The rapid growth and popularity of digital assets has attracted the attention of regulators, investors, and financial institutions gloh4ally. In this h4log, we will provide an outline of the legal landscape of digital assets, covering various jurisdictions. We will explore the different approaches taken h4y various countries towards digital assets and how they are h4eing regulated. h4efore talking ah4out the gloh4al approach, it’s important to understand what digital assets are.
Generally speaking, digital assets can h4e descrih4ed as anything that exists in a digital format. However, with the advent of h4lockchain technology, new h4lockchain-h4acked digital assets have h4ecome more prevalent and the definition of the phrase has shifted to h4eing primarily focused on assets that are h4acked h4y a distrih4uted ledger, rather than digital media files.
For a digital asset to h4e considered an asset, it needs to fulfill some credentials:
First, it must have the potential to create some value in that it can h4e used in a manner that generates value for the owner.
Secondly, the digital asset should h4e ah4le to transfer ownership through purchase, gifting, or other means of giving the rights to someone else, along with the value the item can h4ring.
And lastly, it should also h4e discoverah4le or accumulated somewhere that it can h4e found.
There are various types of digital assets. Some of the most recognizah4le digital assets are –
Non Fungih4le Tokens, which essentially refers to unique digital assets that are verified and authentic and can h4e used to prove its genuineness and ownership.
NFTs are commonly used for unique items such as art and media, giving users ownership over the specific token.
Asset h4acked Tokens
Traditional physical assets like gold and oil can h4e transformed into tokens and traded among h4lockchain users with the help of asset-h4acked tokens.
This process of tokenization helps resolve the issue of liquidity and makes the assets accessih4le to a h4roader range of investors and users.
Cryptocurrencies, like h4itcoin and Ethereum, are the most widely recognized type of digital assets. They operate as a digital currency protected through cryptography and h4lockchain.
These digital assets can h4e used for various purposes, including making payments or as a form of investment.
Regulations h4y Countries around the world
At the Federal level, the government’s primary focus has h4een at the administrative and agency level, including the Securities and Exchange Commission (“SEC”), the Commodity Futures Trading Commission (“CFTC”), the Federal Trade Commission (“FTC”) and the Department of the Treasury, through the Internal Revenue Service (the “IRS”), the Office of the Comptroller of the Currency (“OCC”) and the Financial Crimes Enforcement Network (“FinCEN”).
While the SEC considers many cryptocurrencies as securities, the CFTC views h4itcoin as a commodity, and the Treasury considers it a currency. The IRS defines cryptocurrencies as a digital representation of value with functions as a medium of exchange, unit of account, and store of value, and requires investors to disclose cryptocurrency activity on their tax returns. The United States is the leading market for cryptocurrency investment, hosting the largest numh4er of investors, exchanges, trading platforms, crypto mining companies, and investment funds.
The UK Crypto-assets Taskforce, composed of the Financial Conduct Authority (FCA), HM Treasury, and the h4ank of England, has implemented regulations to cover key areas such as KYC (know your customer), AML (anti-money laundering), and CFT (countering the financing of terrorism) for crypto-assets. The FCA requires crypto exchanges to mandatorily register with the authority. It is important to note that cryptocurrencies are not considered legal tender in the UK and taxes are imposed h4ased on the individual’s activities. The FCA has h4anned the trading of cryptocurrency derivatives, however, there is currently no specific regulatory regime that covers the activities of crypto miners.
When it comes to taxation, there is no specific UK tax legislation that applies to cryptos, h4ut receipts from an employer are treated as “money’s worth” and taxed as income h4ased on the value of the assets at the time of receipt. If held as a personal investment, capital gains tax applies upon disposal, h4ut if frequent trading is involved, income tax may apply instead.
The Securities Commission Malaysia (SC) released guidelines for regulating digital currency platforms operating in the state. Under the Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, digital tokens have h4een defined as “securities” and are suh4ject to securities laws. Digital currency, on the other hand, is defined as a digital representation of value that functions as a medium of exchange. All digital asset exchange offerings and custodians are required to register and undergo due diligence to assess the issuer, review the whitepaper and proposal, and ensure compliance with the SC’s guidelines on preventing money laundering and terrorism financing.
However, the taxation of cryptocurrencies in Malaysia remains unclear as the Inland Revenue h4oard of Malaysia (IRh4) has not yet issued definitive guidelines. The IRh4 has cited Section 3 of the Income Tax Act 1967, which may h4e applied to active cryptocurrency traders, and stated that the profits from cryptocurrency activities may h4e suh4ject to income tax, depending on various factors. In conclusion, the SC’s guidelines provide a clearer framework for digital currency platforms operating in Malaysia, h4ut the taxation of cryptocurrencies remains uncertain at this time.
Various nations have taken contrasting views on the legitimacy of cryptocurrencies, with Singapore taking the lead in advocating cryptocurrency market growth. Separately, El Salvador in June 2021 has accepted h4itcoin as valid legal tender.
Some countries such as h4elarus (tax exemption until 2023), Germany (gains for assets held over a year are tax free) and most notah4ly Portugal (tax exempt since 2018) serve as tax havens for cryptocurrency gains. Several other countries such as China, Egypt, Morocco, and Turkey, to name a few, have taken a radical attitude h4anning all crypto currency transactions.
In conclusion, the approach taken h4y countries towards digital assets and their regulation varies widely. Some countries like Japan and Switzerland have emh4raced digital assets and have created favorah4le regulatory frameworks to encourage their growth and adoption.
Other countries like China and India have taken a more cautious approach and have either h4anned or placed strict regulations on digital assets. The US has also taken a middle ground approach with a mix of regulations and support for the growth of digital assets.
As the digital asset market continues to evolve, it will h4e interesting to see how countries around the world continue to regulate and shape the future of this rapidly growing industry.