The Status of Cryptocurrencies

The following was published in July 2018: Bitcoin and other cryptocurrencies were never legal currencies under Brazilian law, though a federal law issued a definition of digital currency by declaring it as a resource stored in a device or electronic system. As this definition didn’t capture the nature of cryptocurrencies in general – covering private cryptographic keys instead of ‘digital currency’ itself – their legal status is given by Brazilian Civil Code, which defines them as regular assets. Being a movable asset means that transactions are possible without any kind of restriction – except for the duty of paying taxes and declaring its property to Brazilian IRS.

The Business Impact

Small businesses are obliged to deliver monthly and annual income information for tax purposes (normally to more than one branch), including information about employees. The obligations more than double for larger businesses. The exact same process is applied to digital currency businesses.

But differently from most businesses, cryptocurrency-related ventures that deal directly with large sums of money, securities, art, jewelry or other assets are subject to very specific duties regarding anti-money laundering policies and compliance in general. These obligations and duties were enacted in 1998 through a federal law written more than 10 years before the first bitcoin transaction happened. It is therefore required that digital currency businesses comply with strict compliance policies and keep logs of transactions made within its field of operation, reporting activities considered suspicious to the federal council that controls financial activities.

The Governmental Debate

As for governmental progress, Brazil’s Securities and Exchange Commission (CVM) has a working group that’s discussing regulations for investing in crypto assets. Cryptocurrency experts in the country suspect that they will follow Japan’s lead at best, and, at worst, the lead of the U.S. This despite the fact that, earlier this year, CVM banned registered investment funds from trading in cryptocurrencies (though that changed shortly after when the agency altered their statement, permitting indirect ownership of the coins). “A few months ago I would say that CVM was negative on crypto, and now if you ask me I’d say they are neutral about it,” Furlan says, “which is good.” The Central Bank of Brazil are also onboard, currently developing their own blockchain platform.

In 2015 Congress first presented a bill, which has not yet been passed, with three goals:

• To consider digital currency payments to be legally payment arrangements, which they already are due to its legal definition
• To declare that digital currency businesses must comply to the federal law of consumer protection, something that they indisputably already have to
• To state that operations involving digital currencies are subject to anti-money laundering policies, which they already are, as previously explained.

Blockchain

While no current laws exist around blockchain, Brazil has expressed interest in the technology. In January of 2018, Ricardo Fernandes Paixão, a legislative adviser at the Brazilian congress and a university lecturer, and Everton Fraga, a programmer with the Ethereum Foundation, proposed using Ethereum blockchain to prove that signatures collected for petitions to the Brazilian congress exist. This is important because any petition, or projeto de lei de iniciativa popular, that gets signatures from 1% of the electorate must be heard in congress, a requirement enshrined in the Brazilian constitution. Brazil hasn’t fulfilled this constitutional promise, says Henrique Araújo Costa, a law professor at Universidade de Brasília. So far, this project has not been fulfilled but it was widely reported on. More information available here.

In April 2018, the Brazilian Association of Cryptocurrencies and Blockchain (ABCB) has been launched in São Paulo with the aim of increasing the debate around digital currencies with the government.The new body’s management believes that in the regulation front, the lack of a legal framework is hampering Brazil’s progress in the crypto space. Despite the fact that the association’s goal is to accelerate the creation of such rules, it does not believe that this will happen in 2018. More information available here.

Sources

• Fundo poderá ter investimento indireto em moeda virtual, diz CVM
• The Legal Future of Cryptocurrencies in Brazil
• Brazil may Write New Laws Based on Data Stored on the Ethereum Blockchain
• Brazil sees Launch of Cryptocurrency and Blockchain Association