Almost everyone has heard of cryptocurrencies and the "one coin to rule them all," i.e. Bitcoin. So much so that every day we see news related to this topic, overhear people's conversations about it outside, or hear that it's being accepted as a means of payment. However, it hasn't always been this way. Initially, Bitcoin was attributed to the dark side of the internet, the deep web, and illegal trade conducted there. But nowadays, it has become one of the most popular payment and investment methods, gaining recognition, definition, and regulation from governments. In this article, we will first provide a definition of cryptocurrency, then discuss its purposes of use, evaluate its position in the world and Turkey, examine the cryptocurrency law in Turkey, and finally, delve into the future of cryptocurrencies.
What is Cryptocurrency?
Blockchain is an open-source distributed ledger technology that encodes and records transactions. Cryptocurrencies are digital currencies based on blockchain technology. The decentralization of cryptocurrencies implies the absence of an institution controlling their supply and value. In the article "Bitcoin: A Peer-to-Peer Electronic Cash System" published in 2008, Bitcoin's creator Satoshi Nakamoto defined Bitcoin as an electronic payment system based on cryptographic proof rather than trust.
Functions of Cryptocurrencies
Cryptocurrencies serve as a means of payment, verification, and investment. The first known payment transaction using cryptocurrency took place in 2010. On May 22, 2010, a programmer named Laszlo Hanyecz bought 2 pizzas by paying 10,000 bitcoins. The day when the transaction was made is known as Bitcoin Pizza Day and is celebrated on May 22 every year.
Derived from blockchain technology, cryptocurrencies can also be used for various verification purposes. For example, a cryptocurrency without commercial value can be transferred from one entity to another and become valid once other participants approve the transfer. In today's world of concerns about data processing, cryptocurrencies that facilitate transactions using anonymous information might be preferred by institutions and organizations that value data privacy.
In addition to being a means of payment and verification, cryptocurrencies also serve as investment vehicles. For instance, the value of Bitcoin, the most popular cryptocurrency, was less than $1 in 2010 but has reached levels of around $60,000 by 2021. Similar growth has been observed with alternative cryptocurrencies known as altcoins. With these surges, the total value of all cryptocurrencies, including Bitcoin and altcoins, exceeded $2 trillion in that year. Naturally, considering the significant market value of these assets, they have come under scrutiny by governments and regulatory bodies, leading to various regulations in this field.
Approaches to Cryptocurrencies
Cryptocurrencies are being accepted as a means of payment not only by small businesses but also by large corporations. Companies that accept cryptocurrency payments are not limited to local businesses; global leaders like Starbucks, Visa, Amazon, and Microsoft have also recognized the potential of cryptocurrencies to reshape the world and have started accepting them as payment methods.
The announcement made by companies like Tesla that it purchased $1.5 billion worth of Bitcoin and accepted Bitcoin as a payment method, fueled the demand for cryptocurrencies. Increased popularity has highlighted the need for regulation and oversight of crypto assets both in Turkey and around the world.
Cryptocurrencies in Foreign Countries
Cryptocurrency laws in the United States and Europe generally have a positive stance toward these assets. According to 2019 data, out of the 32 states in the United States, all have regulations that either approve or encourage the use of cryptocurrencies, blockchain, and distributed ledger technology.
On the other hand, China declared and banned the first initial coin offering (ICO) in 2017. However, this does not mean that China is entirely against digital currencies and related technologies. China is actively working on creating its own central digital currency, the digital yuan, with the aim of challenging the dominance of the US dollar in international trade and becoming a payment instrument.
Cryptocurrencies in Turkey
In Turkey, the Regulation on the Non-Use of Crypto Assets in Payments published in the Official Gazette dated April 16, 2021, and numbered 31456 ("Regulation"). Regarding cryptocurrency law in Turkey, issues related to the seizure and inheritance of cryptocurrencies have been discussed previously, and it has been acknowledged by courts and enforcement offices that cryptocurrencies are assets. Similarly, a tax ruling published by the Revenue Administration on September 23, 2020, stated that Bitcoin is subject to inheritance and transfer tax and can be inherited by heirs. However, despite expectations of positive regulations related to cryptocurrencies, the Regulation prohibits the use of cryptocurrencies as a means of payment, offering services in this regard, and acting as an intermediary for crypto buying and selling by e-money institutions. Actually, a statement that could be interpreted as the precursor to this ban was published on the official Twitter account of the Ministry of Treasury and Finance on March 1, 2021. In this statement, concerns about cryptocurrencies were expressed, and it was stated that work is being carried out on this issue.
