Venezuela became the first country to officially announce a government originated cryptocurrency in 2018. While the legitimacy of that cryptocurrency is still in doubt, there's very little doubt that Venezuela's national government intends to control everything related to crypto in that country. To that end, they recently became the first nation to regulate crypto from top to bottom.
Other countries have put minimal regulations in place to govern how crypto is traded as either a security or a property. Until now though, no national government has gone to the same extent as Venezuela's new framework. Everything about crypto - from who can mine it to how it can be spent - has been brought under government control in the South American country.
How Venezuelans respond to the new regulatory framework could very well influence the actions of other national governments. Therefore, all eyes will be on Venezuela for the next 6 to 12 months. How things will turn out is anyone's guess.
A comprehensive framework
To say that Venezuela's recently published legal framework is complex is to understate the obvious. According to Bitcoin.com report, the framework consists of no fewer than "63 articles including rules for the purchase, sale, use, distribution, and exchange of cryptocurrencies" and any related products and services.
In short, if you are doing anything even remotely associated with cryptocurrency in Venezuela, you are now under the purview of the new regulations. Known officially as the 'Constituent Decree on the Integral System of Crypto Assets', the decree contains a lengthy list of rules that will be enforced by an agency known as Sunacrip.
The Constituent Degree is divided into five sections. The first section is comprised of the first five articles that essentially outline the scope and intent of the new regulations. This is pretty typical for a government document. Section 2 consists of articles 6 to 28. It outlines how the newly regulated system of crypto in Venezuela is structured.
Next are articles 29 through 33 which make up the third section. The rules in this section govern how cryptocurrency businesses will be registered in Venezuela. Section 4 details inspection and audit procedures in articles 34 to 41. The fifth section includes articles 42 to 51 discussing violations and the penalties imposed upon being found in violation.
Finally, articles 52 to 63 make up the sixth section of the decree. This is an administrative section essentially describes how Sunacrip will go about its business in administrating the new rules.
The intent of the decree
A perusal of the decree reveals a somewhat complicated web of rules and regulations that are likely to be problematic for at least the next few months while things are sorted out. More important is the intent of the decree.
Venezuela's regulators have been given the authority to "exercise the broadest powers within the legal and constitutional framework, to regulate the creation, issuance, organization, operation and use of crypto assets, and consequently, to regulate the operation of the exchange houses and other crypto asset financial services, as well as activities associated with digital mining," the decree states.
That one sentence pretty much spells it out. If you want to create a new crypto platform of any kind in Venezuela, you will have to be licensed. If you want to issue crypto, use your crypto assets to invest or pay for goods and services, or even establish a local exchange, you will have to do so according to very strict rules.
Perhaps the most interesting thing about Venezuela's decree is the stated decision to regulate mining. If you know anything about cryptocurrency, you know that mining is central to encouraging all of the participants on a crypto network to behave themselves. It is a means of self-policing.
The fact that Venezuela's government will now get to decide who is allowed to mine crypto assets based in that country is quite revealing. It suggests that regulators are gearing up for Venezuela's national digital token to be used in earnest for daily trades in business. Regulators will use mining authority to control who most benefits from the use of its national coin.
Of course, that's just speculation. But it is speculation based on what we already know about Venezuela's efforts to create a state-backed cryptocurrency. It is hard to imagine the mining regulations applying in any other way given the fact that new crypto for platforms are unlikely to be introduced in Venezuela now that the regulations are in place.
No longer decentralized
There is an irony in Venezuela's decision to regulate crypto that should not be lost on people who understand how cryptocurrency works. The irony is this: cryptocurrency in Venezuela is no longer decentralized. And removing decentralization essentially defeats the purpose of having a cryptocurrency to begin with.
National governments are certainly within their rights to regulate whatever economic activity they want to regulate. So if Venezuela wants to regulate cryptocurrency, that is their business. But regulating it from top to bottom more or less eliminates all the benefits of a crypto platform. What would be the point of offering one?
The original developer of Bitcoin, known as Satoshi Nakamoto, made decentralization a core component of his revolutionary monetary system. Decentralization allows Bitcoin to be traded without any government interference whatsoever. It also keeps central banks out of the equation.
Unfortunately, decentralization is no longer applicable when government officials take it upon themselves to regulate virtually every aspect of cryptocurrency trading. A strict regulatory environment means that the government is in control without ever having to officially recognize crypto as legal tender.
Keeping cryptocurrency records
No regulatory framework would be worth the paper it is written on without some sort of record keeping system in place. Not to worry, Venezuelan regulators have that covered too. According to the decree, Sunacrip is required to develop a record-keeping system to monitor the activities of miners, exchanges, and financial services companies that decide to get involved with crypto assets.
It seems that such a comprehensive record system could ultimately lead to keeping records on individuals who buy, sell, or trade within the crypto sphere. Any such record-keeping would put cryptocurrencies on the same level as fiat, in terms of being able to track bank transactions and electronic payments.
The end result of such record-keeping would be the eventual loss of pseudonymity. In other words, neither individual traders nor trading entities would be able to deal in cryptocurrency with a reasonable expectation of their identities being protected. All would be out in the open.
A digital fiat currency
When you step back and look at Venezuela's new cryptocurrency regulations, it becomes apparent that what you have here is an entirely new paradigm. If the regulations are as sweeping as they appear, any cryptocurrency utilized in Venezuela will no longer be a true crypto in its purest form.
For the sake of discussion, let us assume that Venezuela's national cryptocurrency is the only one that survives its new national framework. The government would control every aspect of that currency from top to bottom. The only difference between it and existing fiat currency is the reality that crypto is neither printed on paper nor minted from metal. Everything else remains the same.
In essence, you no longer have a true cryptocurrency. What you have is digital fiat. Money may exist as digital credits in a computer system, but it is money that is ultimately controlled by the national government in every respect.
A clear distinction between them
None of what you have read here is intended to say that what Venezuela has done is either right or wrong. We are completely neutral on the political aspects of this. So what's the point? To suggest that perhaps it is time for the crypto community to create a clear distinction between true crypto platforms and government-backed platforms.
A government-backed crypto platform is one that cannot be truly decentralized. Government and centralization go hand-in-hand. They always have and always will. So even if you could play Mega Moolah with a state-backed coin, you would still not be doing so apart from government interference.
Making a clear distinction between the two types of cryptocurrencies is essential if the crypto community wants to continue promoting the benefits of a truly decentralized system. If crypto enthusiasts truly want to promote crypto as a means of leveling the economic playing field, they have to make sure that average citizens know the difference. Otherwise, they risk those citizens embracing state-backed coins that are still centralized.
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