As a result, some governments resort to prohibition instead of having cryptocurrency regulated. Law enforcement has linked various forms of financial crime to crypto globally, including money laundering, tax evasion, and terror financing. Nearly impenetrable and immutable, cryptocurrency transactions are attractive for cybercriminals. However, only nine have imposed blanket crypto bans: Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia. Meanwhile, 42 countries have implicit bans prohibiting local financial institutions from serving crypto companies. Where is cryptocurrency legal?Īt press time, over a hundred countries have passed crypto regulations making digital assets legal. At present, this industry remains largely unregulated despite its cumulative revenue reaching $4.4. The absence of legal entities makes TradFi (traditional finance) law unsuitable for regulating cryptocurrency transactions in DeFi. Platforms like Aave have no formal management, in stark contrast to CeFi, where firms may operate as financial institutions under local law. Rapidly growing DeFi (decentralized finance) is radically different – it is based on self-executing contracts, with transactions entirely ruled by code. Any transactions on a blockchain, whether legitimate or illicit, are irreversible.ĭeFi as a separate set of challenges for cryptocurrency regulationĬrypto market players are not all centralized (CeFi) companies compliant with licensing and AML/KYC/CFT requirements, like the ones for money transmitters. Crypto is also pseudonymous – while wallet holders’ identities remain hidden, it may be possible to uncover them through blockchain analytics. All transactions between crypto wallets are recorded publicly and may be traced by anyone via blockchain explorers. ![]() Global reach necessitates international, not only domestic, coordination to “address regulatory gaps and prevent regulatory arbitrage,” as per IMF’s Fintech Notes. Crypto wallet holders can receive coins and tokens regardless of their physical location. Instead of centralized oversight, transactions are verified by millions of independent computers – individual nodes – and recorded in immutable ledgers. Blockchains operate as distributed networks. For example, the price of Bitcoin is generally determined by market forces and its finite supply. These digitally created forms of payment function without central banks, deriving value in other ways. Here are five key differences between crypto and fiat, defining the need for blockchain regulation: fiat money: Differences underlying cryptocurrency lawsĪccording to the IRS, “digital assets are not real currency (also known as “fiat”) as they are not the coin and paper money of the United States or a foreign country and are not digitally issued by a government’s central bank.” European crypto regulation: Developing a bloc-wide approachĬrypto vs. ![]()
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