Estonian Government Plans To Legalize Cryptocurrency

Cryptocurrency had a thrilling year in 2021, particularly with Ethereum and other altcoins. Now it looks like Estonia will be adding cryptos to its official regulations.

Ethereum witnessed a considerable increase, making it the leading position in the crypto market.

For the year ahead, there are some predictions regarding actions from governments. 2022 is expected with clearer regulatory endorsement.

Estonia To Draft Cryptocurrency Legislation

According to the recent official announcement, the Estonia authorities are working on issuing cryptocurrency legislation. The move is a regulatory attempt to tighten crypto-enabled services and businesses in Estonia.

By the time of this announcement, rumors had it that Estonia possibly applied a ban on cryptocurrency.

This came from the fact that the number of jurisdictions that banned cryptocurrency has increased over the last 3 years.

The current list added 9 countries in 2021, including Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh, and China. China’s restriction is the most remarkable due to its no-mercy strictness.

Fortunately, Estonia’s intention targets digital asset service providers, instead of an absolute ban on crypto activities as a whole. The regulatory draft will be in accordance with the updated international AML/CFT standards–affecting existing crypto service providers licensed in Estonia.

In a nutshell, the new regulation, if approved, will have no negative effect on cryptocurrency traders and holders.

The official clarification released by The Estonian Ministry of Finance said:

“The regulation is not applied to customers, but to virtual asset service providers (VASPs) who conduct activities for or on behalf of a natural or legal person as a permanent business. This means that 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.”

One major highlight is that all accounts not linked to Estonian VASPs are not affected. Accounts under VASPs’s operation will be under the government’s observation. No anonymity is accepted.

Hot Market for Real Use Cases

The reactions of crypto-enabled firms, however, are quite optimistic. Sten Tamkivi, early executive of Skype stated:

“As someone who actively invests, holds, stakes, pools tokens in DeFi as a resident of Estonia, both privately and through my Estonian companies (for my own use, not serving others), I see no change or impact to my ability to do so…Estonia is a country with a mere million people (so we actually can talk to our politicians!) that has produced seven Web2 unicorns and has 1B+ EUR annual early tech investment run rate in 1200+ startups. We will sort out Web3 too, don’t worry. Including sensible regulation.”

In a lengthy thread on Twitter, Tamivi attempted to deconstruct the new draft and remarked on the most important changes to the existing regulation.

According to the proposed legislation, only firms which operate in or relate to Estonia are eligible for requesting a VASP license. On the other hand, the present regulation enables the selling of licensed firms to 3rd parties.

“Supervising such entities is unfeasible and the risk of abuse endangers Estonian VASPs who operate transparently and in good faith. Under new rules, the Financial Intelligence Unit can decline a license where the entity does not have any business operations in Estonia nor has any apparent connection to Estonia,” said the Ministry of Finance.

The increased capital requirements are another big change that will have effects on smaller VASPs. Subjecting to the new requirements, the VASPs will need to possess at least 125,000 euros or 350,000 euros in share capital, which depends on their kind of service.

These amounts are dramatically higher than the present floor, which stands at 12,000 euros.

The Ministry of Finance said that: “This measure will further reduce the risk of registering or keeping dormant VASPs for resale”. However, Tamkivi warned that measures like this “could stifle some very early startup activity.”