Crypto Assets to Be Regulated Differently in the US, Potential Impact on Industry

The United States government could regulate crypto assets and tokens differently than stocks and traditional assets by altering the existing regulatory framework on securities.

On Dec. 22, CNBC reported that two congressmen — Warren Davidson and Darren Solo — have introduced a bipartisan bill entitled “Token Taxonomy Act,” in an effort to prevent over-regulation in the cryptocurrency space.

“In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space,” said Davidson.

When passed, what sort of impact could the bipartisan Token Taxonomy Act have on the cryptocurrency and blockchain sector?

More clarity, exactly what the industry needs

In a statement, the Blockchain Association — a Washington, D.C.-based non-profit trade association that represents many of the biggest companies in the cryptocurrency industry such as Coinbase, Circle and Digital Currency Group — said that the bill provides a definition to crypto assets and digital tokens that exclude them from being recognized as a security.

Throughout the past two years, many blockchain projects have left the U.S. market to pursue token sales in regions like Switzerland and Singapore, which have lenient and flexible policies regarding initial coin offerings (ICOs).

By providing a clear guideline on the regulatory nature of tokens and digital assets, the bill encourages blockchain projects to remain within the U.S. market and contribute to the growth of the local cryptocurrency and blockchain sector.

The vast majority of token sales and ICO projects — apart from a select few like Telegram that have reportedly conducted a private token sale with the approval from the U.S. Securities and Exchange Commission (SEC) — have disallowed investors in the U.S. to participate in token sales due to the ambiguity in existing securities laws.

Even projects such as 0x (ZRX) that have been listed by a U.S.-based strictly regulated cryptocurrency exchange Coinbase, which clears the project from being considered a security, did not allow investors in the country to contribute to the ICO.

“With these terms clarified, we can police bad actors while encouraging the good ones, giving US-based innovators the framework they need to build next-generation technologies and services here rather than doing that valuable work overseas,” the Blockchain Association said.

The bill also offers clarity on the taxation policy surrounding cryptocurrencies for the first time in the market’s history, eliminating the friction between blockchain networks and users.

Currently, users in the U.S. are required to declare capital gains taxes on all cryptocurrency transactions — small or big — because the Internal Revenue Service (IRS) of the United States federal government has recognized cryptocurrencies as a form of property.

Although the bill does not aim to alter the recognition of cryptocurrencies as a property, it imposes an exemption for capital gains taxes on transactions that do not exceed $600, deeming them as tax-exempt exchanges.

The Blockchain Association added:

“Also, this legislation includes provisions that would address issues with the tax treatment of tokens. In 2014, the IRS declared that ‘virtual currencies’ be treated as property, which means capital gains taxes need to be calculated for all transactions. This adds tremendous friction to decentralized networks. The legislation addresses this by providing a de minimis exemption for gains less than $600 and allowing for tax-exempt like-kind exchanges.”

Decentralization is key

The bill does not encourage the SEC and other enforcement agencies to acknowledge all types of tokens and ICO projects as non-securities. It still allows the SEC to exercise authority over tokens that are considered securities, based on a newly established definition and guideline.

On June 14, the SEC’s Director of the Division of Corporate Finance Bill Hinman said that a key factor in determining whether a token is considered a security under existing regulations is the level of decentralization of the project.

If a blockchain network is sufficiently decentralized and no central party has control over the majority of the project’s elements, including its monetary policy and development, the SEC director said in a speech that the native token of the blockchain network cannot be considered a security under existing regulations. Hinman said:

“If the network on which the token or coin is to function is sufficiently decentralized – where purchasers would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts – the assets may not represent an investment contract. Moreover, when the efforts of the third party are no longer a key factor for determining the enterprise’s success, material information asymmetries recede.”

On that front, the SEC and the lawmakers behind the bill are in agreement that, as long as a security is sufficiently decentralized, it should be able to continue on without the interference from the authorities.

When passed, the bill is expected to allow both the token issuers and investors to better evaluate whether a token is recognized as a security or not, based on the newly amended securities policies. The bill could also encourage more companies to register with the SEC to distribute securities through the issuance of tokens in a private sale.

In the upcoming months, the Blockchain Association, the companies represented by the non-profit organization and U.S. regulators are set to cooperate in improving the bill and move it forward to gain the approval from the House and the Congress.

For a bill that has only been in the making for several months, the Blockchain Association said that it is not perfect in many ways. But, throughout 2019, industry leaders, experts and lawmakers will work together to solidify policies surrounding the cryptocurrency and blockchain space.

