On the Regulation of Cryptocurrency

The concept of cryptocurrency initially assumes anonymity and the absence of a central regulator or intermediary. The world’s main cryptocurrency today is bitcoin.

Speaking of regulation, we need to understand that there are several hundred cryptocurrencies in the world, most of which are derivatives of bitcoin. Therefore, full control is only possible over operations performed with a specific cryptocurrency created by a regulator or a major player in the financial market. If we talk about covering all cryptocurrencies, the regulation of this market in regard to identification and centralization is impossible today within a single country. Even with the current agreements on information exchange between countries, it is not always possible to track cash flows of traditional currencies (at least on time), although such cases are becoming rarer and almost all of them are related to cash withdrawal schemes in different countries.

Today, real regulation of cryptocurrency is only possible in the field of its exchange for traditional currencies. At the same time, in terms of identification, it is possible to put only part of the methods of cashing in / exchange under control. It is known that intelligence agencies have the tools to identify participants in “undesirable” transactions, e.g. in the Deep Web. However, this is a rather laborious process, involving work on specific transaction nodes and comparing operations with the flow of traditional assets and currencies, which can be controlled to a much greater extent. In this regard, controlling cashing in / exchange methods (to the extent that it is possible) will play a positive role by bringing to light part of the transactions.

The tendency to recognize cryptocurrencies in the world matters in terms of taxation, because some of the flows would thus open for both direct and indirect taxation. In a number of countries where cryptocurrencies are recognized as a commodity asset, exchange transactions are also subject to taxation.

The most productive path would be to discreetly regulate the blockchain sphere (and cryptocurrency as its particular case). It is already obvious that the path of prohibitions leads to the risk of being left out of progress and new investment flows. It appears that, broadly speaking, the main goal of developing the regulation at the current stage should be synchronizing blockchain with the existing system of protecting property rights and dispute resolution.

Elisey Leonov – junior researcher at the Tax System Development Department