Law of Cryptocurrencies Series: 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 is 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 the 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 series is divided into seven chapters, with each providing a distinct discursive element on the legal environments of cryptocurrencies.
Law of Cryptocurrencies Series: Regulations about Cryptocurrencies in Asia: China, Russia and Others
Law of Cryptocurrencies Series: Regulations about Cryptocurrencies in African Countries
Law of Cryptocurrencies Series: Regulations about Cryptocurrencies in Asia: China, Russia and Others
Cryptocurrencies are specific financial instruments with several financial advantages, such as accelerating and reducing costs between entities by eliminating unnecessary intermediaries, protecting against inflationary processes, and improving the predetermined rate of public money (Shovkhalov & Idrisov, 2021). For a long time, Asian countries led in cryptocurrency investments and became central hubs for miners. However, today, most Asian states have banned cryptocurrencies, and many other countries are attempting to do the same. Several countries, including China, Iran, Bangladesh, and Thailand, have imposed restrictions on the use of cryptocurrencies. Qatar and Bahrain have directly imposed restrictions on digital assets. In Nepal, Pakistan, and Vietnam, all activities related to the circulation of cryptocurrencies are banned as well (Budkin & Budkin, 2023). On the other hand, some states are attempting to establish cryptocurrencies as legal tender in their countries. Examples of such countries include Singapore, Japan, and South Korea. Additionally, attempts to regulate cryptocurrencies have led to increased collaboration among Asian countries. For instance, in 2017, the BRICS Legal Forum in Moscow decided to form a group to work on common aspects of cryptocurrency regulations (Chudinovskikh & Sevryugin, 2019). Another example of this collaboration is the increasing cooperation between Arab countries and Israel in the field of blockchain technology.
In this article, we will analyze and compare cryptocurrency regulations in Asian countries.
China
Today, China is one of the top three economies in the world, and it is expected to become the largest economy in the years to come (Xueying, 2023). The country has been one of the most important players in the mining, investment, and research of cryptocurrencies. Due to its local advantages and low production costs, miners prefer to continue their mining activities in China (Riley, 2021). In fact, before the prohibition of crypto-exchange platforms, China accounted for 90% of all mining activities in the world (Xie, 2023). There have been eight regulatory authorities in China interested in the regulation of cryptocurrencies: the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange (Xi, 2022).
Before 2017, only two types of entities were allowed to use virtual currencies in business transactions in the country: Game Operators and Virtual Currency Exchange Providers. Online games are permitted to operate using virtual currencies, and this requires obtaining a license (Xie, 2023). Different decisions have been made by various courts in different states of China; some accepted Bitcoin as a form of fiat currency, while others did not (Xi, 2022).
On the other hand, the central authorities of China have never recognized virtual currencies like Bitcoin as a means of payment or for financial transactions. Due to their lack of a centralized authority, they cannot be considered legal tender or official currency (Riley, 2021). Additionally, cryptocurrencies such as Bitcoin, Ethereum, and others are not recognized as legal tender (Xie, 2023). Government authorities have issued a notice stating that crypto-asset businesses and services are unlawful and subject to criminal offenses (Xi, 2022).
In 2013, the People’s Bank of China (PBOC) banned financial institutions from engaging in Bitcoin-based businesses, causing a 50% decrease in Bitcoin's value (Riley, 2021). By the end of 2017, commercial activities based on cryptocurrencies had come to a complete halt in mainland China (Xi, 2022). They made these activities untraceable on Chinese websites. Since 2014, PBOC has been working to create a new government-backed digital fiat currency. In contrast to the cautious approach of the country's administration, approximately 1,000 people have been involved in this project. As a result, China became the first country to introduce a digital currency controlled by a central bank. This currency, known as the Digital Yuan, is in everyday use in China today. In contrast to the negative view of cryptocurrencies, the Chinese government has been optimistic about the potential of blockchain technology. In 2019, President Xi Jinping emphasized the importance of blockchain technology and the need for China to expand opportunities related to blockchain (Riley, 2021).
Russia
In Russia, legal regulations for cryptocurrencies aim to protect the interests of owners and create an environment for virtual economic activities. These regulations, in particular, seek to address challenges related to the anonymous nature of transactions and tax rules concerning cryptocurrencies (Budkin & Budkin, 2023). According to the 2019 Mining Industry Annual Research Report of Russia, the country had the largest number of cloud mining users outside of China, and this sizable group requires protection from the Moscow administration (Dorokhova, 2021). Cryptocurrencies are not considered legal tender in Russia because they are not endorsed by the Central Bank of Russia. Additionally, they are not defined as electronic monetary units in the country. Notably, cryptocurrencies lack intermediaries in their structure (Shovkhalov & Idrisov, 2021). Furthermore, the Russian Central Bank and the Ministry of Finance have expressed concerns about the potential use of cryptocurrencies for terrorism and money laundering (Dorokhova, 2021).