“Like all legislation in the early stages, we expect this bill isn’t perfect yet. However, what excites us is that it was proposed by a bipartisan team, demonstrating a vision for innovation and responsibility that is shared across the aisle. With the new Congress starting in January, we hope digital tokens will be an idea that we can build upon. We want to work together to debate the key issues, ensure adequate consumer protection, and work toward advancing legislation that represents our collective views,” the association stated.

Crypto tax policy reform needed

Cryptocurrencies like Bitcoin are fundamentally, structurally and conceptually different than stocks and traditional forms of assets. As such, the Bitcoin market behaves and moves differently than most stocks with extreme volatility and rapid price movements, mostly because the market is open for 24 hours a day for investors in the global digital asset exchange market.

The problem with cryptocurrencies — or with any emerging asset class in its infancy — is that an investor could record a 300 percent gain on paper by the year’s end and lose all of the profits in the following year.

Because losses are not carried across to the next year and crypto taxes are calculated in the same way as stocks and properties, the mismanagement of a cryptocurrency portfolio could lead to a big tax bill for investors.

On Dec. 21, the Wall Street Journal reported that investors could use certain strategies to lower taxes on cryptocurrency investments, such as selling and repurchasing crypto assets.

Without the implementation of such strategies, the aggressive approach of the IRS to collect taxes from crypto investors — as seen in the federal court order that demanded Coinbase to provide information on about 13,000 cryptocurrency trading accounts worth more than $20,000 between 2013 and 2015 — could affect many investors in the future.

Currently, the IRS is evaluating tens of thousands of trading accounts that traded between 2013 and 2015 to potential charge capital gains taxes on cryptocurrency investors. Investors that do not have the know-how on reducing tax rates could get hit hard by the IRS in the future, especially given that the tax policy around crypto remains identical with that of stocks and properties.

If the bill gets passed and a new definition is provided to crypto assets, most areas of the asset class, including taxation, are likely to be altered.

From 2017 to 2018, Bitcoin increased by around 1,900 percent, from $1,000 to $19,500. Since then, Bitcoin has dropped to $4,000 by around 85 percent. For an asset class that tends to increase and decline in value by margins that are not comparable to the stock market, it is impractical to rely on the same tax policies.

Even major projects are shutting down

On Dec. 13, Basis — a stablecoin project financed by some of the largest venture capital firms in the world, such as Andreessen Horowitz and Bain Capital Ventures — announced that it will shut down its operations and return the $133 million it raised to its investors.

Dissimilar to other widely adopted stablecoins like Circle’s USDC and Gemini’s GUSD, Basis incorporates an algorithm and alters the supply of the token to adjust to the price of other major crypto assets, like Bitcoin and Ethereum.

In an official statement, the Basis team said that, ultimately, the closure of the project came down to the securities law of the U.S.

“As regulatory guidance started to trickle out over time, our lawyers came to a consensus that there would be no way to avoid securities status for bond and share tokens (though Basis would likely be free of this characterization). Due to their status as unregistered securities, bond and share tokens would be subject to transfer restrictions, with Intangible Labs responsible for limiting token ownership to accredited investors in the US for the first year after issuance and for performing eligibility checks on international users.”

Based on the statement of Basis, it is likely that the SEC and the lawyers of the project deemed it was not sufficiently decentralized, as the development is led by a team of developers hired by the company.

Basis was considered a promising algorithm-based stablecoin project. But, inefficient regulatory frameworks and securities policies that consider crypto assets in the same way as stocks and traditional assets limited the scope of the project.

For the long-term growth of the cryptocurrency sector, the bipartisan bill is crucial in defining cryptocurrencies in a new manner to facilitate the development of blockchain technology and encourage innovation in the space. Jake Chervinsky, a government enforcement defense and securities litigation attorney at Kobre & Kim, said:

“The Token Taxonomy Act would provide exactly the type of regulatory clarity the crypto industry needs. Legislation like this is orders of magnitude more important than non-binding guidance from agencies like the SEC.”

While the time frame of the approval of the bipartisan bill is uncertain, industry leaders and experts remain generally optimistic in the first initiative led by the members of Congress to regulate cryptocurrencies efficiently.

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Money or Assets? How World Governments Define Cryptocurrencies

Cryptocurrencies — what are they? Money? Commodities? Securities? Utility tokens? Or something else? Few national governments seem to be in any kind of agreement on this question, and for now, at least, their divisions have given such currencies as Bitcoin and Ethereum a floating, indeterminate status on the global stage.

