bitcoin, money, cryptocurrency

Should Cryptocurrency Be Regulated?

Cryptocurrency is decentralized digital money based on blockchain[1] technology. It is a digital, encrypted, and decentralized medium of exchange, which means that there is no central authority that manages and maintains its value. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet. There are more than 5000 cryptocurrencies currently in circulation, the most popular being Bitcoin[2]. With the increasing popularity of cryptocurrency and its use, governments are taking a more serious approach to regulate it.

Should cryptocurrency be regulated? And how can lawmakers regulate decentralized digital money?

In June 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender[3]. Practically, this means that Bitcoin must be accepted when offered as payment for goods and services, in addition to the ability to pay tax contributions in Bitcoin.

Canada for example allows the use of cryptocurrency but does not consider it legal tender[4].

On the other hand, countries such as Kyrgyzstan, Bolivia and Iran banned the use of cryptocurrencies on their territory[5].

This rift between governments and cryptocurrencies can also be seen amongst investors. For some, the cryptocurrency revolution cannot be denied and consider that governments should understand the value that cryptocurrencies offer to their economies and should therefore be regulated. Others believe that trading in cryptocurrency holds great risk since it is not uncommon for its value to drop unexpectedly resulting in loses in the millions of dollars. Furthermore, cryptocurrency have been attracting money laundering criminals allowing them to hide the source of their proceeds and move their funds across borders without detection. This fact urged governments to take more productive approaches to regulate cryptocurrency.

U.S.A:

In the US, cryptocurrencies are regulated by several federal and state agencies, including but not limited to the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, the U.S. Treasury Department and Federal Reserve[6]. Hester Peirce, one of the five commissioners at the SEC considered that this complicated structure makes it difficult for investors to understand the rules.

The recent Colonial Pipeline Co. hack, which triggered fuel shortages across the Eastern U.S, and the culprits demanding ransom payments in Bitcoin, highlighted the implications of cryptocurrency on national security. As a result, regulators such as Senator Mark Warner, who considered that cryptocurrencies are “crying out for some level of regulation”, and Senator Elizabeth Warren are rushing to “catch up with where these cryptocurrencies are going”[7].

Canada:

In Canada, digital currencies are subject to the Income Tax Act. The Financial Consumer Agency requires that any gains or losses from selling or buying digital currencies be reported. As for the mining of cryptocurrencies, “if the taxpayer mines in a commercial manner, the income from that business must be included in the taxpayer’s income for the year”. In other words, mining as a business for profit is taxable whereas mining undertaken as a personal hobby is nontaxable[8].

In an effort to contain money laundering crimes, the Governor General of Canada gave, on June 19, 2014, his royal assent to Bill C-31 which included amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act. As a result of this law, companies dealing in virtual currencies are required to register with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac), “keep and retain prescribed records”, report suspicious or terrorist-related property transactions, and determine if any of their customers are “politically exposed persons”[9]. This law can be regarded as the world’s first national law on digital currencies.

Lebanon:

In Lebanon, the Lebanese Central Bank (BDL) issued, on December 19, 2013, a notice to the banks and financial institutions warning them of the dangers of using cybercurrencies, especially Bitcoin, with the concern that “the platforms and networks used for the issuance and trading in such currencies are not subject to any laws or regulations”. However, BDL Governor Riad Salameh announced in October 2017 that the Central Bank intends to launch its own cybercurrency. For that purpose, a protection system must be arranged against cybercrime. Salameh explained that this new currency will be monitored by BDL and will be subject to Lebanese law but refrained from providing any time frame and from stating the process of how this will be achieved[10].

While there is no doubt that cryptocurrency, digital tokens, and blockchain-based business models are here to stay, understanding the many risks of this market will allow regulators to issue the necessary laws to protect both investors and consumers. For one, the decentralized nature of cryptocurrency may leave investors helpless should complications with transactions or ownership arise. In addition, investors who find themselves victims of fraud and financial crime committed by criminal organizations may not have the same legal options as traditional victims of fraud. One should also not forget the volatile nature of cryptocurrency entailing the potential of intense price swings. Accordingly, lawmakers should prioritize the regulation of cryptocurrencies to assure the necessary protection to consumers and investors.


[1] A blockchain is an open, distributed ledger that records transactions in code, like a checkbook that’s distributed across countless computers around the world. Transactions are recorded in “blocks” that are then linked together on a “chain” of previous cryptocurrency transactions.

[2] Kate Ashford and John Schmidt, What is Cryptocurrency?, <https://www.forbes.com/advisor/investing/what-is-cryptocurrency/>,  consulted on June 10, 2021.

[3] Nelson Renteria, Tom Wilson, and Karin Strohecker, In a world first, El Salvador makes Bitcoin legal tender, <https://www.reuters.com/world/americas/el-salvador-approves-first-law-bitcoin-legal-tender-2021-06-09/>, consulted on June 10, 2021.

[4] Regulation of cryptocurrency: Canada, <https://www.loc.gov/law/help/cryptocurrency/canada.php>, consulted on June 10, 2021.

[5] Countries that have banned Bitcoin, <https://www.escapeartist.com/blog/countries-banned-bitcoin/>, consulted on June 10, 2021.

[6] Chris Matthews, U.S. is “behind the curve” on crypto regulations, says SEC Commissioner Pierce, <https://www.marketwatch.com/story/u-s-is-behind-the-curve-on-crypto-regulations-says-sec-commissioner-peirce-11617824160>,            consulted on June 10, 2021.

[7] Benjamin Bain and Robert Schmidt, Crypto’s image takes beating in Washington, Dimming Fans’ hope, <https://www.bloomberg.com/news/articles/2021-06-10/crypto-s-outlook-in-washington-is-darkened-by-ransomware-attacks>, consulted on June 10, 2021.

[8] Regulation of cryptocurrency: Canada, <https://www.loc.gov/law/help/cryptocurrency/canada.php>, consulted on June 10, 2021.

[9] Ibid.

[10] Regulation of Cryptocurrency Around The World, <https://www.loc.gov/law/help/cryptocurrency/world-survey.php#lebanon>, consulted on June 10, 2021.

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