United States
The U.S. Securities and Exchange Commission (SEC) is considering what steps to take. On July 8, 2021, Senator Elizabeth Warren, who is part of the Senate Banking Committee, wrote to the chairman of the SEC and demanded that it provide answers on cryptocurrency regulation by July 28, 2021[90] due to the increase in cryptocurrency exchange use and the danger this poses to consumers.
China
On 18 May 2021, China banned financial institutions and payment companies from being able to provide cryptocurrency transaction related services.[91] This led to a sharp fall in the price of the biggest proof of work cryptocurrencies. For instance, Bitcoin fell 31%, Ethereum fell 44%, Binance Coin fell 32% and Dogecoin fell 30%.[92] Proof of work mining was the next focus, with regulators in popular mining regions citing the use of electricity generated from highly polluting sources such as coal to create Bitcoin and Ethereum.[93]
In September 2021, the Chinese government declared all cryptocurrency transactions of any kind illegal, completing its crackdown on crytocurrency.[94]
United Kingdom
In the United Kingdom, as of 10 January 2021, all cryptocurrency firms, such as exchanges, advisors and professionals that have either a presence, market product or provide services within the UK market must register with the Financial Conduct Authority. Additionally, on 27 June 2021, the financial watchdog demanded that Binance, the world's largest cryptocurrency exchange,[95] cease all regulated activities in the UK.[96] Some commentators believe this is a sign of what is to come in terms of stringent regulation of the UK cryptocurrency market.[96]
South Africa
South Africa, who has seen a large amount of scams related to cryptocurrency is said to be putting a regulatory timeline in place, that will produce a regulatory framework.[97] The largest scam occurred in April 2021, where the two founders of an African-based cryptocurrency exchange called Africrypt, Raees Cajee and Ameer Cajee, disappeared with $3.8 billion worth of Bitcoin.[98] Additionally, Mirror Trading International disappeared with $170 million worth of cryptocurrency in January 2021.[99]
South Korea
In March 2021, South Korea implemented new legislation to strengthen their oversight of digital assets. This legislation requires all digital asset managers, providers and exchanges are registered with the Korea Financial Intelligence Unit in order to operate in South Korea.[100] Registering with this unit requires that all exchanges are certified by the Information Security Management System and that they ensure all customers have real name bank accounts, that the CEO and board members of the exchanges have not been convicted of any crimes and that the exchange holds sufficient levels of deposit insurance to cover losses arising from hacks.[100]
Turkey
Turkey's central bank, the Central Bank of the Republic of Turkey, banned the use of cryptocurrencies and crypto assets for making purchases from 30 April 2021, on the ground that the use of cryptocurrencies for such payments poses significant transaction risks.[101]
El Salvador
On 9 June 2021, El Salvador announced that it will adopt Bitcoin as legal tender, the first country to do so.[102]
Cuba
In August 2021, Cuba recognized cryptocurrency as legal tender, the second country to do so.[103]
Legality
The legal status of cryptocurrencies varies substantially from country to country and is still undefined or changing in many of them. At least one study has shown that broad generalizations about the use of bitcoin in illicit finance are significantly overstated and that blockchain analysis is an effective crime fighting and intelligence gathering tool.[104] While some countries have explicitly allowed their use and trade,[105] others have banned or restricted it. According to the Library of Congress, an "absolute ban" on trading or using cryptocurrencies applies in eight countries: Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, and the United Arab Emirates. An "implicit ban" applies in another 15 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican Republic, Indonesia, Iran, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and Taiwan.[106] In the United States and Canada, state and provincial securities regulators, coordinated through the North American Securities Administrators Association, are investigating "bitcoin scams" and ICOs in 40 jurisdictions.[107]
Various government agencies, departments, and courts have classified bitcoin differently. China Central Bank banned the handling of bitcoins by financial institutions in China in early 2014.
In Russia, though cryptocurrencies are legal, it is illegal to actually purchase goods with any currency other than the Russian ruble.[108] Regulations and bans that apply to bitcoin probably extend to similar cryptocurrency systems.[109]
In August 2018, the Bank of Thailand announced its plans to create its own cryptocurrency, the Central Bank Digital Currency (CBDC).[110]
Advertising bans
Cryptocurrency advertisements have been temporarily banned on Facebook,[111] Google, Twitter,[112] Bing,[113] Snapchat, LinkedIn and MailChimp.[114] Chinese internet platforms Baidu, Tencent, and Weibo have also prohibited bitcoin advertisements. The Japanese platform Line and the Russian platform Yandex have similar prohibitions.[115]
U.S. tax status
On 25 March 2014, the United States Internal Revenue Service (IRS) ruled that bitcoin will be treated as property for tax purposes. Bitcoin is therefore subject to capital gains tax.[116] In July 2019, the IRS issued letters to cryptocurrency owners instructing them to amend returns and pay taxes.[117]
The legal concern of an unregulated global economy
As the popularity of and demand for online currencies has increased since the inception of bitcoin in 2009,[118] so have concerns that such an unregulated person to person global economy that cryptocurrencies offer may become a threat to society. Concerns abound that altcoins may become tools for anonymous web criminals.[119]
Cryptocurrency networks display a lack of regulation that has been criticized as enabling criminals who seek to evade taxes and launder money. Money laundering issues are also present in regular bank transfers, however with bank-to-bank wire transfers for instance, the account holder must at least provide a proven identity.
