframe, are charged (till 12 months). A 14-45% income tax is applied, and some other taxes can be imposed too.
Switzerland pursued cryptocurrency legal enforcement from the perspective of blockchain. Instead of stating regulatory norms for cryptocurrency, Swiss authorities changed their legislation. In 2021, the most progressive legislative structure was developed, enabling the authentication of visual art using NFT and Blockchain technology.
Banks that work with cryptocurrencies: SEBA based in Zug, Switzerland’s Crypto Valley, took the initiative into cryptocurrency. Other similar banks are Dukaskopy and Swissquote in Switzerland.
Taxation: Virtual properties are liable to a 0.3-0.5 percent property tax and are called a “Net” asset, so the price gain is not taxable. Mining, for example, is a commercial activity that is taxed.
On a global scale Estonia, a member country of the European Union, is highly welcoming in terms of blockchain businesses. In Estonia, crypto can be used as an alternative payment method.
Estonia is not only a leader in the e-Residency program but also a modern country that enables everyone to start and operate an entirely digital European business. The whole virtual infrastructure works on blockchain technology known as X-Road, and the government has also proposed launching a nationwide cryptocurrency, the Estcoin. However, Estonia was required to reconsider its proposal after facing strong opposition from the majority of Europe.
Banks that handle cryptocurrencies: Mercuryo (platform, not state-regulated).
Taxation: Crypto is considered to be property in Estonia. Therefore, according to the legislation in effect, the profit received from trading digital currencies is subject to income tax. If digital currency is purchased or sold similar to securities or other currencies, VAT is not applicable.
The Singapore Monetary Authority (MAS) announced a $125 million plan for banking firms and fintech companies to boost long-term features in 2020. During the first 6 months, a portion of the plan enabled crypto entrepreneurs to work with virtual currencies without requiring any licenses.
Cryptocurrency is still a vague field in terms of safety. Therefore, legal rules for dealing with virtual currencies are being formed. As a result, locals in Singapore are prohibited from doing trade with them, and US users have little market access.
Banks that work with cryptocurrencies: DBS (the largest bank in Southeast Asia). The bank’s crypto trading services have been live since January 2021.
Taxation: Taxing scales are varied. When trading Bitcoin for products or services, there is a tax-free barter scheme in place. The rate of tax on revenue received from the selling of a commodity is 7%. In economic practices, the regulatory system is very complex. Multiple taxes, payment taxes, dividend taxation, and profits are all covered by the law.
*Singapore’s DBS Bank, owned by the DBS Group Holding, announced the launch of its own cryptocurrency exchange at the end of last year. Institutional clients and accredited investors will have access to it. The DBS Digital Exchange platform supports Japanese Yen, Singaporean, US, and Hong Kong dollars in exchange for Bitcoin, Ethereum, Bitcoin Cash, and XRP.