Establishing and developing a virtual asset framework

April 16, 2024 | 09:55
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With the advancement of sci-tech, numerous new transaction forms and asset types have emerged, especially the rise of virtual assets.

However, Vietnam currently lacks a comprehensive legal framework to regulate on state management mechanism for virtual assets. Given this circumstance, the government mandated the Ministry of Finance to study and establish a legal framework to ban or regulate virtual assets and cryptocurrencies by May 2025.

Establishing and developing a virtual asset framework
Doan Vu Hoai Nam, associate, ASL LAW

At present, although there lacks a unified definition for virtual assets according to Vietnamese law, a virtual asset is characterised as assets within cyberspace according to the International Organization for Standardization. This is namely within the complex environment formed by the interactions of users, software, and internet services through connected devices and networks.

According to the Uniform Fiduciary Access to Digital Assets Act of the United Nations’ Commission on International Trade Law, digital assets are electronic records confirming the rights or interests of an individual.

From these definitions, it can be understood that digital assets are assets represented in the form of code, created by computer programmes, meaning they are not physically tangible. In reality, virtual assets may include items such as in-game objects, digital currencies, and collectible digital items. Thus, the concept of digital assets is broader and more inclusive than that of cryptocurrencies.

Recognising the evolution of virtual assets within contemporary society, numerous countries have enacted policies and established legal frameworks regarding regulations and management of this asset type. To be more specific, a wide range of nations have implemented policies that outright prohibit transactions involving virtual assets, deeming their use and trading on the market as illegal activities. The prohibition can be absolute, as seen in countries like China, Qatar, and Saudi Arabia.

These countries are concerned about the volatility and decentralised nature of virtual assets, which could pose a threat to national currency systems and create opportunities for dangerous activities such as money laundering, terrorist financing, and fraud.

In addition, several regions have implemented stricter regulations on virtual assets with the aim of safeguarding internet users. For example, the European Union passed the Markets in Crypto-Assets Regulation to prevent financial criminals from utilising high-tech blockchain technology.

Thus, countries worldwide have come to understand and appreciate the importance of enacting regulations related to the management of digital assets. As previously outlined, Vietnam presently lacks a comprehensive legal framework to acknowledge the presence of virtual assets and safeguard the ownership rights of owners. Consequently, the legitimate rights and interests of these parties remain unsecured.

Additionally, current legislation has not established a state management mechanism for virtual assets. This poses risks of tax evasion and, more seriously, individuals may misuse virtual assets for illegal purposes such as money laundering, terrorism financing, and corruption.

According to data from Blockchain Chainalysis, cryptocurrency investors in Vietnam earned nearly $1.2 billion in 2023, placing the country third globally behind the US and the UK. Vietnam is also one of eight countries where cryptocurrency profits exceed $1 billion. In addition, China ranked fourth with $1.15 billion, despite cryptocurrency trading and mining activities being banned there since 2021.

This indicates that such bans have not effectively restricted virtual asset transactions as initially anticipated. Hence, learning from this, Vietnam should develop and enact regulations governing virtual asset management. Then the nation can minimise risks such as money laundering, speculation, terrorist financing, and market disruption.

By implementing this measure, Vietnam can enforce taxation, legal judgments, and criminal charges pertaining to virtual assets. This proactive approach would mitigate scenarios where disputing parties transfer their assets solely into virtual forms, making it impossible for Vietnamese courts to adjudicate those virtual assets.

Creating a complete legal framework for crypto assets is critical. Therefore, Vietnam must complete its legal framework and regulations related to cryptocurrencies to minimise risks when handling this type of asset and enforce taxation, legal judgments, and criminal charges pertaining to virtual assets.

Strategic choice ahead for virtual asset management Strategic choice ahead for virtual asset management

Any decision to recognise, ban, or regulate virtual assets could create conflicts of interest between traditional investors and those pursuing the digital economy sector, a conference on the issue has heard.

By Hoai Nam

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