By the Federal Law titled "On the National Payment System" which was established in 2011, Russian authorities have officially regulated accepted methods of payment. Consequently, this legislation needs further development to encompass cryptocurrencies within its framework. The taxation of cryptocurrencies also remains a gray area under Russian law (Shovkhalov & Idrisov, 2021). In 2020, a new tax code for cryptocurrencies came into effect, along with the application of the Code of Administrative Offenses and the Criminal Code. Both of these regulations prohibit the illegal use of cryptocurrencies (Dorokhova, 2021). New criminal procedures were initiated in Russia for individuals, legal entities, and government officials engaged in cryptocurrency transactions. Furthermore, in early 2021, Russian authorities took additional legislative steps. President Putin signed into law a bill titled "On Digital Financial Assets 2020" (the 'DFA'), Cryptocurrency, and Making Changes to Certain Legislative Acts of the Russian Federation." This law encompasses digital rights, receivables, rights under issuable securities, and participation rights in non-public companies. In this law, cryptocurrencies are defined as electronic data. It is also stipulated that cryptocurrencies cannot be considered electronic monetary units under Russian law (Dorokhova, 2021).
Furthermore, the powers of the Central Bank of Russia have also been extended to include the supervision and control of decentralized financial assets. Through this move, Russian authorities have sought to transform cryptocurrencies into a financial asset that benefits the country's economy (Budkin & Budkin, 2023). With the onset of the Russia-Ukraine War, transactions involving cryptocurrencies and the Russian Ruble reached unprecedented levels. Despite the unaffected status of cryptocurrency exchanges on a global scale (Theiri, Nekhili, & Sultan, 2022), Russia has derived significant economic benefits from these currencies during wartime.
India
India is one of the most powerful countries economically in Asia, and the country has undergone a complex process in legalizing crypto-monetary units. Since 2012, several cryptocurrency exchange platforms have been operating in India: Zebpay, CoinDCX, and Unocoin provide a wide range of services in the country (Yadav, 2021). General cryptocurrency prices in India are 5 to 10 percent higher than the global average, which has raised concerns for both the Indian government and crypto exchange platforms worldwide. Despite the existence of these cryptocurrency exchange platforms, in 2017, the Indian government proposed a complete ban on cryptographic monetary units in the country. In 2018, all businesses and financial institutions in India were prohibited from using cryptocurrencies in their services. However, this decision by the Indian government was overturned by the Supreme Court on the grounds of violating financial freedom. Buying and selling cryptocurrencies in India became a freely permitted activity following the Supreme Court's decision (Thakur, Varma, & Vake, 2022).
In November 2016, Prime Minister Modi announced the demonetization process in India. The aim was to transition 86% of the country's paper currency into digital currencies. The introduction of this policy sparked increased adoption of cryptocurrencies and raised the significance of these currencies (Jani, 2018).
In India today, there is still no clear legal definition of cryptocurrencies, leading to the application of different regulations to these digital assets. The Reserve Bank of India (RBI) has defined cryptocurrencies as digital currencies created using computer codes (Thakur, Varma, & Vake, 2022). Additionally, as per the Coinage Act of India, cryptocurrencies cannot be categorized as coins due to their virtual nature. These currencies are also not considered foreign currencies. However, the Securities Contract Regulation Act (SCRA) allows for cryptocurrencies to be classified as securities. In other words, the definition of a security under this regulation is broad enough to encompass cryptocurrencies. If cryptocurrencies are classified as securities, they would be subject to capital gains tax under the Income Tax Act of 1961 (Gotety, 2019).
