Law of Cryptocurrencies 101: Development of Cryptocurrencies and Their Relationship with Law

Foreword

Cryptocurrencies are defined as technologies that aim to distribute the power of governance and regulation, which are currently concentrated among central authorities, to the members of society. Cryptocurrencies have attained a substantial market value, and the volume of transactions continues to increase daily. In today's world, cryptocurrencies, crypto monetary units, and other crypto assets are increasingly used as investment vehicles. However, due to government regulations, they cannot yet serve as a primary means of conducting daily activities without central authority intervention. This was not the original intent behind the development of cryptocurrencies. Furthermore, because of these regulatory constraints, neither countries nor citizens can fully harness the substantial economic value of these digital assets. By implementing regulations for the use of cryptocurrencies, countries can potentially tap into their economic value, while also curbing their potential association with illicit black market activities. During economically challenging times, cryptocurrencies could serve as a means of conducting transactions and generating income, and decentralized technologies could advance more rapidly without impinging on the sovereignty of states. In summary, the regulation of cryptocurrencies could prove beneficial for both nations and individuals from various perspectives. This series aims to enlighten readers about potential legal remedies that can be devised to incorporate these modern technologies into our daily lives.

This 101 series is divided into seven chapters, with each providing a distinct discursive element on the legal environments of cryptocurrencies.

1. Law of Cryptocurrencies 101: An Introduction, Development of Cryptocurrencies and Their Effects on Law

2. Law of Cryptocurrencies 101: Legal Turbulence and Asset Dilemmas of Cryptocurrencies and Other Crypto Assets

3. Law of Cryptocurrencies 101: Regulations about Cryptocurrencies in America: In North and South American Countries

4. Law of Cryptocurrencies 101: Regulations about Cryptocurrencies in Asia: China, Russia and Others

5. Law of Cryptocurrencies 101: Regulations about Cryptocurrencies in Europe: United Kingdom, France, Germany and Others

6. Law of Cryptocurrencies 101: Regulations about Cryptocurrencies in African Countries

7. Law of Cryptocurrencies 101: Dispute Resolutions by Using Decentralized Systems: Resolutions For Cryptocurrencies
   

Law of Cryptocurrencies 101: Regulations about Cryptocurrencies in America: In North and South American Countries

Cryptocurrencies and distributed ledger technology are new subjects for legal systems around the world. They represent binary code "1" and "0" in computer programming language (Hughes, 2017). The amount of legislation concerning these technologies is currently insufficient. For instance, cryptocurrencies do not function as a credit tool or a form of payment against anyone or anything, and for this reason, they cannot be classified as money (Trebat, 2023). On the other hand, due to the anonymity associated with their legal status, cryptocurrencies can easily circumvent important digital world regulations such as Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations (Hughes, 2017). Additionally, other issues need to be addressed, such as the double spending problem, transaction security through cryptography, and transaction fees for Bitcoin miners (Rubinstein & Vettori, 2018).

Countries in both North and South America present two different perspectives on cryptocurrency regulations. While there are thousands of virtual currencies worldwide, Bitcoin is the most popular and widespread. Consequently, many of these countries have specific regulations regarding Bitcoin (Rubinstein & Vettori, 2018). However, it is important to note that in most of these nations, especially in South America, significant regulations are lacking in this area. Some of them have not even passed a single law related to cryptocurrencies. This article will provide an overview of the regulatory situation in countries across North and South America.

Figure 1: Legality of Using Crypto Assets in North and South America (Coin Telegraph, 2023).

United States of America

The United States of America is the global leader in cryptocurrency trading values, and the number of users involved in cryptocurrency markets is higher than in any other country around the world. So, a country like that needs to have regulations regarding this area. The regulation of cryptocurrencies in the United States is a complex system. Indeed, the executive, legislative, and judicial powers are distributed among the federal government and states. In this country, there are several regulatory bodies at the federal level: the Securities and Exchange Commission (SEC), Financial Crimes Enforcement Network (FinCEN), Internal Revenue Service (IRS), Commodity Futures Trading Commission (CFTC), and the Department of Treasury's Financial Crimes Enforcement Network (Alvarez, 2018). In addition, there is also different legislation in different states on these regulations. These regulations could change: on the one hand, Wyoming is trying to make new legislation to encourage investors in this area to invest in the state. On the other hand, the state of New York's regulations are stricter, making a license from relevant authorities obligatory. For cryptocurrency businesses, they need to comply with both federal and state-level regulations (Alvarez, 2018).

