Estonia’s Crypto Stance Shows Regulatory Battle Lines


Estonia’s Ministry of Finance announced Sunday (Jan. 2) that it is not banning the private ownership of cryptocurrencies.

In doing so, it joined a debate going on in countries around the world about how far to go in regulating cryptocurrencies. Broadly, it comes down to two mindsets: embrace or attack.

Read more: Estonia Won’t Ban Crypto in New Virtual Asset Service Provider Legislation

The legislative push has three main drivers. The first is the skyrocketing value of crypto — currently $2.2 trillion, down from $3 trillion at the height of last summer’s boom — and the growing interest in everything from bitcoin to decentralized finance (DeFi).

The second, seen in China’s outright ban on cryptocurrency last year as it prepares to launch its digital yuan and India’s on-again, off-again flirtation with a similar ban, is simply about government control of currency and the power that brings. A somewhat inside-out version of that dynamic is playing out in El Salvador, where President Nayib Bukele’s decision to make bitcoin a legal tender has outraged pretty much everyone from the International Monetary Fund (IMF) to the vast majority of the citizens.

See also: China ‘Blanket’ Crypto Ban Paves Way for CBDCs

The third, and most decisive, is the Travel Rule, a set of regulatory requirements from the Financial Action Task Force (FATF), which countries must adopt. Aimed at bringing bitcoin and other cryptocurrencies under the anti-money laundering (AML) umbrella, this requirement is forcing a legislative debate about crypto oversight in nearly every capital.

Read more: Can FATF’s New ‘Travel Rule’ Help Build A Better Crypto Ecosystem?

That’s having an impact. In November, the U.S. Library of Congress issued a report on cryptocurrency regulation around the world that showed the appetite for bans is growing. While the number of countries in which cryptocurrency ownership is outright illegal only grew from eight to nine since the previous report in 2018, that No. 9 was the largest country on earth, with 1.4 billion non-crypto users.

The number of countries with a de facto ban, however, nearly tripled in that time, from 15 to 42. And the number that have added tax, AML regulations or both, jumped from 33 to 103.

A Global Fight, Writ Small

In Estonia, the explanatory release was necessary because of the crypto community’s response to a new law regulating virtual asset service providers (VASPs), which generally means cryptocurrency exchanges and bitcoin ATMs.

The upshot is that by expanding the definition of a VASP to include decentralized platforms, the law will indirectly but effectively ban DeFi, according to a widely reported tweet by Mikko Ohtamaa, founder of DeFi advisory firm CapitalGram.

The same applies to non-custodial digital wallets, he claimed, referring to any wallet that isn’t managed by a third party like an exchange that can provide AML identification of users.

“Estonia did not only ban #defi, but they also banned #bitcoin,” Ohtamaa said. “You are not allowed to download wallet and hold #bitcoin anymore in Estonia.”

Estonia’s response was to issue a press release that noted prominently and at some length that bitcoin would still be legal.

“The legislation does not contain any measures to ban customers from owning and trading virtual assets and does not in any way require customers to share their private keys to wallets,” it said. “The regulation does not affect individuals who own virtual currency through a private wallet not provided by a VASP.”

It does, however, add substantial capital requirements, with VASPs needing between 125,000 euros (about $141,000) and 350,000 euros (about $396,000). Fines for violating the laws can reach 400,000 euros (about $453,000).

Estonia had a friendly relationship with VASPs at first. Starting in 201,7 it was one of the most liberal European Union states in issuing these licenses, which grew to more than 2,200. With some big dirty money scandals and a sense that it was getting no benefit from them, Estonia cracked down, yanking more than 1,800 VASP licenses last year alone.

Economic Engine or Threat?

While AML is the driving force in most crypto legislation debates — at least on the surface — innovation versus consumer protection is factoring heavily, not least in the U.S. and EU.

In the U.S., a big round started in July, when the $1 trillion infrastructure bill was found to expand AML reporting provisions to developers, node runners and other segments of the industry that were not only well out of the payments industry, but didn’t have access to the necessary information.

Read more: Senators Aim to Amend Infrastructure Bill’s Crypto Rules

A highly public fight ended in a failure to amend the bill but made clear that the appetite to do so was there. In mid-November, a rare bipartisan bill to amend those regulations was introduced. And late last year, one of that bill’s sponsors, Sen. Cynthia Lummis, promised to introduce a broad crypto regulatory bill.

See more: Sen. Lummis’ Christmas Present to Crypto Is Clear Regulation in the New Year

But the debate is getting partisan, with Democrats increasingly coming down on the side of tougher regulation to protect investors and Republicans focused on fostering innovation.

Read also: The MiCA Framework Seeks to Govern Stablecoin Issuance in EU

Controlling the use of stablecoins is becoming a particular source of conflict, and the topic figures prominently in the EU’s coming Markets in Crypto-Assets (MiCA) framework, which has a heavy focus on addressing the risks that particular segment of the cryptocurrency business brings. It’s a position born from the Facebook Libra stablecoin project, since renamed Diem.

See more: Is Paxos the New Diem?

And it will bring one big advantage. Crypto companies licensed in one jurisdiction could operate in any other. But there, too, opinions about the role and value of crypto vary widely.

Read more: ECB Board Member Decries Cryptocurrencies’ Usefulness

A big factor in how countries are regulating crypto is how they view it. Switzerland was an early adopter of crypto regulation that sought — successfully — to attract the industry as an economic engine. In Thailand, the central bank’s governor last week warned that “cryptocurrencies cannot become a means of payment” as the country moves toward a central bank digital currency (CBDC) — a position taken by Indonesia.

See more: Thai Central Banker ‘Red-Lines’ Crypto Payments as Digital Baht Pilot Looms



About:More than half of U.S. consumers think biometric authentication methods are faster, more convenient and more trustworthy than passwords or PINs — so why are less than 10% using them? PYMNTS, in collaboration with Mitek, surveyed more than 2,200 consumers to better define this perception versus use gap and identify ways businesses can boost usage.

Read More: Estonia’s Crypto Stance Shows Regulatory Battle Lines

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