There are seven main regulations which are linked to cryptocurrencies. In the whole of these regulations, there are rules about cryptocurrencies (Thakur, Varma & Vake, 2022):
• The Exchange Management Act, 1999 ("FEMA")
• The Federal Reserve Bank of India Act, 1934 ("RBI Act")
• The Coinage Act, 1906 ("Coinage Act")
• Indian Contract Act, 1872
• The Payment and Settlement Systems Act, 2007
• The Securities Contracts (Regulation) Act, 1956 ("SCRA")
• The Sale of Goods Act, 1930
Japan
Japan is a significant economy in Asia, and it is also a country where cryptocurrencies enjoy popularity. Prior to 2017, there were minimal regulations in place for cryptocurrencies in Japan. In April 2017, a major regulatory development took place concerning virtual currencies and crypto assets. These regulations included the Payment Services Act (PSA), the Know Your Customer Act, and the Act on Prevention of Transfer of Profits from Criminal Activities (Omagari & Sako, 2019).
Before these amendments, various criminal activities involving crypto assets were prevalent in Japan. In April 2018, the Japan Virtual Currency Exchange Association (JVCEA) was established to enhance local exchanges. Additionally, the Japan Financial Services Agency (JFSA) created a study group to improve the security of cryptocurrency exchange platforms (Arora, 2020). The JFSA is responsible for overseeing cryptocurrency transactions and their regulations. In 2017, the agency issued warnings to Japanese citizens regarding the risks associated with cryptocurrencies and their potential use for fraudulent activities. Today, it is of utmost importance for Japanese investors to exercise caution regarding regulatory requirements and avoid potential restrictions. In fact, for companies engaging in financial transactions with cryptocurrencies, strict rules apply, and such companies are required to maintain a minimum capital of 10 million Yen (Moorthy, 2018).
In 2019, the Payment Services Act (PSA) underwent fundamental changes: the term "virtual currency" was replaced with the term "cryptocurrency." Furthermore, the Japan Financial Services Agency (JFSA) recognized cryptocurrencies as financial instruments for derivative transactions. To prevent illicit activities by cryptocurrency exchange platforms, it became a requirement for them to declare their intent to continue their services within Japanese territory. These markets need to obtain a license from Japanese authorities to continue their operations (Omagari & Sako, 2019).
Additionally, the Criminal Proceeds Act made it a legal requirement for cryptocurrency exchange platforms not to facilitate criminal activities. The separation of users' and the platform's funds from each other marked the latest amendment regarding cryptocurrencies (Arora, 2020).
In Japan, cryptocurrencies are not treated as legal tender or fiat currencies. Only Bitcoin is recognized as a legal tender. Japanese authorities have aimed to protect customers of crypto asset exchange platforms and prevent crypto asset-related terrorist financing and money laundering (Arora, 2020). Japanese authorities have also implemented taxation rules for cryptocurrencies. Initially, a consumption tax was applied, but the National Tax Agency of Japan later amended this regulation to treat cryptocurrencies as miscellaneous income (Arora, 2020). In 2017, the country announced that taxes on Bitcoin investments would range from 15% to 55% (Topaloğlu, 2021). The taxation of cryptocurrencies in Japan underscores that they do not hold the same legal status as the official currency of Japan, the Yen (Moorthy, 2018).
South Korea
South Korea has undergone significant changes in its approach to cryptocurrency regulation. Until January 2018, cryptocurrencies were completely banned in the country. However, new regulations were introduced to curb anonymous trading, implement strict taxation, and establish control processes for cryptocurrency exchange platforms (Jani, 2018). South Korea chose to shape cryptocurrency regulations through guidelines (Overgaag, 2013), ultimately resulting in the freeing of cryptocurrency exchange operations in the country, making South Korea a prominent player in Asia (Jani, 2018).
In South Korea, cryptocurrencies are neither classified as currencies nor financial products (Moorthy, 2018). The Electronic Financial Transactions Act defines cryptocurrencies as "electronic assets." The Digital Assets Basic Act (DABA) introduced a comprehensive legal framework to establish new guidelines for these digital monetary units (Overgaag, 2013). In March 2021, the Special Payment Act was implemented, which regulated the use of private coins and exchanges. Additionally, the government initiated support for South Korean companies to increase their cryptocurrency funds (Moorthy, 2018). However, this support also brought with it the requirement to comply with anti-money laundering regulations and tax structures.
Turkey
Turkey is often classified as a developing country in international literature. However, with the advancements in decentralized technologies, the country is making progress. For example, an important development in the Turkish Development Program is the plan to establish a blockchain-based central bank. In 2018, the Blockchain Turkey platform was founded (Topaloğlu, 2021). Despite these positive developments, regulations concerning decentralized technologies remain insufficient. The role of cryptocurrencies within the country's financial system is uncertain (Özkul & Baş, 2020). Different authorities hold varying opinions on these decentralized digital assets.