As a result, cryptocurrencies lack a single, definite existence, with some nations treating them as money (e.g., Japan, Germany) and others treating them as an unregulated, speculative asset (e.g., Mexico, Denmark), making them the financial equivalent of Schrödinger’s cat. However, as this review of classifications of crypto throughout the world will show, cryptocurrencies are all these things and more, which is why they deserve to be classified by future legislation according their own, unique qualities.

United States: securities, commodities, property, money

As an indication of how difficult it may be for world governments to ever reach a global consensus on the status of cryptocurrencies, it’s worth pointing out that there’s currently little consensus within nations — let alone among them. This is nowhere more evident than in the United States, where five separate agencies have all had their own competing classifications of cryptocurrencies.

First up is the Securities and Exchange Commission (SEC), which — up until June — defined cryptocurrencies in general as securities, meaning assets in which someone invests in the expectation of receiving a return. In March, for example, it issued a public statement indicating that it would regulate anything being traded via an exchange platform as a security.

“A number of these platforms provide a mechanism for trading assets that meet the definition of a ‘security’ under the federal securities laws. If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”

Bitcoin declined by 10 percent following this announcement, yet the statements of other American authorities and agencies differ with the SEC’s assertion that cryptocurrencies are securities. Because, also in March, a New York federal judge ruled that the Commodities and Futures Trading Commission (CFTC) can regulate BTC and other currencies as commodities, putting them on the same level as gold, oil and coffee.

If this wasn’t already confusing enough, the Internal Revenue Service (IRS) has defined cryptocurrencies as taxable property since March 2014, when it declared:

“For federal tax purposes, virtual currency is treated as property.”

Observers would be forgiven for supposing that three separate definitions were enough, yet two additional agencies treat cryptocurrencies as money. The U.S. Office of Foreign Assets Control (OFAC) is the bureau of the U.S. Treasury Department responsible for enforcing economic sanctions, which can include sanctions against certain cryptocurrencies (e.g., the Petro). In April, it announced that it would be treating “virtual currencies” in the same way as fiat currency, making any individual who handled a cryptocurrency covered by an economic sanction liable for prosecution.

Likewise, the Financial Crimes Enforcement Network (FinCEN) presides over the illegal use of money, including laundering and the financing of terrorism. It updated its regulations in March 2013 to cover all “persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies,” which required exchanges (classified as “money transmitters”) to implement Know Your Customer (KYC) and Anti-Money Laundering (AMC) measures. By expanding its regulations, it brought cryptocurrencies under the concept of money, in contrast to the other governmental agencies who classified it as either a commodity, security or property.

Of course, such classifications aren’t mutually exclusive, yet they introduce confusion and complexity for individuals and businesses that want to comprehend just where they stand legally with cryptocurrencies. Fortunately, there are growing signs that some of the above agencies are beginning to converge on shared definitions.

In June, the SEC finally clarified that it doesn’t regard either Bitcoin or Ethereum — as they are the two largest currencies by market cap — as securities and that it would focus instead on Initial Coin Offerings (ICOs). This move came a month after CFTC commissioner Rostin Behnam delivered a speech that emphasized the increasing collaboration between his commission and the SEC.

“I spoke about my position on the CFTC and the SEC efforts to harmonize rules. Given the large number of dually registered market participants and overlapping policy, there is a real opportunity for the CFTC and SEC to harmonize redundant rules and leave both market participants and regulators in a stronger position.”

Such steps are modest and preliminary, but given that the SEC no longer regards such currencies as Bitcoin and Ethereum as securities, they at least narrow down the field of what cryptocurrencies are in the United States. That said, they still aren’t legal tender, although that hasn’t stopped thousands of U.S.-based businesses from accepting Bitcoin and other currencies as a means of payment.

Canada, Mexico and South America: commodities, virtual assets, legal tender

Like the U.S., Canada doesn’t regard cryptocurrencies as legal tender. However, its approach to virtual currencies is slightly more unified, with the Canada Revenue Agency (CRA) currently defining them as commodities — a definition which would appear to apply in general throughout most government agencies. This is why purchases involving crypto are regulated by the CRA as if they were barter transactions, with the relevant taxation applying. That said, a parliamentary act passed in June 2014 also defined cryptocurrencies as ‘money service businesses’ for the purposes of updating anti-laundering laws, while the Canadian Securities Administrators (CSA) announced in August 2017 that “many” ICOs “involve sales of securities.”

