Because of the anonymity associated with Bitcoin and many other cryptocurrencies and their role in illicit transactions on the Dark Net (a hidden part of the internet that is not accessible through normal browsers and search engines), public perception is often suspicious or at least cautious. However, the use of Bitcoin and other cryptocurrencies is not illegal in South Africa (and most other jurisdictions) and a growing number of vendors (including a law firm) are now accepting payment in Bitcoin.
In the 24 hours from 17 and 18 June 2016, 186 902 Bitcoin transactions occurred globally with a total value of ZAR 888 723 631.61 (or USD 62 100 735.91 at exchange rates of USD 1 to ZAR 14.31). This is approximately a 40% increase in daily transactions since our post in June 2015.
Despite cryptocurrencies not being expressly prohibited in South Africa, they are not legal tender and their use remains unregulated. The National Treasury, the South African Reserve Bank, the South African Revenue Service, the Financial Services Board and the Financial Intelligence Centre issued a joint statement in September 2014, warning users about the unregulated status of cryptocurrencies. No updates have been published since then. However, as the uptake of Bitcoin and other cryptocurrencies increases, it is possible that the South African authorities will adopt the approach taken in many other jurisdictions and explore ways in which the regulatory regime could be amended or revised.
Below are some examples of how regulators are addressing this globally.
- Cryptocurrencies are not currently in the scope of the European Union (EU) regulations, but many authorities have expressed the view that they should be regulated, particularly to cater for anti money-laundering and counter terrorism-financing controls. A number of member states have issued statements confirming the legal status of cryptocurrencies, most commonly that they are not currencies or legal tender.
- Australian regulators are focussing on tax, anti money-laundering and competition-related issues. A licence from the Australian Securities and exchange Commission (ASIC) may also be required where cryptocurrencies are linked to or part of another financial product or service, but ASIC is looking to establish a ‘regulatory sandbox’ where digital commerce and fintech start-ups can discuss potential regulatory treatment with ASIC.
- In Canada, anti money-laundering and counter terrorism-financing legislation has been amended to address ‘virtual currencies’, but enacting of the amendments is pending the publication of regulations specifying the obligations on virtual currency dealers.
- Regulation in the United States depends on the location in which the cryptocurrencies are being used or provided, as the federal and various state authorities have taken different approaches. For example, the Federal Financial Crimes Enforcement Network applies existing regulations to cryptocurrency administrators and exchanges, while the State of New York has created a new licensing regime for cryptocurrency providers.
Cryptocurrencies are still not recognised at all in some jurisdictions, such as China and Hong Kong, and the regulatory response in these jurisdictions has been cautious.
Our global cryptocurrency team has produced a guide to the legal and regulatory framework within which cryptocurrencies operate. The guide is being published in eight chapters. Click here to read the sixth chapter, Regulation of cryptocurrencies.
Click here to register for subsequent chapters.