World crypto regulation


The relationship between the young crypto space and regulation has not been easy or simple. Much of this difficulty arises from the basic fact that the blockchain space in many ways does not conform to the traditional models in business and human interaction at scale.

This page provides a high-level overview of the crypto regulation landscape and evolution without pretending to be a go-to source for answers to particular questions about particular activities, countries, etc. Given that this is a fast-evolving subject, this document should only be used as an overview and starting point for further study instead of a definitive guide.  


The regulatory challenges crypto poses

First, blockchain technology allows the existence and turnover of currencies and financial assets without centralized control and the ability to block or roll back transactions in most cases. The databases that register the existence and transfers of those instruments are maintained by distributed networks of computers in which almost anyone may normally participate. Of course, participation requires certain resources but it does not require anyone’s explicit authorization. Blockchain-based financial ecosystems are essentially unstoppable, even though they can be marginalized by cutting them off from the legacy systems.

Secondly, individuals and organizations interacting with public blockchains and applications running on them usually do not have to identify themselves, except via their public addresses. This means that if someone’s public address has not been tied to an individual through a KYC procedure with a cryptocurrency exchange or another regulated entity, it is very hard to conclusively identify her.

The overwhelming majority of blockchain projects also involve cross-border interactions among multiple individuals and entities. This obviously complicates any regulatory efforts.

In addition to this, blockchain technology sometimes results in the emergence of phenomena that do not even have close analogues in the non-blockchain world. Hard forks of existing chains (like Bitcoin Cash or Ethereum Classic) are a good example. They essentially created new cryptocurrencies (BCH and ETC) for the holders of BTC and ETH without the latter moving a finger, raising of sorts of legal questions, especially regarding tax.   

Perhaps, most importantly, many blockchain projects are not managed by a single organization or even a consortium of organizations. Instead, projects usually have rather amorphous communities that keep them running. While there is often some sort of a core development team present, it usually does not have a final say over what form the blockchain platform or application in question will take. However, with the exception of projects like Tezos, where clear voting-based governance procedures have been adopted, there is usually no universally accepted procedure for community-wide final decision-making.

This state of affairs is fundamentally at odds with how regulators have historically dealt with rule-making for social activities at scale. The predominant approach relies on assigning rights and responsibilities to clearly identifiable entities with clear governance mechanisms and individuals that can be held legally accountable.


The general regulatory response so far   

Given the unique complexity posed by the blockchain space, despite some calls to regulate or even ban things directly, regulators have so far mostly focused on several areas where it has quickly affected substantial numbers of people. Exceptions to this trend, such as the calls on the European Union to oblige everyone to register their public addresses or the blanket bans on certain activities by countries like China, Pakistan and South Korea have so far failed to inspire wide or any adoption. Given their impracticality, they are unlikely to be widely attempted at all.  


Public crypto asset offerings

The arrival of Ethereum and similar smart-contract platforms brought with it the possibility for project teams to easily issue financial instruments in the form of tokens in order to fund development. The resulting boom of initial coin offerings (ICOs) has brought worldwide attention to the space and drew varying regulatory responses. The particular speed of the response in this case is probably due to the fact that token offerings have so far been the only area of relatively widespread participation in crypto by ordinary people.

The regulatory response even resulted in the emergence of two new forms of token offerings: security token offerings (STOs) and initial exchange offerings (IEOs).  

Governments approaches to initial token offerings can be classified into:

  • complete bans (China, South Korea)
  • treating almost any token offering as a security offering (United States)
  • having relatively detailed but accommodating regulatory frameworks (Malta, Bermuda, Singapore and even France)
  • having no special rules or established regulatory practice concerning ICOs (e.g. United Kingdom, Germany)

One of the key issues related to the regulatory approach to token offerings concerns the treatment of the so-called utility tokens. These tokens ostensibly give their holders the possibility to utilize the services offered by the future platform. However, given that many purchasers of such tokens have been motivated by the expectation of their price increase rather than their direct use, and that the funds raised have been used for platform development, there is a risk of their classification as securities.

While some projects have embraced the idea of conducting security-requirement-compliant token sales (STOs), this option comes with significant downsides. In particular, issuers either need to bear the significant costs associated with public security offerings or limit the token distribution to the much smaller audience of qualified investors.   