According to the regulations of the Banking Regulation and Supervision Agency (BDDK), platforms that create electronic currencies must obtain approval from the agency. These rules do not recognize Bitcoin as electronic money (Dayanan, 2021). The Capital Market Board (SPK) has declared that the business models and customers of these enterprises cannot use cryptocurrencies for their transactions, and these digital assets cannot be classified as bank deposits or participation funds (Turanboy, 2019).
Following the regulation by the Turkish Central Bank in 2021, cryptocurrencies were prohibited from being used in commercial activities and are now considered investment instruments. According to Turkish Commercial Law, they cannot be used as capital for companies, but if converted into fiat currency, they can be used as actual capital for businesses. In the case of collective and limited partnerships, the value of cryptocurrencies is determined by the partners, while for corporations, their market value is considered. Both of these values must be recorded in the company's deed (Bilgili and Cengil, 2019).
Various views exist in Turkey regarding the taxation of cryptocurrencies, but there is no definitive legislation in this regard. Considerations include the continuous income generated from cryptocurrency trading, the status of cryptocurrencies on exchange platforms, and the earnings of miners. The prevailing view suggests that, instead of income tax, cryptocurrencies should be subject to value-added tax (KDV) in Turkey. In fact, Article 37 of the Turkish Commercial Code states that cryptocurrencies cannot be classified as commercial earnings (Özkul & Baş, 2020).
Middle East
The Middle East is one of the most complex regions on our planet, characterized by its sociological, political, and economic intricacies. The majority of countries in this region are Muslim countries, and this religious aspect has both positive and negative effects on their overall structure. Cryptocurrency regulations in these countries are also influenced by Islamic culture. Declarations from various religious authorities in Islamic countries have expressed differing views on cryptocurrency transactions. Some consider these transactions to be prohibited, while others, including Islamic scholars, argue that cryptocurrencies can be permitted within the bounds of the religion. Both sides present various supportive arguments to justify their stances (Shovkhalov & Idrisov, 2021).
The leading countries in the Middle East for fintech investments are the United Arab Emirates, Lebanon, and Israel. These nations account for 73% of all fintech startups in the region (Al-Naimi, Al-Trad, & Yousef, 2021). Notably, Israel and the oil-rich Gulf States have been at the forefront of innovation, investment, and progressive policies regarding cryptocurrencies. On the other hand, several Middle Eastern countries have implemented bans and issued warnings regarding the use of these digital assets (Grossman, 2022).
Saudi Arabia
At the outset of the popularization of cryptocurrencies, Saudi Arabia maintained a distant stance toward decentralized assets. However, over time, the country has come to recognize the significance of reducing its dependence on oil and transitioning into a blockchain-powered nation. Notably, the Saudi Vision 2030 has introduced crypto-related strategies aimed at evolving decentralized payment infrastructure, fostering collaboration with other nations, and developing blockchain-based applications (Grossman, 2022). As an example, one of the pioneering companies in Saudi Arabia, Aramco, has initiated the implementation of a blockchain-based payment system (Khan et al., 2022).
Today, the Saudi Arabia Central Bank (SAMA) remains at the forefront of their virtual asset and central bank program. In 2018, SAMA issued warnings to Saudi citizens about the risks and hazards associated with cryptocurrencies. In addition to the technical aspects of cryptocurrencies and blockchain technology, there are religious considerations that influence the legislation of crypto assets in Saudi Arabia. Nevertheless, SAMA intends to persist in developing new regulations for cryptocurrencies to align with the cryptocurrency regulations in Dubai (Clynch, 2022).
Israel
Israel stands out as the only non-Muslim state in the region and is a pioneering country when it comes to cryptocurrency regulations. Israel has given rise to more startups than all other nations in the Middle East, boasting the highest concentration of technology companies. Many Israeli blockchain startups are focused on developing security and payment solutions to establish a bridge between fiat currencies and cryptocurrencies. The country is home to approximately 200 startups working on blockchain technology (Grossman, 2022). Despite the significant number of blockchain-based projects and businesses in the country, in 2017, the Israeli Security Authority recommended prohibiting companies from holding crypto-mining currencies, expressing concerns about Israeli investors including cryptocurrencies in their assets. However, this announcement from the Israeli Security Authority faced opposition from companies eager to engage in cryptocurrency-related ventures (Keidar & Blemus, 2018).
