BITCOIN

also known as a
decentralized virtual
currency (DVC)
Launched in 2009, and founded
by Satoshi Nakamoto, Bitcoin is a
“decentralized peer-to-peer
currency.”
also known as a
decentralized virtual
currency (DVC)
Country-Specific Practices on Bitcoin

I. Digital Currencies and Legal Regulation in the People’s Republic of China

(PRC)
II. Canadian Regulation of Digital Virtual Currencies and Federally Proposed
Legislation
III. United States Regulatory Challenges Following China’s Bitcoin Ban
Digital Currencies and Legal Regulation in the
People’s Republic of China (PRC)

China is currently the second-largest economy in the world. China’s

first attempt to regulate digital currencies. Most recently, Bitcoins
remained outlawed and the ban was extended to Bitcoin transactions
processed through financial institutions and third parties. The People’s
Bank of China does not provide Bitcoin with any legal status, refuses to
recognize Bitcoin use as a currency, and remains concerned Bitcoin is
not protected by a central authority. Before the ban, China accounted for
the most Bitcoin exchanges, but now comprises only 7% of all
transactions.
The neutral position of the People’s
Bank of China related to Bitcoin has
quickly become hostile, with the
Central Bank threatening to
“censure” banks that do not
cooperate with requests to
crackdown on Bitcoin. Although financial institutions are strictly
forbidden from engaging with Bitcoin, as
of June 2014, no Chinese laws explicitly
state that a citizen is unable to own
Bitcoin.
Canadian Regulation of Digital Virtual Currencies
and Federally Proposed Legislation
Canada considers Bitcoin more of a
commodity than a currency, and
has a similar tax approach mentality
to China before the countrywide
ban. The Canadian Mint has
recently prepared to test Canada’s
own digital currency, coined
MintChip, a project that began in
April 2012.
Canada was also the first jurisdiction
in the world to introduce concrete
legislative measures to regulate
Bitcoin. Bill C-31 legislation received
royal assent on June 19, 2014, which
included sections establishing
reporting requirements of DVCs and
Bitcoin.
Overall, the enacted legislation is a significant development because it:

I. regulates DVCs as a money services business

II. does not specify the meaning of “dealing in virtual currencies”
III. imposes FINTRAC registration, subsequently requiring an anti-money
laundering regime after successful registration
IV. extends to entities both inside and outside Canada, or services directed at
individuals in Canada (but does not extend to services directed at entities
outside Canada); and
V. prevents banks from managing money service businesses not registered with
FINTRAC.
United States Regulatory Challenges Following
China’s Bitcoin Ban

77% of all conversions of Bitcoin to a denominated currency are for the

U.S. dollar. Federally, the U.S. does not officially consider Bitcoin a currency,
although a Federal District Court in Texas and the U.S. Department of
Treasury do. The country also has a constitutional guarantee to monopolize
the production and management of its national currency. The trend appears
defining Bitcoin as a currency given the wide Internal Revenue Service (IRS)
tax implications associated with its use.
Bitcoin as Campaign contribution
Another implication of Bitcoin’s popular use centers on the U.S. political
process, campaign contributions, and election laws. In November 2013, the
Federal Election Commission (FEC) released a decision declaring that Bitcoins
could not be accepted as campaign contributions. However, on May 2014, the
FEC announced Bitcoin contributions could be reported as “in-kind” contributions
toward political action committees (PACs).
BLOCKCHAIN
Blockchain is a digital, decentralized ledger that uses software algorithms to
record all transactions distributed across a peer-to-peer network. Using
blockchain, or “distributed ledger” technology, users can confirm transactions
without the need for a central certifying authority, such as a central bank. Each
party, or “node,” participating in the blockchain network maintains a copy of the
distributed ledger and acts as a “witness” to each transaction. The transactions
are grouped into “blocks,” validated, and then added to the shared ledger.
How does Blockchain work?
The bitcoin blockchain is “decentralized,” meaning it is not controlled by one
central authority. While traditional currencies are issued by central banks, bitcoin
has no central authority. Instead, the bitcoin blockchain is maintained by a network
of people known as miners.

These “miners,” are people running purpose-built computers that are actually
competing to solve complex mathematical problems in order to make a transaction
go through.
For example…

…...say lots of people are making bitcoin transactions. Each transaction originates
from a wallet which has a “private key.” This is a digital signature and provides
mathematical proof that the transaction has come from the owner of the wallet.

Now imagine lots of transactions are taking place across the world. These
individual transactions are grouped together into a block, organized by strict
cryptographic rules. The block is sent out to the bitcoin network, which are made
up of people running high-powered computers. These computers compete to
validate the transactions by trying to solve complex mathematical puzzles.
VIRTUAL CURRENCY EXCHANGE

Virtual Currency Exchange refers to “any entity that offers services or

engages in activities that provide a facility for the conversion or exchange of fiat
currency to VC or vice versa” as stated in BSP Circular No. 944’s Definition of
Terms. These exchanges are like the digital banks of VCs that you can utilize
whenever you need to transfer, convert, add, and cash out virtual currencies.
Virtual Currency Exchange Registration in the
Philippines
A virtual currency exchange company would need to secure a Certificate of
Registration (COR) to operate as a remittance and transfer company. Registration
is made up of a two-stage process:

1. The first stage is a preparatory screening process for Bangko Sentral to

decide if the applicant is qualified for registration.
2. The second stage is where the eligible applicant will be requested to submit
supporting papers.

However, after the 2 stages, payments are needed to be made to complete the
registration process and acquire the COR.
Virtual Currency Exchange Registration Process
Ist Stage: SCREENING

A new applicant shall submit the following for evaluation:

1.Application Letter
2.Business Plan including target markets
3.List of owners and/or controlling shareholders, directors, and principal
officers.
Virtual Currency Exchange Registration Process
2nd Stage: REQUIRED DOCUMENTS

If the applicant was not considered eligible during the first stage, he or she will
receive a denial letter from the Bangko Sentral, otherwise, if the application has
been approved, the certain documents will be needed to complete the registration
process:
Supporting documents for the Registration
1. Business registration papers.
2. A copy of business registration and/or permit from the city or municipality where your business will
be located and will be operating for the current period.
3. A Notarized Deed of Undertaking of the owner and members of the Board of Directors/partners
4. Proof of attendance of the proprietor/partners/directors/principal officers and other personnel
directly involved in the company’s operations
5. A signed sworn certification that a Money Laundering and Terrorist Financing Prevention Program
(MLPP) has been produced, adopted, and distributed to all of the company’s employees.
6. Clearance from NBI or its equivalent in foreign jurisdictions, of all the directors and principal officers
involved.
7. Duly notarized certification from the owner, managing partner or president of the company, as to
compliance with the required minimum capital under Subsection 4511N.2 of the Manual of
Regulations for Non-Bank Financial Institutions.