BRICS and Cryptocurrency Governance: Where Do We Stand?

While there is much global attention on key BRICS countries embroiled in the Governments vs Crypto debate, the media tends to glance over developments within the greater BRICS member cohort. This article provides an overview of governmental positions on cryptocurrencies as it pertains to legal and regulatory rulings of ICOs, crypto exchanges, crypto-to-fiat conversions, cryptocurrency payments, and mining.

Cryptocurrencies: A Tumultuous History

Cryptocurrencies have come a long way since Satoshi Nakamoto’s Hollywood-esque aim-shoot-gone approach. The anonymous developer’s landmark white paper, released in late 2010, has given the world first bitcoin , then a host of other virtual currencies in its wake. His mysterious disappearance, in turn, has left behind plenty to speculate about, as did bitcoin’s often controversial early history.

In the early days, everyone but a tiny cognizant group took to calling bitcoin a “criminal” currency, and it required extensive input by the cryptocurrency's far-flung international community to shift public opinion away from Silk Road and Mt. Gox. Judging by the ripples cryptocurrencies are making on Wall Street and the financial world, these efforts have, by and large, been successful.

Cryptocurrencies Today

Global focus is shifting from cryptocurrencies - blockchain technology’s first use case - onto the underlying technology itself. However, this does not imply that cryptocurrencies are a dying breed. To the contrary, cryptocurrencies’ global market cap reached an all-time high of US$813 billion in early January 2018. Bitcoin’s market valuation alone has been as high as US$327 billion (circa December 2017).

Global Crypto Governance

Few innovations have been as disruptive in nature as cryptocurrencies. Taking the world by storm, it’s seen plenty Average Joes - who hitherto have given hardly a thought to the investment world - become portfolio masters. Few topics have been as vexed, and the word “bitcoin” is a surefire way to evoke an emotive response in almost any individual.

Governments around the world have displayed a similar love-hate stance. Hence, there is a sharp contrast between an outright ban in some countries and near-wholehearted adoption in others.

The concept of digital currencies is unfamiliar and thus misunderstood by many. Due to its status as an independent financial system, separate from the eyes and ears of governmental and banking input, it’s easy to grasp why many administrations and financial institutions view it as a threat.

To that end, cryptocurrencies’ continued climb in popularity - and an especial catapult by bitcoin’s meteoric rise - have resulted in most countries moving to adopt some official stance or other. It’s early days yet, and many nations temporarily find themselves in a ‘wait and see’ repose. Others - especially those territories where cryptocurrency activity has been at a premium - have had to adapt to the fact that the general populace does indeed have the power and capability to create an alternative financial system out of nothing but 1s and 0s.

Countries like Japan adopted a bullish approach to its growth within their borders, while simultaneously implementing regulatory frameworks to stay in keeping with the sovereignty’s supervision. Others, like China and South Korea, have taken their citizens on rollercoaster rides in their often unexpected rulings.

Some European-based cryptocurrencies and blockchain ecosystems take a proactive approach in the absence of formal regulations by voluntarily complying with the more stringent rules of Euro countries such as Gibraltar and Malta. Lendo.io, a cryptobank that accepts crypto assets as loan collateral, adheres to the requirements set by traditional financial authorities and regulators and is an example of how the market is bridging the unregulated environment cryptocurrencies operate in to protect consumers and contribute to the mainstream adoption of crypto.

BRICS and Crypto Governance

First coined in 2001, BRIC comprised the four then-biggest emerging economic markets of Brazil, Russia, India, and China. South Africa, added in 2011, completed the quintuple, culminating in the acronym BRICS.

Estimations predict that some of its members will be among the world’s leading economies by 2050. China is already second in the lead as the planet’s top GDP-ranking nation and is expected to surpass the United States by 2030. India, Brazil, and Russia all follow closely behind. In 2017, these nations had a total combined population that is almost equal to that of the entire global population.

Many view the rise of crypto in these countries as posing a sizeable threat to its expanding traditional currencies and financial industries. Nevertheless, the low barrier to entry posed by cryptocurrencies makes it the perfect entry point for investors in these nations to gain access to investment opportunities. It’s little wonder, then, that so many BRICS citizens have jumped on board the crypto train.

Due to money being channelled into virtual currencies, there’s a marked - and growing - drain on the proverbial king’s coffers. Subsequently, the financial loss experienced by nation states have resulted in strong opinions regarding the legalities of cryptocurrencies. In some cases, this has been followed up by strong actions.