The primary regulation aimed at preventing market manipulation is the Israeli Securities Act, enforced by the Israeli Securities Authority. While the act pertains to securities in Israel, it remains uncertain whether cryptocurrencies can be classified under the scope of this act. According to Israeli scholars, cryptocurrencies cannot be considered securities, and therefore, they should not be subject to regulations pertaining to securities (Keidar & Blemus, 2018).
United Arab Emirates
The United Arab Emirates (UAE) is a nation formed by the union of six emirates. The country has shown a strong inclination toward decentralized technologies and cryptocurrencies. The UAE has implemented a strategy known as the Emirates Blockchain Strategy 2021, with the aim of increasing investments in blockchain technology at the federal level. Furthermore, the country has not banned cryptocurrencies and has established a legal framework for them to prevent their use in criminal activities. Additionally, different emirates within the UAE may have varying regulations regarding decentralized assets. Two of the emirates, the Emirate of Abu Dhabi and the Emirate of Dubai, are the main financial free zones in the country. Each financial free zone holds a degree of independence from federal Emirate law and operates under independent jurisdiction as per the UAE Constitution (Al-Tawil, 2022).
In Abu Dhabi, crypto assets are legally classified as commodities (Al-Tawil, 2022). This definition was established by the Financial Services Regulatory Authority (FSRA), the body responsible for overseeing financial services in the emirate. Individuals or entities involved with crypto assets are required to obtain approval from the FSRA in the form of a Financial Services Permission. There are several guidelines in place pertaining to cryptocurrencies in Abu Dhabi, including the Digital Security Offerings and Crypto Assets Regulations, which fall under the purview of the FSRA. The primary objective of this regulation is to mitigate risks such as theft and capital loss associated with cryptocurrencies (Babu, 2019).
In Dubai, the Dubai Financial Service Authority oversees activities related to cryptocurrencies (Al-Tawil, 2022). The Ministry of Economy in the emirate has identified cryptocurrency and asset tokenization as crucial elements for economic development. Dubai actively promotes blockchain technology and has introduced the Dubai Virtual Assets Law (DVAL) to support these efforts. Additionally, the emirate has established the Dubai Virtual Assets Regulatory Authority (VARA), which is responsible for safeguarding virtual asset services. VARA grants licenses known as VARA Licenses to cryptocurrency exchange platforms operating within the Dubai Territory. These platforms are also required to obtain other licenses from various departments within the emirate's administration (Atiyah, Manap, & Aziz, 2023).
Kuwait
The Ministry of Finance in Kuwait has not officially recognized cryptocurrencies as a means for financial transactions. Additionally, the Central Bank of Kuwait (CBK) has issued regulations prohibiting banks and companies from holding cryptocurrency resources (Freeman, 2022). This decision was made with the aim of combating money laundering and terrorist financing (Handagama, 2023). Rather than adopting existing cryptocurrencies, Kuwait has chosen to develop its own cryptocurrency (Freeman, 2022).
Qatar
In Qatar, the Qatar Financial Centre (QFC) and the Qatar Central Bank (QCB) play pivotal roles in financial regulation, and both authorities have shown a favorable disposition toward decentralized ledger technologies. However, in 2018, the QCB prohibited the use of Bitcoin in banking operations, and the QFC Regulatory Authority excluded crypto assets from financial services. Despite this ban, Qatar's Vision 2030 includes policies aimed at developing a blockchain-based economy. Legal scholars in Qatar believe that the existing legal framework in the country is sufficient to achieve this goal, and they do not see the need for new blockchain and cryptocurrency regulations (Ibrahim & Truby, 2021).
Bahrain
The Central Bank of Bahrain has actively promoted self-regulatory standards for crypto assets and has introduced a new legal framework for licensing crypto asset operations (Grossman, 2022). As part of their "Smart Government" program, they are planning to legalize distributed ledger technologies to enhance their monitoring (Khan et al., 2022).
Iran
Iran is a country that has been subject to sanctions from most developed nations for several years. For the country's leadership, cryptocurrencies are viewed as a means of mitigating the economic consequences of these sanctions. They have permitted local businesses to use cryptocurrencies for international trade (Grossman, 2022). In 2018, the Iranian Minister of Information and Communication Technology announced plans to implement a new cloud-based cryptocurrency system for the country. Furthermore, Iran's High Council of Cyberspace (HCC) declared its support for cryptocurrency trading regulations (Jani, 2018). Despite these positive developments, Iran remains concerned about issues related to terrorist financing and crime.