Federal establishments in the country can have different approaches to the regulation of cryptocurrencies. FinCEN is one of the primary institutions responsible for cryptocurrency regulation. According to FinCEN, cryptocurrencies must be classified as money transmitters (Alvarez, 2018). Cryptocurrency firms across the country rely on FinCEN, and they are required to operate under its oversight to maintain transparent business records (Hughes, 2017). In 2013, the Network issued guidance on virtual currencies under the regulation of the federal Bank Secrecy Act (BSA), clearly articulating this stance. Furthermore, FinCEN made amendments to the regulations governing money service businesses, encompassing providers and sellers of prepaid access. They draw a distinction between real currencies, which consist of coins and paper banknotes, and virtual currencies, such as various cryptocurrencies, which serve as substitutes for real currencies. Participants in virtual currencies are categorized into three groups: users, exchangers, and administrators. Users are individuals who acquire virtual currencies for exchange activities or to purchase virtual goods and services. Administrators and exchangers are entities that facilitate the acceptance and transmission of convertible virtual currencies, engage in buying and selling convertible virtual currencies, and also accept funds into users' accounts (Middlebrook & Hughes, 2014).

Figure 2: Currency Regulations In United States (McIntosh, 2018).

The Commodity Futures Trading Commission (CFTC) is another organization that plays an important role in cryptocurrency regulations. The exchange of Bitcoin falls under the purview of this commission. The commission has not defined Bitcoin as a foreign currency; instead, they classify it as a type of commodity. Additionally, the Commodity Exchange Act by CFTC has dedicated a specific chapter to Bitcoin (Hughes, 2017). However, in practice, CFTC regulations do not apply to Bitcoin transfers. These regulations can only be enforced when private trades involve deliveries of 28 days or more, which is a longer time frame than typically seen in cryptocurrency exchanges.

Moreover, the Securities Exchange Commission (SEC) initiated investigations into cryptocurrencies and blockchain-based companies in January 2014. Following investigations into companies like SatoshiDice, FeedZeBirds, and BitPay, the SEC compiled a list of companies working with cryptocurrencies that are prohibited from making crypto investments. Another significant institution to mention is the Internal Revenue Service (IRS), which classifies virtual currencies as subjects of capital gains tax. The IRS has issued guidance on individuals who mine virtual currencies, treating cryptocurrencies as properties subject to federal taxation. Businesses that accept Bitcoin and other cryptocurrencies for goods and services are required to pay income tax to the federal government (Hughes, 2017). Not only are jurisdictional developments taking place in the United States, but the government is also actively researching the field. The Biden administration has introduced a new central bank digital currency (CBDC) in the form of a digital American Dollar. Furthermore, private entities like Facebook and Microsoft have their own projects aimed at creating their cryptocurrencies (George, 2023).

Figure 3: The Size of the U.S. Cryptocurrency Market (Grand View Research, n.d.).

New York

New York is one of the pioneer states in the regulation of cryptocurrencies and has legalized these decentralized structures. Its system, called BitLicense, began to be enforced in 2015. This system entails a requirement to obtain a license from the New York State Department of Financial Services (NYDFS) for the establishment of new cryptocurrency-based entities. In New York, through the application of "BitLicense," entities and establishments are mandated to acquire a special "Virtual Currency Business Activity" license to conduct and maintain their cryptocurrency-based operations (Bender, 2022). Additionally, this license is exclusively applicable to cryptocurrency exchange and investment activities, meaning that merchants and consumers cannot use cryptocurrencies for buying and selling transactions.