In Mexico, the emphasis is also on cryptocurrencies as commodities. On March 1, the government passed the Law to Regulate Financial Technology Companies, which includes a section on “virtual assets,” — aka cryptocurrencies. Compared to the previous definitions of securities, commodities, property and money, this is an admittedly vague term, and the provisions of March’s law don’t currently narrow down its application (since the law is, in fact, awaiting secondary legislation). However, previous remarks by leading figures in Mexico indicate that the government would be inclined to translate it to ‘commodity,’ with Banco de Mexico governor Agustín Carstens stating in August 2017 that, because Bitcoin isn’t regulated by a central bank, it’s a commodity rather than a currency.

Travelling farther south, the picture is mixed. In Venezuela, the government (in)famously announced the oil-backed Petro in December, and in April, it decreed that the cryptocurrency must become legal tender for all financial transactions involving government ministries. However, while all other cryptocurrencies were immediately classed as financial assets and as securities as a result of the decree establishing the Petro, none have been declared legal tender. Even more confusingly, the Venezuelan parliament has opposed the Petro at every opportunity. In March, it even declared that the state-backed currency is in fact illegal, because it was created without congressional approval and without the involvement of the Central Bank of Venezuela.

While classifications of one kind or another generally apply in the above American nations, cryptocurrencies suffer from a partial non-existence in others. In Brazil, the Securities and Exchange Commission (CVM) declared in January that cryptocurrencies cannot legally be classed as financial assets, despite the fact that the Brazilian Revenue Office had previously stipulated in 2017 that they’re to be regarded as such for tax purposes. In Chile, cryptocurrencies are neither securities nor money, although the central bank has recently begun considering specific regulation.

And in Colombia, the Financial Superintendent has also declared that digital currencies don’t count as money or securities, while, for tax purposes, it can be considered a ‘high-risk investment.’ This makes it somewhat more accepting than Ecuador, where cryptocurrencies are not only not legal tender, but are also prohibited as a means of payment.

While South America often takes a restrictive stance toward cryptocurrencies, some nations within the continent are slightly more accepting. In Argentina, cryptocurrencies aren’t legal tender and they don’t have any regulation specifically applied to them. That said, they are treated as goods under the terms of the nation’s Civil Code, while a December update to tax regulation classifies them as income derived from shares and securities.

What such variations indicate is that, when it comes to the classification of cryptocurrencies, the economic and political situations of the nations concerned make a difference. The inherent abstractness of cryptocurrencies makes them adaptable in terms of their function, so their particular classification and usage all depends on the political and economic conditions prevailing in a particular nation, and what that nation wants to use them for. This is why, in countries where the national currency and economy are relatively weak — or where freedoms are restricted — cryptocurrencies tend to be denied legal status.

Europe: private money, units of account, contractual means of exchange, transferable value

This tendency becomes more apparent when the status of cryptocurrencies in Latin America is compared with their status in Europe. In Germany, the continent’s biggest economy, Bitcoin has been recognized as “private money” since April 2014. Prior to that, its finance ministry also recognized the cryptocurrency as a “unit of account” in August 2013, making it a financial instrument subject to taxation and requiring companies that trade it to register with the Federal Financial Supervision Authority. And this February, the government took a step further in recognizing cryptocurrencies as actual money, exempting crypto holders from the tax when they use their coins as a means of payment — as ruled by the European Court of Justice in 2015.

In the U.K., cryptocurrencies have generally been left undisturbed by regulation, and what’s interesting to note is that the government has recognized that comparing them to pre-existing currencies, commodities, securities or any other financial instrument would be inaccurate. In 2014, its HM Revenue & Customs department wrote:

“Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.”

This would account for why the government has yet to propose or stipulate a definite status for crypto, even if the U.K. is part of the G20 group of countries that defined cryptocurrencies as assets rather than currencies in a March document, and even if crypto investment is subject to capital gains tax in Britain — making it an investment.

Across the English Channel, France has also held off applying any specific regulation to cryptocurrencies, although it has been making concerted efforts with Germany to propose laws that would be international in scope. Still, while it appears to be moving toward the creation of a favorable regulatory framework, the Banque de France has — since 2013 — held the position that cryptocurrencies are neither currencies nor a means of payment. On the other hand, the AMF (‘Financial Markets Regulator’) ran a public consultation in late 2017 that resulted in it defining two categories of cryptocurrencies: utility tokens and security tokens. Added to this, crypto traders — both private and commercial — are subject to taxation on their gains, with the government defining Bitcoin in 2016 as a “unit of account” for the purposes of collecting such tax.