Lebanon
Lebanon is a country that has been grappling with economic difficulties for an extended period. Presently, the nation is experiencing the highest inflation rate in its history, and cryptocurrencies could serve as a lifeline for the country. Many Lebanese citizens believe that banks in the country should be permitted to conduct transactions using cryptocurrencies (Mills, 2023). However, there is currently no acceptable regulation in Lebanon regarding cryptocurrencies (Grossman, 2022). The only legal development concerning cryptocurrencies in the country is their recognition as cyber/electronic currencies (Riley, 2021).
Summary
Today, most Middle Eastern countries rely on oil-dependent economies and have historically boosted their financial well-being through the sale of natural resources. However, nations such as Saudi Arabia, the UAE, Qatar, and Bahrain have recognized the unsustainability of this system. As a result, they have embraced cryptocurrencies and blockchain technology as tools to transform their countries into centers of technology and innovation. While these countries are affluent, there are also several Middle Eastern nations facing severe economic hardships, such as Lebanon and Iran. For these countries, cryptocurrencies offer a potential solution to alleviate economic difficulties.
Middle Asia
The significance of the Middle Asian region is growing daily in the global economy and logistics. The once-empty landscapes of the 20th century now occupy a central position in the new financial world order. They serve as vital corridors for new highways, railways, and energy routes connecting the East and West. The rising importance of this region has spurred the countries within it to embrace new technologies like cryptocurrencies. However, it's important to note that none of these countries have sufficient regulatory frameworks in place to establish clear guidelines for decentralized assets.
Azerbaijan
Cryptocurrencies are unregulated in Azerbaijan, although the country's authorities are cognizant of these digital assets. Despite their categorization as "digital currencies," Azerbaijan's regulatory framework remains insufficient (Caspian Legal, 2022). However, there is a notable development as the Central Bank of Azerbaijan and Binance have entered into an agreement to collaborate on establishing a new cryptocurrency ecosystem in Azerbaijan. Binance, the world's largest cryptocurrency exchange platform, is prepared to assist the country in formulating new cryptocurrency regulations. Both parties share the goal of creating the largest cryptocurrency ecosystem in the country (Tassev, 2022).
Kazakhstan
The administration of Kazakhstan has classified cryptocurrencies under the act titled "On Currency Regulation and Currency Control." They have recognized cryptocurrencies as legal means of payment and current monetary units. Additionally, cryptocurrencies are also defined as digital assets. However, similar to other countries, the National Bank of Kazakhstan has issued various warnings about the risks associated with decentralized digital currencies (Chudinovskikh & Sevryugin, 2019).
Kirgizstan
The National Bank of Kirgizstan has issued a warning to its citizens about the precarious nature of cryptocurrencies and advised against using them as a means of payment for goods, services, and work. The bank is also in the process of creating its own cryptocurrency, named GoldenRock, with the aim of attracting private investments into the country. The first investment for this venture came from Russia (Chudinovskikh & Sevryugin, 2019).
Summary
As a result of these considerations, it becomes evident that there are two categories of countries in Middle Asia: those with little interest in cryptocurrency regulation and those actively pursuing regulatory measures. In fact, due to their advantageous geographical locations and cost-effective production, Middle Asian countries have the potential to become hubs for cryptocurrency mining activities. If they continue to advance their regulatory frameworks in this direction, achieving this goal is not beyond reach.
Southern Asia
Much like other regions across the Asian continent, the significance of Southeast Asia has grown in the 21st century. Emerging economic hubs such as Singapore, Kuala Lumpur, and Cava Island have evolved over time. Furthermore, some countries have positioned themselves as pioneers in the global adoption of new technologies, including cryptocurrencies. However, alongside these progressive nations, there are several countries in the region that lag behind in legal adaptation to new technologies.
Indonesia
The economic and logistical importance of Indonesia is growing daily. As the most populated Islamic country on our planet, Indonesia holds a significant position. However, it cannot be claimed that Indonesia has sufficient cryptocurrency regulations and efforts in place to establish relevant legislation. In 2018, the Central Bank of Indonesia issued a press release outlining plans to create new regulations aimed at safeguarding users from the risks associated with cryptocurrencies. However, as of now, the bank has not taken sufficient steps in this direction. In the country, Bitcoin and other cryptocurrencies are not recognized as legitimate instruments of payment; instead, they are classified as commodities (Sonksen, 2021). Moreover, it has been declared in Indonesia that cryptocurrencies are "haram," a term signifying their religious prohibition. This has been one of the significant reasons why the government has not pursued comprehensive efforts to regulate decentralized digital currencies and restrict their use as payment instruments (Clynch, 2022).
