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Cryptos Legalization: Benefits and Samples

03 February 2022 12:17, UTC
Taylor Brouwer

Obvious and not the Only Benefits States Can Get from Legalizing Cryptos

Cryptocurrencies are the latest means of exchange that had caught the world a couple of years ago. Somebody still treats cryptos as threats. Some people enjoy closing deals with cryptos. Somebody wholeheartedly believes in blockchain but has doubts about the future of cryptocurrencies as such. The diversity of thoughts is partially caused by their legal status - they are not officially legalized. But, the states can only benefit a lot from that. Let's start with the basic points and move to the benefits of crypto legalization.

Prohibit or Move to “White”?

Dealings with cryptocurrencies remain popular despite all controversies and negative experiences participants of the market gained while carrying out transactions. At this point, appears an obvious question – whether to prohibit cryptocurrencies as such or legalize and regulate?

As the experience shows, prohibiting cryptos in some states doesn’t lead to completing the usage of such cryptos at all. Interested persons will look for opportunities to buy and trade elsewhere, including in the countries where the banking ban is absent and, thus, it is possible to open a bank account there.

Most countries refrain from adopting separate legal acts aimed at crypto legalization. The regulations are limited to the existing legislation only. Relevant legal acts are applied depending on the nature of concrete cryptocurrency – whether it is a payment instrument, utility token, or security. Only one aspect is covered well in most states – preventing money laundering and terrorism financing. Respective legal acts contain definitions of virtual assets, cryptocurrencies, and extend their force on the relations that are somehow associated with cryptocurrencies – to prevent money laundering.

This situation of the absence of specific cryptocurrency regulation leads to remaining all transactions associated with it in the "gray zone". And that sector covers huge amounts. And it is not regulated properly taking into account the specifics of crypto and transactions conducted. But, arranging this regulation may turn out to be an effective endeavor that can eliminate possible uncertainties and bring more security to the market. Some countries have made a proactive effort at this point. What are the main benefits of legalizing cryptos?

What Benefits Crypto Legalization Can Bring for All

What other important benefits of cryptocurrency legalization are?

  • This process of legalization can result in an integration of a large market into the world economy. Cryptos may be easily considered as “fresh blood” for the financial system.
  • Legalizing cryptos may significantly accelerate the modernization of economies.
  • The legalization of cryptos will make this market more transparent. It will be clear and predictable on what to expect from regulators to handle this business safely and with good profits.
  • States could get more taxes to their budgets thanks to the legalization of cryptos and making deals come from the “gray” to “white” zone.
  • Legalization adds trustworthiness to trading spots.
  • Payment transactions may be carried out in a more effective way, instantly, and using regular payment methods always.
  • Appears an opportunity to enter the competition in the market at a new level.

States Where Crypto Regulation Already Exists and Arguments in Favor of It

It may be surprising but crypto regulations have been adopted in a couple of states only. Good examples here are El Salvador, the Philippines, and Ukraine. What was the intent in each case?

In El Salvador, local state authorities joined their effort aimed at regulating cryptos with the purpose to reform the industry and break with the past outdated practices. They wanted to create an environment suitable for attracting more investments to the country. There was also a practical purpose aimed at satisfying the needs of ordinary citizens. It was necessary to make financial and banking services more available to locals and at lower rates compared with banks (this point was especially important for sending money across borders). After the reform, it is now easy to make payments using cryptos – it is equally easy to pay for a coffee or pay taxes using Bitcoin.

In the Philippines, the local Securities and Exchange Commission and the Central Bank of Philippines expanded the scope of the Securities Regulation Code to transactions with virtual currencies too. That is a clear and unambiguous approach aimed at increasing the number of crypto exchanges in the state.

In Ukraine, in 2021, the separate Law of Ukraine # 3637 "On Virtual Assets” was adopted. It defines major legal terms, introduces parameters to consider certain assets to be secured or unsecured, a list of services allowed to be provided, the requirements to service providers, and covers many other aspects. What was the main motivation for legalizing cryptos in this jurisdiction? There were many reasons, in fact:

  • the goal of creating an official status to cryptos taking into account the spread of cryptos among Ukrainians;
  • intent to attract more investors in the country, including foreign exchanges;
  • the goal of building the reputation of a high-tech state;
  • add more security and predictability to customers and financial services operators;
  • intent to expand the past experience of applying blockchain in various state sectors.

The further application practice will show whether this concrete law is effective for regulating cryptocurrencies. But, this legislation and regulation effort is welcomed and desired to be made in each state that wants to progress in terms of using blockchain and arranging the circulation of cryptocurrencies in a more secure way.

Things to Keep In Mind

Dealing with any instrument, including cryptos, needs special attention and carefulness. Any investors who have decided to purchase and close deals with cryptocurrencies of any kind should realize their volatile nature and potential risks of losses. Ask questions about what you are risking to lose and can get. What is the nature of crypto you intend to deal with and how does its profile look like?

What backs Bitcoin, for instance? In fact, it is not backed by any currency or gold, or asset by default. This network is not controlled by a single person or organization. But, the demand and the rules of closing deals using decentralized networks create an environment for existing cryptos. Assess all pros and cons of bitcoins. Form such a profile for any cryptocurrency you have decided to deal with. It will be similar in most cases as all cryptos share the same problems and opportunities. Still, extra features may be available in each concrete case too.

Also, it is necessary to pay attention to the terms of offerings and an issuer (its registration, reputation, management, transparency of policies, etc.). It is always useful to track the previous history of an issuer or service provider you are dealing with.

Being careful doesn't mean being restricted by excessive regulations. In fact, transparent legal acts are required for this area for the comfort of all parties involved. While appropriate legal regulation is absent in most cases, extra risks for dealings with cryptos remain because of the unpredictability of local state authorities.

For example, imagine a situation where the courts, in the absence of clear legal regulation, would have to de facto decide on their own what cryptocurrencies are or are not. Each judge will be able to decide whether cryptocurrencies can be seized as money/property, whether they should be taken into account in certain calculations (for example, when calculating the amount of money in a person's possession), etc. In such a case, it is not only a question of unpredictability, because it will be impossible to foresee what decision each individual judge will make, but also of corruption risks, which are still a thing for a large number of countries. So, flexible and predictable legal regulations for cryptos are required in any state.

At the same time, the crypto industry is the exact one enabling the maximization of freedom and amount of profits. The sense of how to deal with available cryptos to gain maximum benefits will come with practice. Meanwhile, keep in mind - it is always better to deal with the amount of money (including in cryptos), you aren't afraid to lose painlessly. Riskiness is another side of a coin along with promising profitability.

So, high risks, absence of regulations, and enormous opportunities for high profits are things that characterize this industry. Keep in mind those and develop your own strategy for dealing with cryptos relying on past successful practices and new trends.

Final Words

Cryptocurrencies are a good tool that can substantially modernize the economy of states if regulated appropriately. At the moment, it is not prohibited by law but also lacks specific regulations adapted to its nature. Still, legalizing cryptos can give more freedom and security to all participants of the market and the states.

About the author:

Taylor Brouwer is a professional economics researcher at WriteMyPaperBro and blogger. In addition to professional-related topics, he also writes articles on pandemic and post-pandemic business, technology, travel, and other topics. In 2016, Taylor became the lucky owner of 4 Bitcoins, which he recklessly sold a year later.