Elsewhere in EU, the picture varies considerably, although there seems to be recurring agreement that cryptocurrencies aren’t money — except when authorities want to bring them within the scope of AML legislation. In Sweden, the central bank stated in March that “[Bitcoins] are not money.” This contradicted an October 2013 preliminary ruling from the Swedish Tax Board that stated Bitcoin isn’t subject to sales tax when traded, comes under the jurisdiction of Financial Supervisory Authority regulations and should be regarded as a currency.

In Denmark, the Financial Supervisory Authority delivered a statement in December 2013 that affirmed Bitcoin (and other coins) weren’t currencies, while in March 2014 the Danish central bank issued its own statement declaring much the same thing. As for what they are, the Danish Tax Council finally ruled in early 2018 that crypto-trading profits are taxable, implying that cryptocurrencies are regarded as (speculative) assets.

In the Netherlands, the central bank also denies the currency status of Bitcoin and other cryptocurrencies, having written in a January position paper:

“We do not consider cryptos as money.”

In contrast, a Dutch court ruled in March that Bitcoin can be considered a “transferable value,” making it equivalent to property. This bears some resemblance to a definition being worked on by the Italian Ministry of Economy and Finance in a draft decree, which describes cryptocurrencies as a “digital representation of value […] used as a tool of exchange for purchasing goods or services.” This classification doesn’t quite establish cryptocurrencies as currencies or as property, but it has parallels in a few other EU states. For example, in Latvia, the State Revenue Service and the Bank of Latvia have both asserted that cryptocurrencies represent a ‘contractual’ medium of payment —  a status that’s just short of money but close enough in functional terms.

Beyond the EU, Switzerland is perhaps the most significant European nation when it comes to crypto, not least because it has aggressively positioned itself as a desirable place for crypto traders and businesses. In 2014, its federal government published a report in which cryptocurrencies were defined as assets, rather than as currencies or a means of payment. But since then, the landlocked nation has introduced several “regulatory simplifications” in order to attract fintech companies, and it’s in this climate that new approaches to cryptocurrencies have emerged. In November 2017, the regional district of Zug began accepting Ethereum and Bitcoin as payment for administration costs and municipal services, effectively recognizing both as money. It was soon followed by the city of Chiasso (in Ticino), which announced in February that it would start accepting Bitcoin as payment for tax on amounts up to 250 Swiss francs.

Such examples from Europe offer two major takeaways. The first is that EU (and non-EU) nations — much like the U.S. and Canada — are holding back on specific crypto-focused regulation, thereby giving cryptocurrencies the space and time to solidify into definite, stable forms. As such, nations are reluctant to attribute any single ‘definition’ or ‘status’ to digital currencies. Correspondingly, the current application of numerous different categorizations is merely the result of attempts to apply any relevant pre-existing laws that, in lieu of specific legislation, might curb abuses of crypto. These categorizations are stop-gaps and shouldn’t generally be taken for what certain nations or governments ‘really think’ about crypto.

But secondly, even though many European states are gearing toward the announcement of bespoke cryptocurrency legislation, it would seem unlikely that many will advance so far as to actually recognize Bitcoin, Ethereum or any other major coin as legal tender. With the notable exceptions of Switzerland and Germany, the majority of European states deny that cryptocurrencies are money and given how jealously governments and central banks tend to guard their financial powers, it’s unlikely they’ll shift from this stance anytime soon.

China and East Asia

Jealousy is particularly acute in China. In December 2013, the Chinese government issued a notice proclaiming that Bitcoin is not a currency.

“In terms of nature, Bitcoin is a specific virtual commodity that does not have the legal status equivalent to currency and cannot and should not be used as currency in the market.”

Nonetheless, the same notice also acknowledged that “[Bitcoin] transactions act as a way of buying and selling goods on the internet,” and given that it made no attempt to prohibit or discourage such activity, it’s arguable that the announcement acted as a tacit recognition of cryptocurrencies as a means of payment (i.e., as money).

Unfortunately, the Chinese government’s position has hardened considerably since 2013. It banned ICOs in September 2017, while it also prohibited crypto exchanges that same month and later blocked foreign exchanges, citing “financial risks” as its motivation for both acts. In other words, it effectively denied that cryptocurrencies are legitimate securities, assets or commodities in China, just as it had denied their status as currency four years previously. And given that it has also been taking steps to make mining more difficult this year, the current political and regulatory climate in China is now denying cryptocurrency any kind of official status.