Before NYDFS grants a BitLicense, several obligations must be met. They conduct thorough investigations into the financial conditions, experiences, and characters of the applicants. They also delve into the detailed purpose and intent of the applicant (Kim, 2019). Furthermore, the license holders must implement Know Your Customer (KYC) policies and Anti-Money Laundering (AML) requirements, with the responsibility for these implementations resting with NYDFS. Additionally, certain cybersecurity principles must be adhered to in order to obtain this license. NYDFS reserves the right to suspend and revoke the license if the cryptocurrency developers fail to meet these requirements. This means that even after obtaining the license, NYDFS retains the obligation to monitor the cryptocurrency owners (Bender, 2022). The application of BitLicense is essential not only for regulatory compliance, but also for the protection of customers who utilize blockchain-based services. It ensures that cryptocurrency businesses maintain sufficient capital to ensure financial stability, safeguard customer funds, and enable customers to control their wallets and cryptocurrencies, making it a necessary step (Kim, 2019).

Washington

Regulators in the state of Washington have found the application of BitLicense to be a challenging approach for cryptocurrency users and developers. Consequently, they opted for a more moderate approach to modify the transmission of virtual currencies (Bender, 2022). The Department of Financial Institutions (DFI) established a new regulatory framework for virtual currencies, and in December 2014, they were officially recognized as money transmission tools (Hughes, 2017). In 2017, through an amendment to the Uniform Money Services Act, cryptocurrencies were incorporated into the scope of the state's money transmission law. They were defined as digital representations of value or mediums of exchange lacking legal tender status as recognized by the federal government of the United States. In Washington, it is permissible to use cryptocurrencies as a medium of exchange, with various areas defined by the state where they can be employed (for example, online gaming platforms or NFT trading). However, to engage in such activities, one must obtain a license issued by the Washington DFI (Bender, 2022).

Figure 4: The BitLicense Contract (Coin Gape, 2022).

California

California is the region where the most valuable blockchain companies and cryptocurrency developers have been founded in the United States. Despite this, the state did not have specific cryptocurrency regulations in place. Instead, it attempted to align with federal regulations and state-level money transmission laws. Nevertheless, several governmental efforts were made in California to develop cryptocurrency regulations. For example, the Department of Financial Institutions sent a letter to the Bitcoin Foundation regarding obtaining a license for authorization under California's Money Transmission Act (Middlebrook & Hughes, 2014). In June 2014, a bill was proposed to legalize all cryptocurrencies, but it was not enacted. However, in 2017, the Virtual Currency Act of California was passed, initiating a regulatory system similar to New York's BitLicense (Hughes, 2017).

The legal status of cryptocurrency in the state remains uncertain. It is clear that these digital assets are not defined as traditional monetary units in California. One bill, which has come into effect, defines these currencies as a "digital representation of value that can be digitally traded and is used to facilitate the sale, purchase, and exchange of goods, or other digital representations of value." Conversely, another bill defines a digital currency business as one that offers or provides services related to storing, transmitting, exchanging, or issuing digital currency. Consequently, the exact legal status of cryptocurrencies in California remains uncertain (Kim, 2019).

Wyoming

Wyoming has created a favorable environment for blockchain and cryptocurrency companies by enacting several blockchain-friendly laws. The state's objective is to attract new businesses and investors through these blockchain-friendly regulations, thereby fostering its own economy through the utilization of this blockchain-based decentralized economy. Since 2018, Wyoming has been enacting new laws to achieve this goal (Bender, 2022). The first significant amendment was made to the Wyoming Money Transmitter Act. Through this amendment, cryptocurrencies were defined as any form of digital representation of value used as a medium of exchange, unit of account, or a store of value not recognized as legal tender by the federal administration of the United States. Another crucial piece of legislation is the Financial Technology Sandbox Act, which supports the development of cryptocurrencies within the state. Additionally, the Special Purpose Depository Institution Act has introduced a novel type of financial institution for cryptocurrencies known as a Special Purpose Depository Institution. This institution is responsible for maintaining liquid assets (Bender, 2022).

Figure 5: Objectives of Federal and Local Crypto Bills in United States (Coin Telegraph, n.d.).

