Now that Ms. Janet Yellen has replaced Steve Mnuchin as new Treasury Secretary, many ask if Mnuchin’s plans to regulate cryptocurrencies will push through. While federal regulation would all the more encourage traditional investors to put their money into bitcoin and other digital currencies, industry players are anticipating the kind of regulation that the government will implement.

Will the government legalize cryptocurrencies and implement policies that will in effect cancel out the benefits of blockchain technology? Will regulations simply focus on enforcing anti money laundering laws and on imposing taxes on ownership and other crypto related transactions?

New Treasury Secretary’s Views and Plans for Cryptocurrency Regulations

Despite her professed reservations for cryptocurrencies, the new Treasury Secretary maintains an open mind toward the prospect of regulating digital money; acknowledging that cryptocurrencies have the potential to improve current financial systems.

During her confirmation hearing, Ms. Yellen said she believes they are mainly used to finance illicit transactions to support terrorism, carry out money laundering and other dark activities that threaten the country’s national security and global financial systems. Yet that very thinking is the reason why she also believes that there is a need for the Treasury Department to work closely with the Federal Reserve Board, federal banks, and securities regulators, in formulating an effective framework that would see to the regulation of cryptocurrency transactions and other fintech innovations.

In her written testimony to the Senate Finance Committee committee Ms. Yellen stated:

”We need to curtail the use of cryptocurrencies for malign and illegal activities and at the same time work on ways on how to encourage their use in legitimate activities.

Although her statements are promising to many cryptocurrency enthusiasts, several have also expressed concern on how the forthcoming regulatory framework will impact the cost of engaging in crypto related businesses.

A Quick Look at How Other Countries Regulate Cryptocurrencies

It is likely that U.S. federal regulators will model their framework after those being implemented by other countries that already recognize the use crypto money as legal. Some of which include:

Requiring providers of blockchain platforms, cryptocurrency exchange operators, providers of crypto-wallets and storage services to register their business with the designated government agency. Registration will of course include payment of licenses and fees as well as compliance with regulatory policies including submission of reports.

Miners that operate on a larger scale will likewise have to register as a business entity, to which all crypto money received as mining rewards will be considered as business income. Those who actively mine for personal purposes will also have to report their mining rewards as other income.

Imposition of VAT Taxes depends on the nature of cryptocurrency transactions, as some types of exchanges could be exempted.

In several U.S. jurisdictions where regulations are already being considered, most states are contemplating the idea of requiring cryptocurrency exchange operators to put up security bonds; or at least maintain a reserve fund in fiat currency.

The general expectation is that federal regulators will try to curb excessive enthusiasm for every class of digital asset, by saddling all sectors of the cryptocurrency industry with additional costs; to perhaps stabilize the price of digital currencies especially Bitcoin.

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The option eliminates the risk of buying BTC that could drop in value on any day. Moreover, small scale miners will have less to incur as overhead costs by using the service provider’s platform, as opposed to paying high costs of electricity when computing to solve hash puzzles.