Laos
During the early stages of legitimizing cryptocurrencies in Laos, financial institutions restricted cryptocurrency transactions, but the legal status of cryptocurrencies in the country remains uncertain (Sonksen, 2021). However, in 2022, six companies were granted authorization to engage in transactions involving crypto assets. Additionally, two firms received licenses to participate in crypto-asset trading. It is a prevailing opinion among legal scholars in Laos that the current regulations in the country are insufficient for adequately addressing cryptocurrency technology (Lim, 2023).
Malaysia
The economic significance of Malaysia has grown in tandem with the broader economic expansion across Asia. In 2017, Malaysia was home to 11 cryptocurrency exchange platforms, prompting the Malaysian government to adopt a favorable approach to cryptocurrency regulation. During the same year, Malaysian authorities introduced new regulations aimed at establishing a robust system for overseeing cryptocurrencies. These regulations were enshrined in the Anti-Money Laundering and Counter Financing of Terrorism Act, which came into effect in 2018 and included provisions related to cryptocurrencies. This act represented a significant milestone in Malaysia's legislative history, particularly in the context of the burgeoning fintech industry. Despite these accommodating policies towards cryptocurrencies, the Central Bank of Malaysia declared in 2017 that cryptocurrencies cannot be considered legal tender (Moorthy, 2018).
Thailand
Thailand is a country where cryptocurrency regulations are still evolving. In Thailand, there are two main types of digital assets: digital tokens and cryptocurrencies, and both are officially supported and regulated. The acceptance and usage of cryptocurrencies have been on the rise in Thailand, indicating a growing interest in the crypto space. However, legal scholars in Thailand argue that more comprehensive policies and regulations are needed to ensure sustainable growth in both the financial and technology sectors of the country (Kasemrat and Kraiwanit, 2023). This suggests that Thailand may continue to refine its regulatory framework for cryptocurrencies and digital assets to foster a conducive environment for their development.
Vietnam
Vietnam has taken a cautious and somewhat restrictive approach to cryptocurrencies and their regulation. The country does not officially recognize cryptocurrencies as a form of monetary currency, and Bitcoin is not considered an asset under Vietnamese law. This means that cryptocurrencies cannot be taxed, and they are not accepted as legal means of payment by the State Bank of Vietnam (SBV). Additionally, the Vietnamese State Securities Commission (SSC) has urged trading firms to avoid providing cryptocurrency-related services, indicating a lack of a crypto-friendly stance from a regulatory perspective (Jani, 2018). It appears that Vietnam has yet to fully embrace cryptocurrencies, and the legal framework surrounding them remains uncertain and restrictive.
Cambodia
Cambodia's regulatory approach to cryptocurrencies seems to be evolving, but the legal framework is still in its early stages. The National Bank of Cambodia has taken steps to encourage local banks to facilitate cryptocurrency transactions, suggesting a cautious approach to the emerging technology. Additionally, the introduction of licensing requirements for cryptocurrencies and their exchange platforms indicates that the Cambodian government is taking steps to regulate this space, albeit without specific regulations in place as of the current state of knowledge (Sonksen, 2021).
Singapore
Singapore's approach to cryptocurrencies, as a wealth management and financial center in Southeast Asia, has been proactive. The Monetary Authority of Singapore (MAS) has demonstrated a willingness to adapt its regulatory framework to accommodate the evolving landscape of cryptocurrencies and blockchain technology. This adaptability has allowed Singapore to become a leader in the development and mainstream adoption of crypto monetary units (Lim, 2015). Thus, in spite of companies continuing to do 20% of their total trade using Bitcoin, they still cannot be counted as legal tender in Singapore (Shabatuk, 2019).
In Singapore, the application of existing financial regulations to cryptocurrencies posed significant challenges. Legal uncertainty led to the freezing of bank accounts for several cryptocurrency companies in the country (Shabatuk, 2019). To address this issue, in 2014, the Monetary Authority of Singapore (MAS) took the initiative to introduce new regulations specifically addressing virtual currencies and their relationship with traditional fiat currencies (Lim, 2015). These regulatory changes aimed to provide clarity and a structured framework for cryptocurrency-related businesses operating in Singapore.