Texas

Texas is also known for being a cryptocurrency and blockchain-friendly state. The primary regulatory body responsible for overseeing cryptocurrency transactions is the Texas State Securities Board (TSSB). According to the regulations in Texas, cryptocurrencies can be classified as securities, aligning them with the definition of "security." Consequently, the conditions relevant to these cryptocurrencies are treated as securities by the TSSB. There are several clauses outlining these conditions, although the number is limited. The TSSB does not provide specific guidance on the use of cryptocurrencies as investment tools; instead, they categorize them as securities. The board strives to align its cryptocurrency policies with those of the federal government and issues warnings to users regarding the potential risks associated with cryptocurrencies. A bill that came into effect in 2019, known as the Virtual Currency Bill, seeks to prevent local government actions related to the use of cryptocurrencies (Ebaugh, 2023).

Florida

Florida has enacted regulations that recognize blockchain signatures and legally bind smart contracts. In the state, virtual currencies are also acknowledged as mediums of exchange and are categorized as monetary instruments under Florida's Money Laundering Act (Hughes, 2017). However, a significant challenge remains as criminals continue to utilize Bitcoin for illicit activities within the state. To address these issues, a regulation was introduced in 2023 by the Florida government, providing a clear legal definition of cryptocurrencies. Under this regulation, cryptocurrencies are defined as virtual currencies and electronic mediums of exchange. The state categorizes coins as money services businesses but does not classify tokens under this category. Notably, the regulation eliminates the licensing requirement for individual crypto traders who engage in token trading on peer-to-peer platforms. However, this requirement still applies to businesses and institutions (Malescu Law, 2022).

Figure 6: Federal Crypto Regulators in United States (BitIRA, n.d.).

As it can be understood, different states apply different rules to regulate cryptocurrencies in the United States. Most of these states ignore regulating cryptocurrencies. States like New York, Texas, and California have chosen the way of legalizing these monetary units. They linked them to a licensing process. On the other hand, in Washington, Florida, and seven other states, the situation of cryptocurrencies could be more apparent. No one can say they are legal or illegal in these states. In addition to these points, Wyoming has a special place among American states. To strengthen its economy and attract foreign investment, Wyoming follows the way to support cryptocurrencies legally and be an attraction center for miners and crypto investors worldwide.

Canada

Canada has been at the forefront of cryptocurrency regulation worldwide. The first Bitcoin ATM was established in Vancouver, and the adoption of cryptocurrencies in Canadian cities occurred earlier than in most other countries (Cvetkova, 2018). The nation aims to encourage innovation in blockchain technology while ensuring consumer protection. A financial institution based in Vancouver believes that a blockchain and fintech ecosystem will contribute to Canada's leadership in the global financial sector, attracting new investors and creating economic and sociological opportunities (Ducas, 2017). In June 2016, two private financial entities, the Bank of Canada and Payments Canada, conducted a successful test of blockchain's functionality in payment systems, processing over 175 billion Canadian dollars per day. These experiments by Canadian financial institutions continue as the country seeks to integrate technological advancements with its existing financial system (Ducas, 2017).

Canada's capital markets are governed by a combination of national instruments, local rules, and policies (Badour & Shah, 2018). The regulatory framework for cryptocurrencies in the country mainly centers around Bitcoin and aims to provide a legal status for these digital currencies. In Canada, cryptocurrencies are neither classified as currency nor money (Ducas, 2017). They do not have legal tender status in Canadian law; only Canadian banknotes are considered legal tender. At times, they are also treated as securities, but such conditions are subject to specific criteria. Canada has similar regulations to the federal laws of the United States regarding cryptocurrencies, and various institutions are responsible for overseeing these digital assets, including the Office of the Superintendent of Financial Institutions (OSFI), Canadian Securities Administration (CSA), and the Canadian Central Bank. In 2017, the Canadian Securities Administration (CSA) issued CSA Staff Notice 46-307, which clarifies the applicability of cryptocurrencies to Canadian securities law. This document provides extensive guidance on how Canadian securities law applies to initial coin offerings (ICOs), initial token offerings (ITOs), and cryptocurrency exchanges and investments in the context of Canadian law. According to the CSA, if cryptocurrencies are registered with the marketplace database, they may be considered securities, necessitating registration within the marketplace. Canadian securities regulatory authorities have provided guidance on which marketplaces can be considered exchanges. If cryptocurrency exchange platforms meet these requirements, they can be classified as exchanges (Badour & Shah, 2018).

