What are Cryptocurrencies?

A cryptocurrency is a digital asset that uses cryptographic encryption that guarantees the ownership of such asset, ensures the integrity of the transactions made between people, and, additionally, controls the creation of crypto assets. Given the cryptographic encryption provided by the use of cryptocurrencies, it prevents a third party from making copies of the cryptocurrency in question, i.e., it ensures that each crypto asset is unique in the world.

How do they work?

Cryptocurrencies have several distinctive features compared to traditional systems, among which we highlight the following:

• Cryptocurrencies are not regulated or controlled by any state or private institution, nor do they require intermediaries in transactions.
• In order to track cryptocurrency transactions, the user may use a decentralized database system, a blockchain, or a ledger.

In accordance with the above, we can highlight that Cryptocurrencies operate in a market created and used by users, without any type of state (or private) intervention and, furthermore, they use reliable technological systems that provide all users with a high level of security that allows the execution and completion of their transactions to be carried out without incurring a high cost for the parties involved.

What is the legal framework for cryptocurrencies in Panama?

Currently, there is no specific regulation for Cryptocurrencies in Panama. Notwithstanding the foregoing, it should be noted that there is a bill in the National Assembly of Panama (Bill No. 697) that seeks to regulate the “marketing and use of crypto assets, the issuance of digital value, the tokenization of precious metals and other goods, and payment systems”. This project has had great progress in legislative matters, since it has already been approved once by the National Assembly and subsequently partially vetoed by the President of Panama.

Although there is no specific regulation on Crypto assets (for the time being), the use of Cryptocurrencies in the market has led various authorities to take a position on them. To that end, for example, the Superintendence of Banks of Panama issued a Public Notice in 2018 stating that “the activities that are developed through this or any other instrument of that category (cryptocurrencies) do not fall within the competence of this Superintendence”, thus, reinforcing the argument that crypto assets are not regulated or controlled by any state institution.

In the same year the same Superintendence issued an opinion stating that Cryptocurrencies are not considered a value or currency, and therefore, the exchange of these is not considered a “Forex” activity. In addition to the above, the authority has hinted that the use of Cryptocurrencies in Panama does not require any type of permits or licenses and, since there is no prohibitive regulation against Cryptocurrencies, they may be used within the Panamanian territory under the risk of the user who uses them.

With the progress of Bill No. 697, Panama could be considered an extremely attractive country for this innovative industry, with a view to developing a potential market that few countries have dared to explore.

What is the outlook for Cryptocurrencies in Panama?

Cryptocurrencies and similar activities are allowed under Panamanian law, however, they are outside the protection of the financial umbrella that Panamanian regulations provide to consumers. Crucial regulatory issues for the proper development of crypto assets such as the monetary regime, the use of credit facilities, cryptocurrency exchange houses (or platforms), transfer and delivery of crypto assets, as well as the development of a fiscal framework applicable to crypto assets need to be developed and implemented (once the above-mentioned bill is approved), however, Cryptocurrencies in Panama continue to be a relevant and useful topic even if there is no regulation on the matter.

Given the above, Panama is currently considered an attractive destination for cryptocurrency companies to establish themselves in the country, mainly due to the robust financial sector that Panama maintains, its striking territorial tax system, and high standards of the compliance policy. With the upcoming approval of Bill No. 697, Panama seeks to position itself as one of the pioneers in the regulation of crypto assets, with a pro-consumer approach, seeking to build a platform of services to meet the opportunities arising from the needs, benefits, and priorities of the world of Cryptocurrencies.