In the U.S., the Uniform Law Commission (ULC) has drafted the Uniform Regulation of Virtual Currencies Business Act as an attempt to establish a statutory law across many jurisdictions and states. The Commission believes that in the absence of an overarching Federal regulation, it is important to create standardized State legislation on the regulation of virtual currencies. The Act will require businesses and individuals to apply for licenses if their services fall under categories including exchange of virtual currencies for cash, bank deposits, or transfer of virtual currencies from one person to another.
As an aftermath of the USD530 million hack of the Tokyo-based exchange Coincheck in January 2018, a self-regulatory entity was launched on 24 April 2018. The Japan Virtual Currency Exchange Association (JVCEA) unifies the Japan Blockchain Association and the Japan Cryptocurrency Business Association. The former is led by bitFlyer, Japan’s largest cryptocurrency exchange. The JVCEA aims to quickly enforce self-imposed rules governing the protection of exchange users’ assets and to improve internal controls of cryptocurrency exchanges. Penalties for breaches will also be considered. Sixteen virtual currency exchange trading firms have signed up to the JVCEA, including Money Partners, QUOINE, Bit Flyer, Bit Bank, SBI Virtual Currency, GMO Coin, Bit Trade, BTC Box, and BitPoint Japan.
The South Korean Government is planning to introduce an approval system for cryptocurrency exchanges based on the Bitlicense model, developed by the NYDFS. Bank of Korea has stated that while it is difficult to use cryptocurrency as money, it is likely it will be used as a means of payment in limited scenarios such as overseas remittances. Further the central bank plans to ease rules on crypto-based assets in line with policies initiated by G20 nations to establish unified global transnational crypto regulations, which were agreed In March 2018.
Kenya’s financial regulatory bodies met at the start of 2018 to discuss cryptocurrency regulations. India’s Government is also mulling new regulations for the oversight of virtual currencies. In the Philippines, rules governing initial coin offerings ICOs that will include guidelines on cybersecurity of cryptocurrency markets, eligibility of issuers, including the officials and technology utilized, and financial literacy of investors are being considered. The BoE is researching the implications of central bank-issued digital currency and has issued a set of questions for input from the financial industry and academia. In Iran, the Government is planning a new infrastructure for cryptocurrencies in an effort to develop an alternative currency for combating economic sanctions imposed by the U.S. Cambodia has recently announced that it will launch a national cryptocurrency, Entapay. Turkey is also planning a national cryptocurrency. The Financial Services Regulatory Authority (FSRA) of Abu Dhabi is contemplating a framework for regulating virtual currencies. Malaysia and Thailand are also developing regulatory frameworks for digital currencies.
During 2017, significant developments in the area of gold- and oil-based cryptocurrencies were made. Venezuela launched a digital cryptocurrency backed by oil, named Petro. Designed to bypass U.S. financial sanctions, the Petro will be backed by the country’s oil, gas, gold, and diamond reserves. The Venezuelan currency, the Bolivar, has significantly eroded due to the U.S.-imposed sanctions. Further, the country has officially requested OPEC member countries support the digital currency, via an oil-backed joint cryptocurrency mechanism. The Petro will be pre-mined, meaning that, unlike bitcoin, new tokens cannot be created. Currently Petros cannot be exchanged for oil, but they can be used to pay taxes and fees.
Gold-backed cryptocurrencies on platforms such as blockchain and Ethereum are a continuation of the ‘e-gold’ trend of the 1990s, which arose with the advent of the internet. The U.K. and Australia are developing cryptocurrencies backed by gold. The Royal Mint in the U.K. has developed RMG, which it describes as an alternative way to invest in and trade physical gold. Australia’s Perth Mint is developing a cryptocurrency backed by precious metals that will be based on blockchain technology.
Gold-backed cryptocurrencies are also gaining traction in Europe and the U.S. Examples include: Aurus (Netherlands), Anthem Gold (U.S.), BullionCoin (Isle of Man), DinarDirham (HongKong), and IC3 Cubes (Canada).
It is expected that the number of gold-related blockchain products will soar during 2018 as the big gold players enter the segment. Hence, a potentially significant jump in demand for physical gold may be witnessed as these entities acquire physical metal to back their offerings.
Banks are also looking to leverage cryptocurrencies for interbank settlements. Bank of Korea is researching a bank-issued cryptocurrency for interbank settlement. SAMA is also exploring a cryptocurrency for interbank settlements.