In addition to CSA policies, Canada has made legislative amendments concerning financial stability and financial crimes. In 2014, the federal administration amended the AML legislation and the Proceeds of Crime and Terrorist Financing Act, addressing the risks associated with emerging technologies in money laundering and terrorist financing. Blockchain technology and cryptocurrency commerce are also subject to provisions under the Federal Competition Act and consumer protection laws (Ducas, 2017). Furthermore, federal legislation now mandates that money services businesses operating in crypto markets must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) (George, 2023).

Figure 7: The Illustration of a Bitcoin ATM (Alexandre, 2019).

There are also intrastate regulations concerning cryptocurrencies in Canada. For instance, in Ontario, it is recognized that security law can be applied to distributed ledger technologies (Badour & Shah, 2018). In 2017, the British Columbia Securities Commission (BCSC) made an announcement regarding the first registration of an investment as a cryptocurrency. The BCSC considered this registration to be legally valid but also cautioned investors about the associated risks in these markets (Badour & Shah, 2018). On the Toronto Stock Exchange, shares of cryptocurrency investment firms began to be traded, and Bitcoin was approved as an exchange-traded fund (George, 2023). Various provinces and states within the country have implemented their own legislation and regulations related to cryptocurrencies, contributing to a diverse regulatory landscape.

Mexico

Mexico, despite being the world's 11th largest economy, faces significant challenges, including poverty, corruption, and wealth inequality. Reports indicate that a small number of individuals own a significant portion of the country's wealth, while many Mexican citizens live below the poverty line. Corruption within the government and public institutions further erodes trust in the administration (Zbinden & Kondova, 2019). The relevance of these statistics to cryptocurrency lies in the potential of blockchain technology and cryptocurrencies to address some of these issues. Many Mexican citizens see blockchain and cryptocurrencies as a means to combat these problems, making their use increasingly important in Mexico. As a result, Mexico has a growing fintech industry with new startups and establishments. The country has even created its own cryptocurrency called Bitso, which experts believe holds significant economic and technological potential (Zbinden & Kondova, 2019). Multiple authorities are responsible for regulating cryptocurrencies in Mexico.

In March 2018, the Mexican Parliament approved a new bill related to the fintech sector and fintech companies known as the "Ley Para-Regular las Instituciones de Tecnología Financiera" (Mexico Fintech Law). Although it isn't exclusively about cryptocurrencies, this law provides a conceptual framework for digital assets and cryptocurrencies. Under this law, Banco de Mexico (the Mexican Central Bank) and the National Banking and Securities Commission became the main authorities overseeing cryptocurrency companies. Additionally, cryptocurrencies are subject to regulation under the Fintech Law, the Federal Law of Prevention and Identification of Operations with Resources of Illicit Origin, and Financial Reporting Standards.

The Mexican Central Bank has issued guidelines for crypto-related activities and cryptocurrency exchanges. Document 4/2019 aimed to regulate operations with Virtual Assets (cryptocurrencies), while Document 5/2019 established criteria and conditions that legal or moral entities must meet to obtain authorization for routing, clearing, and settlement services for operations using novel models. According to the guidelines issued in 2014, cryptocurrencies in Mexico are neither considered legal tender nor illegal exchange tools under the law. This allows these digital assets to be exchanged under the direction of the Mexican Central Bank. Furthermore, companies operating in the cryptocurrency space must be registered as public limited companies and authorized by the National Banking and Securities Commission (Benavides & Amaya, 2021).

Figure 8: Regulations of Cryptocurrencies in South American Countries (Bhattacharya, Vasilyev & Villafuerte, 2023).

