Brazil’s Regulation of Cryptocurrency

Written by Rafael Oliveira | January 19, 2023

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Any nation’s ability to encourage entrepreneurialism and productive activity has a direct impact on its ability to flourish economically and socially, especially in countries that adhere to the capitalist model, says Rafael Oliveira. For the market to grow, available capital must be channeled into businesses that require funding through methods for investment and fundraising. Such mechanisms have recently provided an ideal environment for emerging technology.

Through the production and commercialization of tokens, whose truthfulness and ownership are guaranteed by blockchain technology, crypto-assets have arisen as an alternative investment option for a variety of initiatives.

Distributed ledger technology, which is a decentralized network and register structure, is the foundation of blockchain technology (DLT). Information is contained in blocks (secured by an encrypted code) that, upon network participant validation, are added linearly to the existing blockchain. This ensures the operations’ immutability, acting as a ledger without requiring involvement from a central body.

Despite the openness of operations, it is still feasible to be aware of a certain transaction without being aware of who was involved. Although blockchain technology has been there since 1991, it wasn’t until the invention of Bitcoin in 2009 that it was used in the financial industry. Since then, the worldwide market has seen a consolidation of the commercialization of crypto-assets.

Brazil is the same. The market for crypto assets expanded to roughly $4.3 billion between January and August 2021. However, this market is not specifically regulated anywhere in the world, including Brazil.

A digital, encrypted, transferable representation of value, rights, and assets is known as a token. Rafael Rafael Oliveira says, Tokenization is the process of representing and issuing assets, whether they be digital assets or tangible assets that exist in the physical world.

Token Explained

Token Explained

Tokenization is “the process of digitally representing an asset, or ownership of an asset,” according to the International Organization for Securities (IOSCO). An asset or ownership of an asset is represented by a token. Such assets may include money, commodities, securities, or real estate says Rafael Oliveira bitcoin.

Even though there are many different types of tokens, the most popular ones are a payment token (cryptocurrency), which performs intrinsic financial transactions; (ii) a utility token, which provides access to resources; and (iii) a security token, which carries out financial transactions associated with securities or investment contracts.

Although a single token may have more than one character and, consequently, more than one categorization, such as being both a security token and a payment token, a token’s classification is directly tied to its purpose. It is essential to analyze each instrument specifically for regulatory purposes given the variety of potential uses by business owners and investors.

Even though there are many different types of tokens, the most popular ones are i) a payment token (cryptocurrency), which performs intrinsic financial transactions; (ii) a utility token, which provides access to resources; and (iii) a security token, which carries out financial transactions associated with securities or investment contracts.

Although a single token may have more than one character and, consequently, more than one categorization, such as being both a security token and a payment token, a token’s classification is directly tied to its purpose. It is essential to analyze each instrument specifically for regulatory purposes given the variety of potential uses by business owners and investors.

Brazil’s Acceptance and Legalization

Brazil’s Acceptance and Legalization

Rafael Oliveira said that brazil has taken another step toward the acceptance and legalization of cryptocurrencies as financial vehicles. Following the approval of a new set of regulations by the Brazilian Securities Commission, established funds are now permitted to invest in cryptocurrencies, creating a new market for these organizations.

The regulations, which were adopted after President Jair Bolsonaro approved a cryptocurrency bill last week, govern cryptocurrency investments in a way that will allow these businesses to benefit from the same protections offered for conventional financial assets like stocks and bonds.

The agreed framework expressly states that cryptocurrency operations must be carried out on Brazilian Central Bank or CVM-licensed exchanges. These must be domestic investments if they are made overseas.

These entities “will have the legal capacity to supervise and inspect the operations carried out, including concerning restraining abusive market practices, as well as money laundering and financing of terrorism and proliferation of weapons of mass destruction,” in any case.

Not every asset will be permitted to join the portfolio of these funds though, as they must fit under the classifications laid forth in the recently enacted crypto law.

Regulation and Adoption Change

The fact that this new framework was released so soon after the country’s cryptocurrency law was approved demonstrates that Brazilian institutions are anxious to regularize the status of digital assets in several areas. After initially refusing to allow funds to participate in cryptocurrencies in 2018, the Brazilian Securities Commission itself made a U-turn.

Months later, the commission modified this legislation to permit funds to indirectly invest in cryptocurrencies overseas. Brazil has demonstrated a high level of consumer and business acceptance of cryptocurrencies. The Brazilian revenue office (RFB) reported that about 42,000 businesses broke previous records by buying cryptocurrencies in October.

Lastly

When over 1.5 million people bought cryptocurrency in September, the same record for individual purchases was also shattered. Due to this popularity, several conventional and digital institutions, including Nubank, Itau, and Santander, have begun or will soon offer cryptocurrency services in the nation, says Rafael Oliveira. A digital version of the real, Brazil’s fiat currency, is also in the works.

January 19, 2023 | 175 Views

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