Vietnam to Strengthen Cryptocurrency Legal Framework
Following an alleged fraud of VND 15 trillion (US$ 658 million) related to cryptocurrency that scammed 32,000 investors, the Prime Minister signed a directive asking the Ministry of Finance and the State Bank of Vietnam (SBV) to strengthen the management of cryptocurrency activities. In addition, the government has also asked the Ministry of Justice to study and develop a legal framework for regulating digital currencies and assets.
Cryptocurrency and blockchain
Cryptocurrencies are virtual or digital currencies that are generated online through a process called “mining” and are digitally secured through cryptography. Mining is a process that requires high-performance systems and involves validating transactions which are then added to a blockchain. The currency is not controlled by any company or government, and usually has a higher value than traditional currency. Bitcoin is one of the types of cryptocurrency, along with others such as Ethereum, Litecoin, and Ripple.
Blockchain, on the other hand, is the technology behind cryptocurrencies. It acts as a decentralized ledger that has a record of all transactions taking place in a peer-to-peer network. All the activities conducted online are organized into bits of data called “blocks”, which are interlinked with each other, leading to the creation of a blockchain. In a network, all involved parties can access their log of transactions, and as it is decentralized, no one party controls the information. The information stored in a blockchain in case of cryptocurrencies is a monetary unit, however, this technology can be used to store, secure, and verify any type of data and has immense potential for a number of industries apart from digital currencies.
Regulations in Vietnam
Last year in October, the SBV issued a decree on cryptocurrency, which determined that digital currencies are not valid or legal means of payment. If one violates the decree, they can face fines of up to VND 200 million (US$9,000).
This year in January, the Vietnamese State Securities Commission (SSC) asked security-trading firms to stop providing any cryptocurrency services, including issuance, transactions, and brokerage.
In April, the government issued directives to a number of government entities such as SBV, Ministry of Industry and Trade, Ministry of Information and Communication, and Ministry of Justice regarding cryptocurrencies. SBV has asked credit institutions and intermediary payment services firms not to conduct transactions related to digital currencies. The Ministry of Justice will be responsible for developing a legal framework regarding digital currencies and virtual assets.
As of now, the government is only focusing on virtual currencies and blockchain technology does not fall under the purview of the regulations.
The Vietnamese government has repeatedly warned about the risks associated with digital currencies, which led to a complete ban on such currencies.
- Not regulated – There is no government supervision, as no company or government regulates cryptocurrencies.
- Lack of consumer protection – Digital currencies are speculative in nature, which leads to price volatility, security issues, and market manipulation.
- Criminal activities – Being almost untraceable and secure, the rise of digital currencies have led to illegal activities such as tax evasion, hacking, money laundering, and terrorist funding.
- Potential to destabilize the existing financial system, which can affect the broader economy
Despite the lack of a legal framework, Vietnam is fast emerging as a major player in blockchain based technologies. In March 2018, Ho Chi Minh City hosted the Blockchain Week Conference, which focused on building a blockchain community working on new technologies and applications related to blockchain.
Vietnam is under-serviced when it comes to banking, with only about one-third of the adult population having a bank account. By 2021, around 40 percent of the people will have smartphones which open up new possibilities of bringing banking services to a larger section of the population.
Being highly secure, efficient, cost-effective, and transparent, blockchain technologies are been adopted in fintech, agritech, medical industry, and real estate. Blockchain technologies have numerous applications such as:
- Supply chain management – Blockchain can be used by logistics service providers to track their products, as the technology is cost-effective, traceable, and highly secure.
- Smart contracts – Through blockchain, smart contracts can digitally sign, validate, and enforce agreements allowing the exchange of anything of value, content, property, and shares and removes the need for an intermediary.
- Accounting/Banking/Fintech – At the core, blockchain is basically a technology that retains and validates transactions and removes the risk of tampering, hence it can be used in the financial industry. In fact, a number of financial institutions have already started to test them, as they are more cost-effective, secure, and efficient.
- Stock exchange – Blockchain-enabled systems would provide more transparency and accountability in monitoring trading activities.
- Peer-to-peer transactions – In addition to using blockchain tech for digital currencies, it can also be used for fiat currencies, leading to a cheap and secure way to transfer funds globally.
Despite the ban on digital currencies, lack of a legal framework, and low awareness, adoption of blockchain technology is predicted to grow in Vietnam. The government needs to identify and realize the potential of blockchain and develop a robust legal framework to support the ecosystem. This will ensure that the country is better prepared for Industry 4.0.
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