Brazil

The Brazilian financial markets are under the control of the Brazilian Central Bank, with gatekeeper firms also playing a significant role. The regulatory mechanisms in Brazil are highly stringent when it comes to taxation and foreign currency control. However, cryptocurrencies provide a relatively easy means to bypass these strict controls. Buying and selling these digital assets can facilitate foreign exchange transactions while circumventing regulatory measures (Rubinstein & Vettori, 2018). Additionally, in Brazil, cryptocurrencies are used for speculation against the American dollar, which could pose a risk to the Brazilian economy due to its reliance on the US dollar (Trebat, 2023). Given these circumstances, it is evident that Brazil needs to establish regulations for this financial sector. To address the use of cryptocurrencies in foreign transactions, the Brazilian Central Bank initiated virtual currency transfers through official channels, treating them like other foreign currencies, as indicated in item 6 of Notice 31.379/1759 (Rubinstein & Vettori, 2018). The Brazilian Securities Exchange Commission has also introduced certain rules governing crypto monetary units.

In Brazil, there is no clear legislation specifying whether virtual currencies can be used for trade or investment. They are not recognized as legal tender, but to promote digitalization, Brazilian authorities approved their use as a payment tool in the country after 2022 (George, 2023). In 2017, the Brazilian Central Bank issued a warning about cryptocurrencies, emphasizing that they are not guaranteed by a monetary authority and are highly risky financial instruments. The Central Bank also emphasized that if international transactions involve virtual currencies, they must adhere to exchange rules and regulations in Brazil (Rubinstein & Vettori, 2018). It's important to note that the Brazilian Central Bank does not necessarily have a negative stance on the use of cryptocurrencies. In fact, in 2020, the Central Bank developed and launched a blockchain-based system called Pix, which became one of the most popular payment systems in Brazil after its introduction in October 2020 (Trebat, 2023).

Figure 9: Cryptocurrency Flow By Countries (Tornaghi, 2022).

In addition to the Central Bank of Brazil, the Brazilian Securities Exchange Commission (CVM) has provided some clarifications regarding the legal status of cryptocurrencies. Generally, CVM does not categorize these digital assets as securities (Rubinstein & Vettori, 2018). However, there are exceptions to this classification. According to CVM, cryptocurrencies can be considered securities when they offer interest or dividends to their investors or when they enable participation in company management through voting rights (Cvetkova, 2018). It's important to note that in such cases, they would be subjected to anti-money laundering and Know Your Customer regulations as well.

Argentina

Argentina's economy has faced significant challenges, including hyperinflation, making it one of the most struggling economies globally. Historically, Argentina has used the US dollar to stabilize the value of the Argentinian Peso and reduce inflation. This has resulted in a strong link between the Argentinian Peso and the US dollar. Today, individuals and financial institutions in Argentina often convert Pesos directly into US dollars or other currencies due to the country's financial situation and hyperinflation, making it essential to safeguard dollar reserves and attract foreign investment. Any disruption to this order can have a severe impact on Argentina's economy (Moreno, 2016).

Similar to Mexico, many Argentinian citizens view blockchain technology and cryptocurrencies as a beneficial way to address their economic challenges. In recent years, various technological innovations have been reshaping Argentina's economy, with the federal government seeking to integrate the financial service ecosystem with available technological advancements to stimulate economic growth and support financial institutions (Fernandez & Lomaquiz, 2018). Even the government itself has used cryptocurrencies to protect its economy and encourage investments. In 2016, the daily usage of cryptocurrencies in Argentina reached between $70,000 and $80,000. Approximately 165 businesses in Buenos Aires accepted Bitcoin as a payment method, highlighting the popularity of cryptocurrencies in the country (Moreno, 2016).

Figure 10: The Graph of the Inflation Rates in Latin America (Ramírez, 2022).