We take a brief look at cryptocurrency governance in each of the BRICS constituents in turn.

Brazil

Economic power:

• Largest economy in Latin America
• Second largest economy in the Americas
• 8th largest global economy by nominal GDP (US$2.080 trillion in 2018)
• 8th largest global economy by purchasing power parity (US$3.219 trillion in 2018)

Population size:

• 210.4 million

Estimated number of individual investors:

• In December 2017, 1.4 million spread across top 3 exchanges that process 95% of the country’s cryptocurrency transactions
• More crypto trading accounts are being opened than people trading in traditional securities

Cryptocurrencies overall legal status:

• Legal

Cryptocurrency overall regulation status:

• Unregulated
• Local investment funds prohibited from buying cryptocurrencies

Initial Coin Offerings (ICOs) legal status:

• Unregulated

Crypto exchanges legal status:

• Unregulated

Legal status of crypto-to-fiat conversions:

• Unregulated

Cryptocurrency payments legal status:

• Unregulated

Cryptocurrency mining legal status:

• Unregulated

Governmental opinion on cryptocurrencies:

• Warnings issued
• Discouraged

Cryptocurrency tax status:

• Viewed as an asset and not a currency
• Subject to 15% capital gains taxes if above a certain threshold

Official plans to increase crypto regulation:

• None at present

Pending proposals:

• Draft bill proposes to criminalise commercialisation, intermediation, and acceptance of digital currencies as a payment method

Russia

Economic power:

• Contains more than 30% of the world's natural resources
• Regarded as the world’s energy superpower
• 12th largest global economy by nominal GDP (US$1.28 trillion in 2016)
• 6th largest global economy by purchasing power parity (US$3.938 trillion in 2017)

Population size:

• 143.9 million

Estimated number of individual investors:

• Unknown
• An estimated 1 in 5 ICOs are Russian-owned

Cryptocurrencies overall legal status:

• Legal

Cryptocurrency overall regulation status:

• Lean towards regulation rather than all-out bans
• Various regulation frameworks in the pipeline

Initial Coin Offerings (ICOs) legal status:

• Regulation procedures in progress
• ICOs will need to comply with capital requirements, accreditation status, and audits

Crypto exchanges legal status:

• Legal

Legal status of crypto-to-fiat conversions:

• Legal

Cryptocurrency payments legal status:

• Regulatory bills in progress
• Officials’ stance is divided

Cryptocurrency mining legal status:

• Legal, with regulation and accompanying quotas and special tariffs planned
• Taxable if traded internationally

Governmental opinion on cryptocurrencies:

• Warnings issued
• Suggested that it not be for ordinary investors; instead, the realm of professional traders
• Divided; some departments and officials are more pro-crypto than others

Cryptocurrency tax status:

• Viewed as an asset and not a currency
• Cryptocurrency mining considered an entrepreneurial activity, and resulting trading will be taxable
• Tax breaks for cryptocurrency investment profits have been proposed

Official plans to increase crypto regulation:

• Yes, active regulatory involvement planned
• Regulation of Digital Assets Regulation Bill reported to commence by July 1st

Pending proposals:

• Draft bill proposes to criminalise digital currencies as a payment method
• Draft bill proposes to legalise digital currencies as a payment method under government-sanctioned conditions

India

Economic power:

• Second largest BRICS member by GDP
• Second largest BRICS member by population
• The world’s fastest-growing major economy
• Predicted to be one of the world’s top 3 economic powers over the next 10-15 years
• 6th largest global economy by nominal GDP (US$2.65 trillion in 2018)
• 3rd largest global economy by purchasing power parity (US$10.356 trillion in 2018)

Population size:

• 1.350 billion

Estimated number of individual investors:

• There are an estimated 5 million users spread across ten exchanges (there are at least a total of 15 in the country), with an estimated US$3.5 billion trading volume over a 17-month period

Cryptocurrencies overall legal status:

• Legal
• Not considered legal tender
• Warned against financing illegitimate activities or use as a payment system
• Reserve Bank, in the absence of any research, put a blanket ban on crypto exchanges which will come into effect by July 5th; appeals have been made, and a government panel is reportedly reconsidering the prohibition
• Financial firms banned from trading in crypto

Cryptocurrency overall regulation status:

• Unregulated

Initial Coin Offerings (ICOs) legal status:

• Unregulated

Crypto exchanges legal status:

• Unregulated

Legal status of crypto-to-fiat conversions:

• Unregulated

Cryptocurrency payments legal status:

• Unregulated

Cryptocurrency mining legal status:

• Unregulated

Governmental opinion on cryptocurrencies:

• Warnings issued
• Discouraged

Cryptocurrency tax status:

• No official stance, but purportedly leans toward treating it as an asset and not a currency
• Cryptocurrency capital assets and gains are subject to tax liability
• The Central Board of Direct Taxes have issued notices to 100,000 individuals trading on exchanges who failed to declare their crypto assets to authorities
• 18% GST tax on crypto trading is being considered

Official plans to increase crypto regulation:

• Yes

Pending proposals:

• Proposal to link exchange registrations to Aadhaar IDs or Permanent Account Numbers (PAN)
• Not a proposal, but a prominent finance official is of the opinion it should be banned entirely

China

Economic power:

• Largest BRICS member by GDP
• Largest BRICS member by population
• World’s largest trading nation
• World's largest manufacturing economy and goods exporter
• World’s second largest goods importer
• World’s fastest growing consumer market
• 2nd largest global economy by nominal GDP (US$14.23 trillion in 2018)
• Largest global economy by purchasing power parity (US$23.57 trillion in 2017)

Population size:

• 1.413 billion

Estimated number of individual investors:

• Unknown, but China once comprised 95% of bitcoin’s global trading volume

Cryptocurrencies overall legal status:

• Illegal

Cryptocurrency overall regulation status:

• Banned

Initial Coin Offerings (ICOs) legal status:

• Banned

Crypto exchanges legal status:

• Banned
• Access to foreign crypto exchange websites to be restricted behind China’s firewall

Legal status of crypto-to-fiat conversions:

• Banned

Cryptocurrency payments legal status:

• Banned

Cryptocurrency mining legal status:

• China mines 75% of the world’s bitcoin supply
• Tentatively legal, but this might be set to change

Governmental opinion on cryptocurrencies:

• Banned

Cryptocurrency tax status:

• Not applicable due to ban

Official plans to increase crypto regulation:

• Yes, mining still to be addressed

Pending actions:

• A multi-agency tasked force has tasked provincial governments to “actively guide” mining companies out of the crypto mining industry
• Popular sentiment agrees that China will revoke the ban once market regulations have been perfected

South Africa

Economic power:

• Smallest BRICS member by GDP
• Smallest BRICS member by population
• Most industrialised country in Africa
• Second largest economy in Africa
• Contributes 35% of Africa’s GDP
• Only African member of the G20
• 34th largest global economy by nominal GDP (US$280.37 billion in 2017)
• 30th largest global economy by purchasing power parity (US$758.12 billion in 2017)

Population size:

• 57,227,388

Estimated number of individual investors:

• Unknown, but has held the #1 country spot for term “bitcoin” on Google (NASDAQ: GOOGL ) search

Cryptocurrencies overall legal status:

• Legal
• Considered a cyber-token, not a currency

Cryptocurrency overall regulation status:

• Unregulated

Initial Coin Offerings (ICOs) legal status:

• Unregulated

Crypto exchanges legal status:

• Unregulated

Legal status of crypto-to-fiat conversions:

• Unregulated

Cryptocurrency payments legal status:

• Unregulated

Cryptocurrency mining legal status:

• Unregulated

Governmental opinion on cryptocurrencies:

• Warnings issued
• 
  Discouraged

Cryptocurrency tax status:

• Viewed as an asset and not a currency
• Subject to capital gains tax

Official plans to increase crypto regulation:

• Yes

Pending actions:

• South African Reserve Bank released plans to test cryptocurrency regulations in a sandbox environment

Conclusion

While China has aggressively clamped down on all cryptocurrency activities within its borders, Russia is actively intent on regulating the market. While India has started down what appears to be a hostile course of action, Brazil and South Africa are both, seemingly, taking their time in developing formal legal and regulatory frameworks around virtual currencies.

While market caps may rise and fall, few experts feel that cryptocurrencies will disappear entirely. Instead, there is a consensus that what is at present still a highly unstable and downright volatile market will eventually mature. This shared sentiment indicates that while governments may develop official policies around the generation, trading, and use of cryptocurrencies, it will remain a global point of contention for perhaps decades to come.

All things considered, BRICS countries, with their fast-growing economies and rising middle-class cohorts, will have a tough time preventing citizens from partaking in this new financial stream.

* Note that current legal and regulatory positions are subject to change at any time.