Transactions that occur through the use and exchange of these altcoins are independent from formal banking systems, and therefore can make tax evasion simpler for individuals. Since charting taxable income is based upon what a recipient reports to the revenue service, it becomes extremely difficult to account for transactions made using existing cryptocurrencies, a mode of exchange that is complex and difficult to track.[119]
Systems of anonymity that most cryptocurrencies offer can also serve as a simpler means to launder money. Rather than laundering money through an intricate net of financial actors and offshore bank accounts, laundering money through altcoins can be achieved through anonymous transactions.[119]
Loss, theft, and fraud
In February 2014, the world's largest bitcoin exchange, Mt. Gox, declared bankruptcy. The company stated that it had lost nearly $473 million of their customers' bitcoins likely due to theft, which Mt. Gox blamed on hackers who exploited transaction malleability problems in the network. This was equivalent to approximately 750,000 bitcoins, or about 7% of all the bitcoins in existence. The price of a bitcoin fell from a high of about $1,160 in December to under $400 in February.[120]
Two members of the Silk Road Task Force—a multi-agency federal task force that carried out the U.S. investigation of Silk Road—seized bitcoins for their own use in the course of the investigation.[121] DEA agent Carl Mark Force IV, who attempted to extort Silk Road founder Ross Ulbricht ("Dread Pirate Roberts"), pleaded guilty to money laundering, obstruction of justice, and extortion under color of official right, and was sentenced to 6.5 years in federal prison.[121] U.S. Secret Service agent Shaun Bridges pleaded guilty to crimes relating to his diversion of $800,000 worth of bitcoins to his personal account during the investigation, and also separately pleaded guilty to money laundering in connection with another cryptocurrency theft; he was sentenced to nearly eight years in federal prison.[122]
Homero Josh Garza, who founded the cryptocurrency startups GAW Miners and ZenMiner in 2014, acknowledged in a plea agreement that the companies were part of a pyramid scheme, and pleaded guilty to wire fraud in 2015. The U.S. Securities and Exchange Commission separately brought a civil enforcement action against Garza, who was eventually ordered to pay a judgment of $9.1 million plus $700,000 in interest. The SEC's complaint stated that Garza, through his companies, had fraudulently sold "investment contracts representing shares in the profits they claimed would be generated" from mining.[123]
On 21 November 2017, the Tether cryptocurrency announced they were hacked, losing $31 million in USDT from their primary wallet.[124] The company has 'tagged' the stolen currency, hoping to 'lock' them in the hacker's wallet (making them unspendable). Tether indicates that it is building a new core for its primary wallet in response to the attack in order to prevent the stolen coins from being used.
In May 2018, Bitcoin Gold (and two other cryptocurrencies) were hit by a successful 51% hashing attack by an unknown actor, in which exchanges lost estimated $18m.[125] In June 2018, Korean exchange Coinrail was hacked, losing US$37 million worth of altcoin. Fear surrounding the hack was blamed for a $42 billion cryptocurrency market selloff.[126] On 9 July 2018 the exchange Bancor had $23.5 million in cryptocurrency stolen.[127]
The French regulator Autorité des marchés financiers (AMF) lists 15 websites of companies that solicit investment in cryptocurrency without being authorised to do so in France.[128]
A 2020 EU report found that users had lost crypto-assets worth hundreds of millions of US dollars in security breaches at exchanges and storage providers. From 2011 to 2019, between four and 12 breaches were identified a year. In 2019, thefts were reported to have exceeded a value of $1 billion. Stolen assets "typically find their way to illegal markets and are used to fund further criminal activity".[129]
Darknet markets
Properties of cryptocurrencies gave them popularity in applications such as a safe haven in banking crises and means of payment, which also led to the cryptocurrency use in controversial settings in the form of online black markets, such as Silk Road.[119] The original Silk Road was shut down in October 2013 and there have been two more versions in use since then. In the year following the initial shutdown of Silk Road, the number of prominent dark markets increased from four to twelve, while the amount of drug listings increased from 18,000 to 32,000.[119]
Darknet markets present challenges in regard to legality. Cryptocurrency used in dark markets are not clearly or legally classified in almost all parts of the world. In the U.S., bitcoins are labelled as "virtual assets".[citation needed] This type of ambiguous classification puts pressure on law enforcement agencies around the world to adapt to the shifting drug trade of dark markets.[130][unreliable source?]
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