Argentina has imposed strict restrictions on the use of cryptocurrencies, although they are not entirely banned. Due to capital controls in the country and restrictions on purchasing foreign currencies, it is not easy for Argentinian citizens to acquire cryptocurrencies (Moreno, 2016). Cryptocurrencies are defined as digital representations of value that can be used in commerce and as a medium of exchange. However, they are not considered legal tender like traditional currencies in many other countries. The regulations governing cryptocurrencies in Argentina are established by the Banco Central de la Republica Argentina, the Argentinian Central Bank (BCRA) (Moreno, 2016). Under the Argentine Financial Institutions Law No. 21,526 ("FIL"), obtaining a license from the Central Bank of Argentina is required to use cryptocurrencies for financial intermediation and operations (Fernandez & Lomaquiz, 2018). Additionally, the Financial Information Unit (FIU) of Argentina has set rules concerning Know Your Customer (KYC) regulations and other user-friendly FinTech engagements related to cryptocurrencies. It is important to note that cryptocurrencies, according to existing regulations, are not classified as securities or any other type of property in Argentina (Fernandez & Lomaquiz, 2018).

Discussions on how to regulate cryptocurrencies in Argentina are ongoing, and there are differing opinions among experts. Some argue that it is impossible to categorize Bitcoin as property under Argentina's Civil and Commercial Code, as only the private key of a wallet may be considered property under this code (Moreno, 2016). The Unidad de Informacion Financiera (UIF), Argentina's anti-money laundering agency, has implemented regulations affecting financial entities and has compelled some of them to close their Bitcoin accounts. It is anticipated that Argentina will develop new regulations that are more favorable to Bitcoin and other cryptocurrencies in the future (Moreno, 2016).

Figure 11: The Summary of Cryptocurrency Regulations in South American Countries (Kapetanic, 2018).

Other Countries in South America

Chile

Chile has made significant regulatory developments in the cryptocurrency and fintech space. In 2022, the Chilean Congress passed the Fintech Law, which brought cryptocurrencies and digital assets/instruments under the purview of the Financial Market Commission. This commission serves as the financial regulatory agency in Chile, and it now has authority over the regulation and oversight of cryptocurrencies in the country (Appendino et al., 2023).

Colombia

Colombia is a country where cryptocurrencies are not regulated. Only a few jurisdictions have granted a clear statute to them. They are not considered legal tender, but they are also not totally banned. In addition, the Colombian Central Bank and Colombian Financial Supervisory Authority expressed their views on cryptocurrencies as well. For them, crypto assets and monetary units are satisfactory payment methods, but under current law, it does not seem possible for a supervised institution, such as a bank (Garrigues, 2022).

Peru

Legislators in Peru have focused on the taxation of cryptocurrencies, setting a tax rate equal to 30 percent. Especially after the economic crisis of 2008, there was a significant increase in the usage of cryptocurrencies, and their status took a position that could not be ignored by tax regulators. In Peru, the legislature has decided not to tax cryptocurrencies as assets or securities, considering them as digital tokens. Instead, they have chosen to tax the income generated from these transactions (Paz, 2022).

Figure 12: Usage of Different Currencies in South America: Bitcoin, Ethereum and others (ChainAnalysis, 2020).

Ecuador

Ecuador is a crypto-friendly country, and its central bank has regulations regarding cryptocurrencies. The Monetary Code in Ecuador recognizes the American dollar as the only legal tender in the country. In other words, like most South American countries, cryptocurrencies are not considered legal tenders in Ecuador. Nevertheless, cryptocurrencies are accepted as investment tools in Ecuador, and investors can make investments using Bitcoin, especially (Spagnolo, 2022).

Venezuela

Until the beginning of the 2010s, Venezuela has been facing the highest inflation in the world, and its economy continues to be in an extremely difficult situation today. Because of this reason, the government's efforts to benefit from cryptocurrency technologies have increased every day. In December 2018, the country established its own cryptocurrency called Petro, and the government promoted its use among citizens. However, the Venezuelan Supreme Court found this cryptocurrency unconstitutional. Today, instead of being an official currency, Petro is used as a legal tender in the country. In addition to the Petro issue, in 2018, the Constituent Decree on Crypto Assets and the Petro Sovereign Cryptocurrency was issued by the National Constituent Assembly. Furthermore, the Office of the Venezuelan Superintendent on Crypto Assets of Venezuela and Ancillary Activities ("SUPCACVEN") was also established by the government (Freeman Law, 2022).

