Cryptocurrencies and Legalization, Regularization, Legal tender: Why is it important to know these concepts?

almost 2 years ago

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There is no doubt that in the next 10 years the growth in the cryptocurrency sector worldwide will be extremely impressive, in fact so much so that some influential people in the crypto space such as the CEO of Coinbase, have said that within 10 years more than a billion people will have used cryptocurrencies or use them in their daily lives, or it will also be possible to see a substantial part of GDP in the crypto economy.

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Others predict that the value of some major cryptocurrencies may also see growth, for example, the U.S. asset management firm ARK Investment Management, published a study in which it
The U.S. asset management firm ARK Investment Management published a study revealing a markedly bullish projection for bitcoin in the coming years, as blockchain technology is among the fastest growing technologies in the sector, as well as artificial intelligence, robotics, energy storage, DNA sequencing, and so on.

But, experts in these topics also mention that this growth comes with regulations or laws for everything to flow in the best way, since people would have more confidence in something that is rooted under laws and regulations, for the crypto ecosystem to thrive, we need to have fair rules, we need transparency and more clarity, said Coinbase COO Emile Choi.

But many of the users who are in cryptocurrencies on a daily basis use them precisely because they want to stay away from government regulations and monitoring, which is why decentralized financial systems are the most successful in the cryptocurrency sector.

And as this issue of laws or regulations and institutional adoptions has a lot of controversy because of the confusion it can generate, the best way to understand it is to study carefully what is the difference between legalizing cryptocurrencies, regulating them and making them legal tender. Legalizing, regulating and making them legal tender. Although they sound similar, they convey three different ideas.

Legal tender

Legal tender is referred to as the official currency in a State, in whose territory it enjoys liberatory power, and where the citizens of that country are obliged to accept it as a means of payment of a debt, i.e. the form of payment, defined by the law of a State, which has been declared acceptable as a medium of exchange and a legal way to cancel debts. Therefore, if I am offering some good or service in the United States and someone pays me with dollars, I must accept it, since I am obliged to accept payments in the legal tender in the country where I am.

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Now following this same logic, if some country authorizes some cryptocurrency as the legal tender of that country, we are obliged to use that cryptocurrency to pay for goods or services or to receive it as payment for the goods or services I can offer in that country.

To date, the only nations that have authorized cryptocurrencies as legal tender are: El Salvador, The Central African Republic and Myanmar (But the latter is not entirely clear, as the motion was passed by a parallel government).

In these countries it is mandatory to use bitcoin for commercial transactions within their territories, for example in El Salvador article 7 of the law mentions it and in the Central African Republic it is article 10 of the law. Although fiat currencies can also be used as parallel currencies, the dollar in the case of El Salvador and the CFA Franc in the case of Central Africa. But in no other country there is this obligation to accept payments in bitcoin.

Legalize Cryptocurrencies.

Legalization is defined as the extension of positive legal norms to spheres or activities previously excluded from the positive order. In the case of cryptocurrencies, legalization means that what was previously forbidden (i.e. outside the law), becomes permitted, for which the positive legal system is changed so that its use and/or possession is no longer forbidden, but although the governments of some countries do not prohibit the use or trade of cryptocurrencies, they do not encourage them and even warn buyers about the possible risks of volatility that these currencies represent. Among the countries where the use of cryptocurrencies is legal are:

Albania, Cyprus, Czech Republic, Hong Kong, North Macedonia,
Germany, South Korea, Hungary, Malta, Romania,
Angola, Costa Rica, India, Mauritania, Singapore,
Argentina, Croatia, Ireland, Mexico, South Africa,
Australia, Denmark, Iceland, Namibia, Sweden,
Austria, Slovenia, Israel, Nicaragua, Switzerland,
Belgium, Spain, among others.

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So far in the countries where is explicitly all kind of activity with cryptocurrencies is in Algeria, Bolivia, China, Egypt, Kosovo, Morocco, Nepal.

Regulation of cryptocurrencies.

When one thinks of regulating cryptocurrencies, one can say that it is about governments creating laws or regulations that detail how cryptocurrencies can be used, what taxes will be paid on transactions, in what cases they cannot be used, among other things.

The regulation of cryptocurrencies is a practice that more and more countries are adopting, for example Panama and Cuba created laws and regulations that stipulate how cryptocurrencies should be used. For example, in Panama, the approved law establishes that both individuals and merchants may agree to use cryptocurrencies without limitation as a means of payment. But this does not mean that they are legal tender, because acceptance is not mandatory. And in the case of Cuba, the legislation establishes the requirements to be met by companies that provide services with bitcoin or other cryptocurrencies.

Conclusion.

We can see that although these 3 concepts may resemble each other, the truth is that they are totally different meanings and applications. In the case of converting a cryptocurrency into a legal tender, it makes it mandatory within that country to make transactions with that cryptocurrency, as in the case of El Salvador and the Central African Republic.

Legalization openly allows the use of cryptocurrencies in a given country, but does not establish them as legal tender, i.e. it is not mandatory to accept them as a means of payment or to pay with them.

And regularization allows laws or regulations detailing how cryptocurrencies can be used, what taxes will be paid on transactions, in which cases they cannot be used, among other things.

So looking at these three concepts, legalization is the concept that attracts the most attention, because it allows you to use cryptocurrencies freely, also in a country where cryptocurrencies are legal the economy can flourish quickly, as has been the case of Venezuela, where thanks to a legalization of cryptocurrencies many people have seen it as a way out of the crisis.

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What can we expect?

As cryptocurrencies are legal in a great majority of territories and countries, we can expect that there will be more regularization in the crypto sector, since in this way governments can benefit from taxes while the economy is afloat due to the global recession.

That is why what the CEO of Coinbase says that in 10 years more than a billion people will use cryptocurrencies is very small, maybe much more, since the countries where cryptocurrencies are loyal have a large population of more than a billion people, and everyone seeing the great benefit they can get from cryptocurrencies will continue to expand their use and adoption.