What Is Cryptocurrency & How Is It Regulated in Australia?
At Allied Legal, we have observed the ascension and popularity of cryptocurrency. Gradually cryptocurrencies are becoming recognised in the mainstream, with the Australian government legalising digital currencies in 2017. However, due to its’ relative newness, the cryptocurrency landscape is evolving faster than its’ regulatory response. This creates challenges for those involved in the buying, investment or exchange of digital currencies. At Allied Legal, we have condensed the current regulations relating to cryptocurrency in Australia.
What is Cryptocurrency?
Cryptocurrency is decentralised digital currency used to exchange or store value. Rather than rely on a central bank or an issuing authority, cryptocurrencies rely on complex blockchain technology. These blockchains regulate the generation of additional units and store digital footprints which can be viewed or accessed by anyone. The Australian Securities and Investment Commission (ASIC) recognises Bitcoin, Ethereum, Litecoin, Ripple and Stablecoin as forms of cryptocurrencies.
Cryptocurrency is predominantly used for digital transactions such as the acquirement of goods and services. Cryptocurrencies gives users autonomy over their money through a peer-to-peer system, without being subject to approval from a bank or external authority. Digital currencies like Bitcoin are stored in a digital wallet and are not disposed to traditional fees associated with fiat currencies.
Is Cryptocurrency Regulated?
The ASIC’s regulatory framework informs startups and businesses of the legal status of cryptocurrency. These legislative requirements focus on the transactional relationship relating to cryptocurrencies. Such regulatory requirements fall under the Corporations Act 2001, as well as Australia’s existing financial services regulatory regime. This encompasses licensing and disclosure requirements, marketing considerations, cross-border issues, design and distribution, and consumer law (which is regulated under the Corporations Act). Currently, there are no specific regulations dealing with blockchains or mining.
Under Section 5 of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, cryptocurrency (including Bitcoin) is classified as property and is subject to capital gains tax (CGT). If you make a capital gain through the ‘disposal’ (by selling, gifting, trading, converting, exchanging, or using it to obtain goods or services), you may be taxed. Each cryptocurrency is a separate CGT asset, regardless of the type of digital currency. If you are unsure about the existing regulations concerning cryptocurrency, we recommend consulting a commerical lawyer.
Cryptocurrency is complex terrain, with most countries still not recognising cryptocurrencies as legal tender. In Australia, the platforms where you buy and sell cryptocurrencies are not regulated, meaning you are not protected if the platform fails or is hacked. There are significant risks when investing in digital currencies. If you are unsure about investing or buying cryptocurrencies, it is recommended that you consult a commercial lawyer to safeguard yourself and your startup.
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