Things aren’t so gloomy for crypto elsewhere in Asia. In Japan, the government has gone through an opposite process to China’s, classing Bitcoin as “not currency” in 2014 and then correcting its position in March 2016, when the Payment Services Act finally recognized cryptocurrencies as money. However, as an indication of the uniqueness of crypto, the actual definition included in the act described cryptocurrency more specifically as a “property value” that can be used to buy goods and services, rather than as a currency.

Over in South Korea, cryptocurrencies are recognized as an “asset with measurable value,” a verdict furnished by the nation’s supreme court on May 30. It is consistent with the regulation and guidelines issued by South Korean authorities to date. These include a June update to AML laws that requires crypto exchanges to undertake Customer Due Diligence (CDD) and Enhanced CDD (EDD) measures, something which makes good on the government’s February promise to help foster the “normal” trading of cryptocurrencies as assets.

In Singapore, the government is also inclined to view cryptocurrencies as assets rather than money. In August 2017, the Monetary Authority of Singapore (MAS) warned ICOs and crypto exchanges that it has jurisdiction over those tokens falling under the definition of securities, a warning it repeated in September and also this May to eight exchanges that hadn’t yet registered with it. This is also largely the approach taken in Hong Kong, where the Securities and Futures Commission (SFC) clarified in February that it regards cryptocurrencies as securities, requiring ICOs and exchanges to apply for licensing. It has gone on to shut down certain ICOs as a result of existing securities laws, while it continued to remind the public that cryptocurrencies aren’t legal tender.

Unique identity

Again, what such stances underline is that most developed nations are cautiously open to cryptocurrencies as a new financial instrument, as a new means of generating income and raising capital and as the basis of a new technology — i.e., blockchain. However, it’s clear that few currently want to recognize Bitcoin or any other decentralized coin as money, especially if their governments happen to be more authoritarian. This reluctance is particularly evident in certain examples we’ve skipped over: In Russia, cryptocurrencies are “not a legal method of payment” but rather property, while the government in Turkey has previously stated that Bitcoin is “not considered as electronic money” under current law and isn’t compatible with Islam.

Because most governments are still unsure of how cryptocurrencies will develop in the future, and possibly because they don’t want to recognize the radical implications of decentralized money, they’ve shied away from establishing a distinct legal identity for cryptos. Instead, many have attempted to apply whatever relevant pre-existing laws they can, in the hope that this will curb those effects of cryptocurrencies that may be undesirable from the perspective of a national government. This is why, on an international level, cryptocurrencies have been swamped by a flood of miscellaneous categorizations, from private money to property and ‘transferable value.’

On the other hand, the variation in classifications is also a product of the versatility of cryptocurrencies. Because they generally aren’t issued and control by a central body, there are few restraints on how they can be used. Some holders may therefore use them as a means of payment, others may treat them as a speculative financial instrument or as property, while the future could bring yet even more functions. This adjustability to the needs of holders is one of crypto’s defining characteristics, which is why the U.K. government was probably right to say in 2014 that cryptocurrencies have a “unique identity.” And it’s also why, when the world’s governments finally get around to introducing specific legislation for cryptocurrencies, they’d be well advised not to attempt to subsume them entirely under existing legal categories.

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China: World’s Fourth Largest Bank by Assets Trials Blockchain Loans Backed by Land

The Agricultural Bank of China (ABC), the world’s fourth-largest bank by assets, has issued its first loan on blockchain, local news outlet Financial News reported July 31.

State-owned ABC, which counts itself among China’s “Big Four” lenders, revealed it had issued a loan worth around $300,000 backed by a piece of agricultural land in the Guizhou province.

According to Financial News, the bank will “buil[d] blocks with local people, pilot land and resources bureaus, and agriculture and animal husbandry bureaus,” through the blockchain system, adding that the loan aimed to “support the local tea industry.”

The blockchain project received participation from third parties, including the provincial branch of the People’s Bank of China (PBoC), acting as nodes to keep tabs on the validity of loan data.

In the future, the bank says, other types of loans will come under the auspices of blockchain, the decentralized ledger technology allowing ABC to prevent the issue of clients applying for loans at different banks using the same piece of land as collateral.

China continues to adopt blockchain technology with considerable speed, with the government keen to deploy industry-wide standards next year.

In July, China’s joint technical committee of the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) announced they would lead an international research group on the standardization of the Internet of Things (IoT) and blockchain technology.

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