By Kiran Mysore Vivekananda
The world as we know is rapidly changing, with virtual assets and blockchain technology leading the way. Despite some mixed reactions to the potential of Virtual Digital Assets (VDAs), many countries are beginning to embrace web3 and crypto assets by enacting positive policies. These efforts are shaping the future of the internet and providing clarity to investors and institutions.
There have been several attempts to create a regulatory environment that balances innovation and consumer protection, which could potentially spur growth in the VDA industry. One such example is Japan which has published a white paper on the possible effects and applications of Web3, blockchain, and decentralized technology on the economy and political systems of Japan. The Japan Web3 whitepaper outlines the need to create regulatory proposals for everything from nonfungible tokens (NFT) to decentralized autonomous organizations (DAO) to circumvent the regular bureaucratic procedures. The paper also suggests significant changes to tax legislation, despite the fact that a major exemption for token issuers has already been granted. These include tax breaks for businesses that own tokens created by other companies that are not intended to be sold in the near term. It recommends permitting self-assessment, allowing investors to carry over losses for up to three years, and taxing crypto only when it is converted into fiat money. The paper suggests that ministries and government organizations work with the Japanese Institute of Certified Public Accountants to develop recommendations around accounting standards.
Hong Kong is another country making a concerted effort to establish itself as a global hub for VDAs, through a harmonized regulatory framework covering the entire ecosystem. The government’s October 2022 policy statement emphasized the potential of VAs, particularly around DLT, Web3.0 and the Metaverse. Hong Kong’s financial secretary has also announced the launch of a task force to explore crypto asset integration, including education efforts for individuals and businesses, backed by a budget of HK$50m (~$6.4m).
The UK government also remains steadfast in their commitment to grow the VDA industry but also aim to protect the interest of the consumers. Recently, UK Financial conduct authority has acknowledged that the crypto industry is still evolving and that new approaches to regulation are needed to manage risks. The Authority has also called on the crypto industry to work together to develop regulation. Also, The HM Treasury has initiated a consultation on the future regulation of crypto assets, proposing a licensing regime that will require all persons carrying out specific activities in relation to crypto assets to seek a regulatory license and comply with relevant rules.
In another development, The European Parliament has approved the world’s first comprehensive set of regulations for the crypto industry, known as MICA rules, which require companies dealing with crypto to be licensed and impose regulations to prevent money laundering and terrorist financing. The regulations will bring more legitimacy to the VDA industry and encourage more businesses and investors to get involved.
South Korea is working to create The Digital Asset Basic Act (DABA), as an all-encompassing legal framework for regulating Korea’s dynamic crypto industry. The planned rules are aimed at striking a better balance between blockchain development, investor protection and market stability thereby promoting balanced growth/innovation within the VDA industry. A regulatory sandbox will also be implemented to allow for innovative projects.
Australia is making a concerted effort towards achieving their goal of creating a crypto-friendly environment. The Australian Treasury has adopted a thoughtful approach to strike the nuanced balance between promoting responsible innovation, and safeguarding consumers. During this process, the Australian authorities have placed public feedback and constructive consultation as a core focus. The recent token mapping consultation is a vital step towards securing Australia’s financial services and technology sectors’ continued success and competitiveness.
Therefore, the growing acceptance and adoption of web3 and crypto assets by leading economies is a significant step forward for the VDA industry. The positive regulatory moves will provide a level of stability and legitimacy to the industry, which could potentially spur innovation and investment. While there are still challenges to overcome, such as regulatory inconsistencies and cybersecurity concerns, the future of web3 and crypto looks promising.
The author is Chief Public Policy Officer, CoinDCX