Cryptocurrency & Virtual Currency Regulations

Overview

  • Cryptocurrency is decentralised digital money that is based on blockchain technology (see Practice Note on Blockchain).

  • It was designed to be used as electronic cash, but up until now cryptocurrency is not commonly used as ‘cash'. Therefore, central banks use the term crypto-asset instead of cryptocurrency; the two terms are used interchangeably.

  • The Central Bank of Bahrain (CBB) defines cryptocurrency as virtual or digital assets or tokens operating on a blockchain platform and protected by cryptography. Hence, there is no difference from a legal perspective between cryptocurrency, virtual currency and digital currency.

  • The legal status of cryptocurrency in most countries is still unclear due to the lack of regulatory framework. As a result, cryptocurrencies became an interest for those willing to commit illicit actions such as money laundering.

  • Therefore, to minimise the risk of financial crime and illegal use of cryptocurrency, a legal framework had to be introduced.

  • In February 2019, CBB issued its rules regulating crypto-asset services and crypt-asset exchanges. The regulatory framework has been included in Volume 6 of the CBB Rulebook that governs Capital Markets under the title ‘Crypto-Asset Module.'