Given the stature of the U. S. economy as a leader in technological innovation and the largest pool of venture capital, the stance of the Securities and Exchange Commission (SEC) with regard to token offerings has had significant influence on the crypto space.

The SEC tends to interpret the question which financial instruments qualify as securities very broadly based on the so-called Howey test arising from the mid-20th century Supreme Court decision.

Recently, the SEC launched its first enforcement action against a blockchain startup’s ICO (Kik) on the basis of a pure regulatory violation, i.e. failure to register its ICO with it as a sale of securities. Although Kik had attempted to present its ICO as a sale of utility tokens to be used on its messaging platform, the SEC has argued that this was merely a pretext as the capabilities for token use on the platform had not been developed at the time of the ICO. If the SEC prevails in court against Kik, it may create a precedent and further chilling effect for the whole ICO landscape. Kik is determined to battle the SEC in court instead of reaching a settlement as other projects targeted by the SEC have tended to do so far.

However, it needs to be noted that in recent remarks, SEC commissioner William Hinman suggested that some already completed ICO projects may in the future receive relief from the SEC. To qualify for the relief, the projects in question will need to demonstrate that their tokens have clearly evolved from being securities towards being instruments for accessing the services of a platform. One project, Turkey Jets, has already benefited from such a relief. But it seems to have done so at the cost of essentially abandoning all the advantages ICOs offer as a form of fundraising.        


The activities of cryptocurrency exchanges and wallet providers

Cryptocurrency exchanges and centralized wallet providers are points at which crypto asset transfers cease to be peer-to-peer and become conducted by professional intermediaries.

Cryptocurrency exchanges allowing purchases of crypto assets for fiat are usually considered by financial regulators as money transmitters (e.g. U.S. FinCen) and are subject to the relevant requirements, in particular the KYC/AML ones. However, the way trades are conducted is usually not subject to government rules. Crypto-to-crypto exchanges are usually not specifically governed by any regulations. The same concerns centralized wallet providers.

However, more burdensome regulation of cryptocurrency exchanges and wallet providers may also be coming soon. As reported by Coindesk, the global anti-corruption body Financial Action Task Force (FATF) is close to releasing new international standards for regulation cryptocurrency firms. Actors from the industry tried to persuade the FATF to mitigate the draft rules but mostly in vain.

The most onerous requirement appears to be the so-called “travel” rule which banks are subject to. It will oblige virtual asset service providers (VASPs) to keep and receive the information about the originators and beneficiaries of the outgoing or incoming transactions and make it available to authorities on demand.

In addition to this, the European Union has finalized the Fifth Anti-Money-Laundering Directive that will be implemented by the member states in 2020 and extend the EU anti-money-laundering regime to cryptocurrency exchanges and wallet providers.


The legal status of cryptocurrencies

The legal classification of cryptocurrencies (meaning blockchain native tokens like BTC) is important at least for two reasons. First, it determines how and whether gains from reselling them will be taxed. Secondly, it concerns their acceptability as a means of payment.

The approaches countries take to this issue vary widely and are sometimes inconsistent even within one country. For instance, Germany, on the one hand, considers cryptocurrencies as private money whose resale is not subject to taxation after 1 year of holding them. On the other hand, it also recognizes them as a legal tender. In countries where there is no special regulation on the matter (e.g. France), cryptocurrencies are considered as movable goods for tax purposes.


Blockchain records and smart contracts as a source of legal proof

For certain blockchain applications to achieve mass adoption capacity, some regulatory action is actually necessary. One such example is the legal recognition of blockchain ledgers as a reliable source of proof.

So far, very few jurisdictions have granted blockchain ledgers such recognition. The list of exceptions includes Malta (apparently), Italy, the U.S. states of Ohio, Tennessee and Washington and, surprisingly, China. Italy and Malta also appear to have recognized smart contracts at least in general. The fact that jurisdictions like Georgia or Dubai have signed on to using blockchain registers for public purposes may also suggest recognition.


Asset custody for institutional investors

Even though this is not a novel regulatory development specifically in response to crypto, it appears that most institutional investors have been kept out of crypto asset investments in part by the obligation to rely on qualified third-party custodians. Things may be starting to change with the granting of licenses in several U. S. states to crypto-asset custodian providers like Coinbase.  


