Bitcoin and EU regulations. Crypto Daily Business News...

First Steps of the Community in the Legislation of CryptoCurrencies

For nearly a decade since Satoshi Nakamoto (or at least the person or persons behind this nickname) has published his nine-page manifesto for creating Bitcoin as a decentralized electronic payment system, cryptocurrencies have gone a long way in ascending rights. Started as a technology experiment for enthusiasts, they are now an exchange tool used by more than 5.8 million people with a total market capitalization of over $ 150 billion. Despite the continued skepticism of large online stores such as Amazon and eBay, smaller vendors from around the world, have successfully integrated software solutions that allow direct payments to the cryptocurrencies, thereby contributing to legitimizing them in the eyes of consumers.

The burgeoning growth of the industry has prompted professional investors from all over the world to look at bitcoin and its like. To date, several investment funds with a portfolio of investments in crypto-lows have already become reality in Europe. On both sides of the Pacific, the footsteps in this direction are even brighter - in mid-August this year, Japanese company Fisco Ltd issued the first bitcoin bond issue, and the largest US stock option - the one in Chicago - committed to launch bitcoin futures in 2018.

Somewhat expected, rapid market developments have significantly outpaced the ability of legislators and regulators across the EU to fully assess the potential risks and the need for a legal framework for cryptocurrencies. This, of course, does not mean that they are out of sight.

Risks and urgent problems

As early as 2013, the European Banking Authority (EBA) issued a consumer alert on the risks of cryptocurrencies trading, outlined in a detailed opinion on the 2014 issue, where the regulator outlines more than 70.

First of all, the unclear legal essence of the cryptocurrencies remains among them. EBA repeatedly and categorically takes the view that, despite the name used in the turnover, they do not constitute a currency within the meaning of Community law and should be regarded not as a payment but as a means of exchange which, by its nature, is a numerical representation of value ).

The regulator also highlights the lack of control over the cryptocurrencies exchanges, the large day-to-day differences in courses and the ability of the big players to manipulate them, and the difficulty of ensuring translation security compared to the conventional currency transactions through banks and payment institutions , which are subject to a much stricter regulatory framework.

Last but not least, the opportunities that the anonymity of this type of transaction provides for money laundering and terrorist financing - doubts shared by the European Central Bank and the International Organization for the Fight against Money Laundering and Financing of Terrorism - Financial Action Task Force.

The reason for this is rooted in the Blockchain - the multiple scattered virtual book (based on the peer-to-peer method) as a guarantor of the decentralization of the system that records the encrypted transactions without collecting information about the identity of the users, instead relying solely on the codes generated by it for each transaction.

The new regulatory framework

The EC's proposal to amend the Fourth Directive introduces the first legal definition of virtual currencies (a concept somewhat broader than, but including, the crypt), which is in line with the abovementioned EBA opinion. According to the currently proposed text, "virtual currencies" means a digital representation of value that is not issued by a central bank or public body, is not necessarily linked to a legally established fiat currency, does not have the legal status of currency or money but is accepted by natural or legal persons as a means of exchange and, possibly, for other purposes, and which can be transferred, stored or marketed by electronic means. '

As can be seen from the definition given, cryptocurrencies are not perceived by the European legislator as legal tender, be it currency or electronic money, but as a means of exchange, the essence of which is a digital representation of value. This distinction is crucial given the divergent practice in determining the legal nature of cryptocurrencies by national regulators, who in their opinions are often tempted by the possibility of assigning them to existing instruments.

The very purpose of the definition, however, is to outline a circle of virtual currency transactions and operations that will be obliged to apply the relevant anti-money laundering rules and measures after the transposition of the amendments to the national laws of the Member States. With the proposed amendment to Art. 2 of the Fourth Directive as such - "providers primarily and professionally engaged in virtual and currency exchange services; portfolio providers offering custody services with the necessary access certificates to virtual currencies."

When considering the proposal earlier this year, the European Parliament, on its own initiative, proposed amendments to this part, adding "issuers, administrators, intermediaries and distributors of virtual currencies" to those persons. It is clear from the texts cited that the proposed range of new obligated entities carrying out transactions or operating in virtual currencies is widely defined and the ultimate objective behind it is to provide greater opportunities for competent national authorities to monitor and control the movement of virtual currencies.

In conclusion

The lack of a legally enforceable regulatory regime in the sphere of encryption both at the level of the community and in the national legislations of individual Member States implies a certain uncertainty in dealing with them on different planes - actuality of transactions, tax and accounting treatment, users and others.

Although the EC proposal still does not constitute binding legislation, the major consideration that European regulators attribute to virtual currencies in the light of money laundering and terrorist financing is a good reason for potential EU investors to take into account the need to anticipate relevant procedures to get acquainted with customers when planning their future projects in the sector.

The extent to which the measures envisaged will have an effect in view of the technological features of the cryptocurrencies and the underlying idea of ​​decentralization and whether consumers will simply focus on markets and exchanges outside the EU with a lower level of regulation is a question that can not reply right now. Undoubtedly, if the ascending development of cryptocurrencies continues, investors, consumers and regulators are very likely to face problems that may not have a single answer.