Cryptocurrency Legislation : a critical review

Abstract

Cryptocurrencies can be described as digital currencies or cash systems which operate independently of a central authority, facilitated by encryption techniques which are used to regulate the generation of units of currency and verify financial transactions. Considered as a global phenomenon of the 21st century, they are gaining ever-increasing attention especially from banks and governments. The legal challenges brought forth by the nature and characteristics of cryptocurrencies have led to various legal debates. These decentralised currency systems operate over the Internet, independently of any banking system, as they are not legal tender issued by the government and therefore this gives rise to various potential illegal activities such as fraud and money laundering. This led governments world-wide to start planning and creating some forms of regulation and legislation for this virtual currency to limit abuse and to control this activity, which usually bypasses regulated banks, financial firms, and exchange rates. This research contributes significant information to an area of the law which is perhaps still lacking and debatable. Through a critical review of current local and international forms of cryptocurrency legislation, this paper seeks to shed light on the ambiguity surrounding cryptocurrencies and their regulation, by identifying the main legal challenges brought forward by this phenomenon and analysing the approach taken by various jurisdictions and policy makers throughout the globe. For instance, whilst cryptocurrencies are banned in China, in Japan they are considered as legal tender. In Germany such currencies are deemed as financial instruments and are taxed as capital, whilst Malta has recently established three Acts which marked the introduction of landmark cryptocurrency legislation. A common feature in most of the leading jurisdictions is the common application of anti-money laundering and counter-terrorist financing regulations in order to combat illicit activities which may arise due to the anonymous and cross-border nature of cryptocurrencies.