Furthermore, the press release by the Central Bank of the Republic of Turkey on April 16, 2021, regarding the Regulation solidified the concerns of public institutions and the central bank about why cryptocurrencies should not be used as a means of payment. The press release emphasized the lack of any regulation or supervisory mechanism for crypto assets, absence of a central counterparty, extreme volatility in market values, the potential for illicit activities due to their anonymous nature, the risk of wallets being stolen or used unauthorized, and the irreversible nature of transactions. It also pointed out that the increasing use of cryptocurrencies as a means of payment could lead to irreversible losses for the parties involved and create vulnerabilities in the trust of currently used methods and instruments. The reference to currently used methods and instruments probably pertains to traditional payment methods and banks. Therefore, it can be said that the purpose of the Regulation is not necessarily to protect the parties involved but rather to safeguard banks and traditional structures.
Cryptocurrency Law in Turkey
As the only cryptocurrency law in Turkey, the Regulation defines cryptocurrencies for the first time. According to Article 3 of the Regulation published by the Central Bank of the Republic of Turkey, "crypto asset" refers to "intangible assets that are created virtually using distributed ledger technology or a similar technology, distributed through digital networks, but are not classified as fiat money, registered money, electronic money, payment instrument, securities, or other capital market instruments."
What Cryptocurrency Law in Turkey Brings
While there is no extensive cryptocurrency law in Turkey yet, the second paragraph of Article 3 of the Regulation states that crypto assets cannot be used directly or indirectly as a means of payment. This means that companies like Starbucks and Microsoft, which offer cryptocurrency payment options, cannot provide these services in Turkey. However, it's important to note that digital services and international trade cannot be blocked in today's world.
The third paragraph of Article 3 of the Regulation also states that services cannot be provided for the direct or indirect use of cryptocurrencies in payments. Cryptocurrency transfers usually occur from one wallet to another. While this regulation doesn't explicitly ban wallet-to-wallet transfers or cryptocurrency transfers, services related to making transfers for commercial purposes have been prohibited. For example, a fintech company that offers various options, including real-time display of the cryptocurrency equivalent of the entered amount for goods or services, and facilitates easier transactions, won't be able to provide services in Turkey after the Regulation came into effect on April 30, 2021. This undoubtedly have negative implications for the startup ecosystem and entrepreneurship.
The first paragraph of Article 4 of the Regulation imposes the same ban on payment and electronic money institutions. According to Law No. 6493 dated June 20, 2013, on Payment and Security Settlement Systems, Payment Services and Electronic Money Institutions, these institutions include:
a) Banks within the scope of Law No. 5411,
b) Electronic money institutions,
c) Payment institutions, and
d) Turkish Post and Telegraph Corporation.
In other words, these institutions, including banks, cannot develop business models that involve the direct or indirect use of cryptocurrency for payment services or the issuance of electronic money based on the Regulation. This means that payment and electronic money institutions won't be able to create models that facilitate cryptocurrency buying and selling or offer services related to transferring funds to and from platforms that provide services for buying and selling cryptocurrencies.
The second paragraph of Article 4 of the Regulation prohibits payment and electronic money institutions from acting as intermediaries for platforms that provide services related to buying, selling, storing, transferring, or issuing cryptocurrency or for transfers made from these platforms. The notable point here is that payment and electronic money institutions cannot act as intermediaries for platforms offering cryptocurrency trading services. This ban on payment and electronic money institutions performing such transactions while allowing banks to do so raises questions about what risks this prohibition prevents for the parties involved and how banks can engage in such transactions.
The Future of Cryptocurrencies
It's not difficult to predict that cryptocurrency and blockchain law and technology will become even more popular in the future. However, it would be a mistake to only consider this in the context of Bitcoin. The distributed ledger technology, verification mechanism, and fast, low-cost transactions without intermediaries used by cryptocurrencies will likely find broader application not only in transactions but also in various areas such as smart contracts. While the fate of Bitcoin, whether it will remain the "one coin to rule them all" or meet fiery flames at the foot of Mount Doom, remains uncertain, blockchain technology is certain to occupy a lasting place in our lives.
Frequently Asked Questions
If a time traveler were to tell Laszlo Hanyecz that he would be paying $550 million for 2 pizzas with the exchange rate of April 20, 2021, he would probably laugh it off. Similarly, if someone went back to April 20, 2020, and told an investor that 1 dogecoin purchased on that day would increase 180-fold a year later, they probably wouldn't take any different action than Laszlo. The cryptocurrency market is volatile and unpredictable, but the innovations it brings have revolutionized our world. The distributed ledger technology, the idea of requiring multiple verifiers for a transaction to be valid, and the ability to carry out transactions quickly and at low cost without intermediaries will extend far beyond just shopping; they will find use in various fields. Whether Bitcoin will forever be the "one coin to rule them all" or meet fiery flames is uncertain, but blockchain technology is sure to have a permanent place in our lives.
In this environment, only time will tell which regulations are justified. However, one thing is certain: every missed opportunity translates to a decrease in competitive power.