Uruguay

Despite the presence of several local exchange companies and new fintech start-ups, Uruguay does not have specific cryptocurrency regulations. In the country, virtual currencies are not considered as monetary units. To use virtual assets for commercial activities, obtaining a license from the creators is required (Mambretti, 2021). The main authority regulating cryptocurrencies in Uruguay is the Central Bank of Uruguay (CBU), similar to other Latin American countries. The central bank operates a virtual office where it studies virtual assets. However, in 2021, a draft bill was submitted to the Uruguayan Congress aiming to regulate the production and commercialization of virtual assets. According to this proposed law, Law No. 16.969, the money and coins issued by the Central Bank of Uruguay will be recognized as legal tender, which can include electronic money or cryptocurrencies (Mambretti, 2021).

El Salvador

El Salvador made history as the first country in the world to accept Bitcoin as its official currency and legal tender. In 2021, the Bitcoin Law was implemented in the country, which introduced new regulations for the Bitcoin ecosystem. As a result, Bitcoin started to be used alongside the U.S. Dollar as a foreign currency, and El Salvador also launched its own cryptocurrency, Chivo (Appendino et al., 2023). However, due to recent fluctuations and drops in the value of Bitcoin, El Salvador's economy faced significant challenges, and the country's banking reserves experienced a 50% reduction.

In South American countries, there needs to be more clarity about the legality of cryptocurrencies. Brazil and Argentina are neither banned nor legalized by legislative authorities. Both countries have suffered a lot from economic difficulties, and this condition has made people invest in and use cryptocurrencies. However, both countries' authorities needed a transparent system to define and control cryptocurrencies. Despite the lack of legislation, Brazil is ahead of Argentina in the studies to regulate cryptocurrencies. In addition, the same lack of regulation is seen in Chile, Uruguay, and Colombia. On the other hand, Peru, Venezuela, and Ecuador have clear legal rules about cryptocurrencies. In Peru, they are considered as digital tokens. In Venezuela and Ecuador, they are defined as unconstitutional monetary units. El Salvador is the only country that accepts current cryptocurrencies legally. The country accepted Bitcoin as a legal currency and introduced a regulatory system to officialize this monetary unit.

Conclusion

In most North and South American countries, cryptocurrencies must be regulated clearly. Different regulations are applied in the United States at the federal and state levels. In the country, the legal statute of cryptocurrencies cannot be determined because of different states' different policies. On the other hand, Canada acts more clearly than the United States about regulating these monetary units. Some states follow different ways of cryptocurrencies, but no conflict exists among them, as the United States states. There are studies to regulate cryptocurrencies in Mexico, but they are at the beginning of this process. Like Canada, they continue to regulate cryptocurrencies as a whole. In addition, except for Venezuela, El Salvador, and Ecuador, all South American countries need clarification about how they can regulate and control crypto-assets. The continent needs to work more on this facet.

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Cover Image: Morning Consult (2023, April 5). Crypto Owners in Latin America See a Future for the Digital Currency. Pro.Morningconsult.com. https://pro.morningconsult.com/instant-intel/crypto-latin-america

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Figure 3: Grand View Research (n.d.). GVR Report coverCryptocurrency Market Size, Share & Trends Report Cryptocurrency Market Size, Share & Trends Analysis Report By Component, By Hardware, By Software, By Process (Mining, Transaction), By Type, By End-use, By Region, And Segment Forecasts, 2023 - 2030. Grandviewresearch.com. https://www.grandviewresearch.com/industry-analysis/cryptocurrency-market-report

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Figure 6: BitIRA (n.d.). Cryptocurrency Regulators and Regulations: Shaping the Future. Bitira.com. https://www.bitira.com/cryptocurrency-regulators-and-regulations/

Figure 7: Alexandre, A. (2019, July 7). Canada: Vancouver Mayor Suggests Ban on Bitcoin ATMs. Cointelegraph.com.https://cointelegraph.com/news/canada-vancouver-mayor-suggests-ban-on-bitcoin-atms

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Figure 12: ChainAnalysis (2020, October 3). How Latin America Mitigates Economic Turbulence with Cryptocurrency. Chainanalysis.com. https://www.chainalysis.com/blog/latin-america-cryptocurrency-market-2020/