Crypto is a lot of things, it is money for many while others perceive it as a medium of exchange. Even still, there are people who consider it as a security, but let’s be honest, crypto is all of these in different contexts. For those of you who don’t follow this new technology closely, it might be confusing how can something be all of these at the same time. Well, that is the beauty of crypto, it is fluid and has many applications. But it seems now that this fluidity is causing a lot of headache for lawmakers. A recent report from the University of Cambridge’s Center for Alternative Finance explores the fluid nature of crypto and the obstacle it is creating for the legal status of cryptocurrencies in detail.
Around the globe
Classification of crypto varies throughout the globe and even between state and federal governments in countries like the USA. The US has no clear policy for the purpose of taxation. The IRS considers it as a capital asset, whilst Canada does not consider cryptocurrencies as legal tender but the new law treats them as “money service businesses”. Australia considers crypto as currencies and people are free to trade and buy crypto, in Germany crypto is considered legal. And finally, Finland classifies it as a financial service and provides a VAT (Value Added Tax) exemption. The current state of crypto regulations is confusing and since there is ambiguity in how new regulations will look like, many are holding back on their investment into this field for fear of future legal entanglements.
It’s a tough choice
Going through the previous paragraph gives an idea of how chaotic the regulations surrounding this new technology is, the report points out that this is due to the inherent nature of crypto. “A variety of terms are used, often interchangeably and without a clear definition,” the report said. “Even the term crypto asset lacks a specific definition… crypto asset and a token can have different meanings depending on the context in which they are used.” This creates a challenge for the regulators as they have to understand what crypto is and different nuances about it, then to identify the terminology suiting regulatory objectives. After that, define the terminology clearly and ensure it is used consistently in official statements.
Since crypto cannot be classified as an asset, security or any other existing terms, the paper suggests a multidimensional approach for solving this. The report puts forward three classifications, mainly payment, means of exchange and instrument of investments. Crypto serves different purposes and hence, it’s only logical to have different kinds of regulations. But as we have discussed, the proposed three different classifications might not be enough as the industry evolves.
Nowadays, more people are innovating on Ethereum, and private permission networks on Hyperledger are coming up. These are going to create further more confusion as new products come in the market. Unless a clear and consistent regulatory policy is made on crypto, its mainstream adoption is going to be a long road ahead, this kind of inconsistency, especially within the countries of same political body like EU, creates uncertainty, and investors hate uncertainty. Besides, crypto is growing aimlessly in all directions, it might even be healthy for the industry to have a direction to follow. Many on the contrary argue that the industry is still young, and no one can be sure of what direction it should take.
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