One notable regulatory requirement introduced by MAS was the need for businesses involved in Bitcoin transactions to obtain a license. While this helped establish a regulatory structure for cryptocurrency activities, it also increased the cost of doing business in the sector and created challenges for small start-ups seeking to enter the Singaporean market (Lim, 2015). Furthermore, Singapore implemented new regulations related to criminal law, particularly focusing on anti-money laundering measures. The Corruption, Drug Trafficking and Other Serious Crimes Act (CDSA) and the Terrorism Act (TSOFA) were extended to cover cryptocurrencies and defined them as property (Lim, 2015). These measures were put in place to address concerns related to illicit activities involving cryptocurrencies.
Additionally, if any suspicious cryptocurrency transaction, especially those potentially linked to terrorist activities, is identified, Singapore's regulatory authorities are mandated to report the situation to MAS and the United Nations. This underscores the country's commitment to maintaining the security and integrity of its financial system while participating in the evolving cryptocurrency landscape (Shabatuk, 2019). Singapore's approach balances the promotion of technological innovation with the need for a well-regulated financial environment.
Summary
Singapore stands out as the most developed and proactive country in Southern Asia when it comes to cryptocurrency regulations. They have established a comprehensive regulatory framework that provides clarity for businesses operating in the cryptocurrency sector. This has allowed them to successfully integrate cryptocurrencies into their economy. In contrast, many other countries in Southern Asia have taken different approaches, ranging from outright bans on cryptocurrencies to a lack of clear regulations. The regulatory landscape for cryptocurrencies in these countries is often uncertain and inconsistent, which can create challenges for businesses and investors in the region. For the cryptocurrency industry to thrive and provide economic benefits, it is essential for countries in Southern Asia to develop clear and supportive regulatory frameworks. This would not only encourage innovation but also provide legal protections for users and businesses involved in the cryptocurrency space. Achieving a balance between embracing the potential of cryptocurrencies and addressing potential risks is a key challenge that many countries in the region are working to navigate.
Others
Australia
In Australia, cryptocurrencies are allowed, but strict regulations are enforced to monitor their use. Australian authorities have implemented these regulations to oversee cryptocurrency transactions, primarily to prevent potential involvement in terrorist activities. Cryptocurrencies are considered government assets and are subject to regulations like the Anti-Money Laundering and Counter-Terrorist Financing Act (Moorthy, 2018). However, in Australia, buying and selling cryptocurrencies are not currently subject to any form of taxation (Topaloğlu, 2021). The Australian Taxation Authority has indicated a desire to tax cryptocurrencies, but this policy is still under consideration (Jani, 2018).
Pakistan
In Pakistan, there is no consensus among legal scholars regarding the regulation of cryptocurrencies, and the country lacks a clear legal framework for cryptocurrencies. According to the Financial Stability Authority of Pakistan, Bitcoin can be considered a secure form of currency. However, Pakistani authorities have not defined cryptocurrencies as electronic money or legal tender. The Banking Regulation and Supervision Agency of Pakistan has issued warnings to the public and citizens about the risks of fraudulent activities and the potential loss of cryptocurrency wallets (Ali, 2022).
Taiwan
Taiwan, a technologically advanced country known for its chip production, currently lacks specific laws and regulations concerning blockchain technology and cryptocurrencies. The legal status of cryptocurrencies in Taiwan is not entirely clear, but they are not considered legal tender or official currency (Sonksen, 2021). In Taiwan, cryptocurrencies are categorized as digital commodities (Riley, 2021). Presently, there are no licensing requirements for cryptocurrency-related activities, but it is anticipated that the Taipei Exchange may introduce licensing requirements for cryptocurrency exchange platforms and mining operations in the future (Chang & Hsiung, 2023).
Conclusion
The continent of Asia includes several regions which are extremely important for the cryptocurrency industry. China was at the top of this industry. However, due to the new regulations of the government, the decentralized monetary units were completely banned from the country. India had tried to apply the same policy, but the judicial power of the country did not allow this. The third power of the Asian continent, Russia, followed a midway for cryptocurrencies. The country neither allowed crypto monetary units totally nor excluded them totally from their economy. Like Russia, Turkey applied a policy of balance about cryptocurrencies. Contrarily, of these states, Japan and South Korea are countries that support cryptocurrencies a lot. In particular, Japan has been trying to make them a part of their local economy.
Instead of its Muslim identity and the approach of Islamic scholars towards cryptocurrencies, the region of the Middle East tries to develop them into decentralized technologies of more than a huge number of countries. On the other hand, most of the states in Southern Asia banned cryptocurrencies from their countries. For this region, Singapore can be defined as an expectancy. In conclusion, the majority of Asian states banned cryptocurrencies, but the countries that have made the use of them easier in daily life exist on the continent as well.
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