Potential areas of future tension

While the dearth of detailed crypto regulation in most aspects may mostly be explained by a combination of the extreme novelty of the technology and its low impact thus far, things may change should one of the use cases discussed below become genuinely consequential. Findings like those by Biwise about Bitcoin trading may also lead to regulatory action regarding the core activities of cryptocurrency exchanges.


Money and payments

The first and perhaps still most promising use case for crypto remains a combination of currency and payments. So far, even the pioneer project of the industry that has focused on the means of payment functionality, Bitcoin, is barely used by people for their daily needs. Hence, perhaps, outside places like Venezuela, cryptocurrencies have not yet become genuine competitors to fiat moneys managed by central banks.

Nonetheless, if central banks start sensing that this is about to change, they may seriously pressure governments into attempting to ban or at least heavily marginalize cryptocurrency use. In the process, they may rely on the wide acceptance of the idea that central banks are supposed to manage the money supply and be able to respond to economic fluctuations through decreasing or increasing it. Cryptocurrencies running on public blockchains are by definition not under the central banks’ purview.

While governments, technically, cannot shut cryptocurrencies down completely, they could probably marginalize them sufficiently through, for instance, banning their exchange into fiat.



Another area where the blockchain space may be doomed at a collision with regulators is the fast-developing decentralized finance space, known colloquially as De’Fi. It already features, among others, stablecoin projects like MakerDAO’s DAI, USDC and TrueSD, cryptocurrency lending schemes like Nexo and Compound, staking as a service providers like Coinbase, decentralized prediction market platforms like Augur and parametric insurance protocols like the one being developed by Etherisc.

The common feature of this diverse array of applications is that they are attempting to supplant legacy service providers in the financial industry that are at a serious disadvantage because of the heavy and extensive regulations. The latter may, thus, start lobbying for a significant regulatory crackdown on the De’Fi space in order to level the playing field. They may be joined by politicians and campaigners for financial justice and retail investor protection.

Decentralized prediction market platforms may become the first target of such a crackdown as they potentially enable not just bets on sports or election outcomes but also what looks like alternative markets for company stocks and financial derivatives in all but name. Moreover, their centralized analogue is already banned or restricted in most places.

On the other hand, the staking as a service and parametric insurance use cases are, arguably, less threatened as the former appears to have a limited appeal, at least for the time being, and the latter has little room for things to go wrong for consumers.


Massive on-chain or blockchain-facilitated data storage

The currently available blockchain platforms, even where they theoretically allow this, make it too expensive to store significant amounts of data directly on them. However, even in this context, several projects have emerged that are aiming at using token-based incentive mechanisms to entice people to store data in a decentralized manner. Examples include Protocol Labs’ complementary IPFS and Filecoin projects, Ethereum’s Swarm, Storj and Sia. Moreover, several blockchain platforms under development such as DFinity, RChain and Hedera Hashgraph envisage allowing users to store data directly on the platform. EOS already provides this functionality, although there are serious reasons to doubt that it constitutes a genuine public blockchain.

There are already also projects that aim at using the decentralized storage layers for the data created or shared through them. Those include decentralized social networks like Voice to be developed on EOS, decentralized marketplaces like those Swarm City is attempting to make possible at scale and other possible applications.   

If the relevant platforms start storing substantial amounts of data, including personal data, as well as illegal data such as child pornography or copyrighted content without copyright holders’ consent, regulators may respond by attempting to force the relevant platforms to remove or modify access to such data, or even shut them down.   


Further reading


Detailed country-by-country overviews

“Regulation of cryptocurrency around the world”, legal report by the Library of Congress, available at:

“Crypto Regulations by Country” by ComplyAdvantage, available at:

“Cryptocurrency regulation global update 2019” by Mary Thibodeau, available at:

“Cryptocurrency exchanges and custody providers: International regulatory developments” by Norton Rose Fulbright, available at:


Messari boards

“TokenTax”, available at:

“Defend Crypto”, a board on the industry’s initiative spearheaded by Kik, aimed at defending ICOs against the SEC, available at:


Other sources of interest

“Legal recognition of blockchain registries and smart contracts” by Dr. Robert Herian, Open University Law School, available at:

The SEC’s Framework for “Investment Contract” Analysis of Digital Assets, available at:

“How We Howey” by SEC commissioner Hester Price, available at:

“Germany: a surprising Bitcoin tax haven”, available at:

“Cryptocurrencies and blockchain Legal context and implications for financial crime, money laundering and tax evasion”, report for the European Parliament, available at:

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