Understanding the Main Concepts of the Brazilian Cryptocurrency Act (Act 14.478/2022)
Act nº 14.478/2022, known as the Cryptocurrency Act, stands as a significant milestone in the realm of financial regulations, not just within Brazil but on a global scale.
With its official enactment on June 20, 2023, this act marks a substantial stride in delineating the role cryptocurrencies hold within the Brazilian economy.
To understand the application and extent of this Act, it is necessary to comprehend the key concepts that it regulates.
Firstly, it is essential to define what the Act refers to as a "virtual asset".
According to Article 3 of Act nº 14.478/2022, a virtual asset is the "(...) digital representation of value that can be traded or transferred electronically and used for making payments or for investment purposes, (...)".
It is crucial to note that not all virtual assets fall under the purview of Act nº 14.478/2022. Rather, it exclusively encompasses those that simultaneously fulfill the three stipulated legal criteria:
- Digital representation of value;
- Capacity for electronic trading or transfer;
- Usage for payment or investment objectives.
On the other hand, Article 3 of Act nº 14.478/2022 explicitly excludes certain categories from the virtual asset definition:
(a) National currency and foreign currencies;
(b) Electronic currency, as delineated by Act nº 12.865/2013;
(c) Instruments that confer the holder access to specified products or services or benefits stemming from these offerings, such as loyalty program points and rewards;
(d) Representations of assets subject to issuance, recording, trading, or settlement as mandated by legal statutes or regulations, such as securities and financial assets.
Therefore, despite employing the term "virtual asset", Act nº 14.478/2022 is more precisely categorized as a Cryptocurrency Law.
This distinction arises because it meticulously regulates only cryptocurrencies, while excluding other crypto assets like security tokens and utility tokens, as well as a broader spectrum of virtual assets.
Providers of Virtual Asset Services
Another key concept is that of "providers of virtual asset services", as detailed in Article 5 of Act nº 14.478/2022:
"Art. 5. Providers of virtual asset services shall be defined as legal entities that carry out, on behalf of third parties, at least one of the following virtual asset services, as follows:
I - Facilitating exchanges between virtual assets and national or foreign currency.
II - Enabling exchanges between one or more virtual assets.
III - Executing transfers of virtual assets.
IV - Offering custody or administration services for virtual assets or instruments facilitating control over virtual assets.
V - Engaging in financial services and providing services associated with the issuance or sale of virtual assets.
Single paragraph: The federal public administration body or entity designated by an executive order may authorize the provision of other services directly or indirectly related to the activities of virtual asset service providers, as stipulated in the main section of this article".
In essence, providers of virtual asset services are legal entities that offer intermediary services within the cryptocurrency realm.
These services encompass activities such as acting as trading brokers or exchanges, providing digital wallet solutions, and offering payment processing services, among others.
The Cryptocurrency Law establishes comprehensive guidelines for the operation of these service providers, entrusting the Central Bank of Brazil (as the regulatory authority) with various regulatory responsibilities, notably concerning the definition of requirements and the issuance of authorization for the operation of such legal entities (Article 2).
While not explicitly outlined within the Cryptocurrency Law, Article 13 indicates that the interactions between cryptocurrency users and service providers fall under the purview of a consumer relationship.
Consequently, these individuals are respectively categorized as consumers and suppliers, in alignment with Articles 2 and 3 of Act nº 8.078/90 (Consumer Protection Code - CDC).
Thus, the rights and duties provided for in the CDC for consumers and suppliers apply to the cryptocurrency sector.
Cryptocurrency Market Concepts
The technical concepts used in the cryptocurrency market should also be known in the interpretation and application of Act nº 14.478/2022.
In this context, the definition of custody is a key element and refers to the secure storage of cryptocurrencies. This concept is relevant in the sector, frequently targeted by cyberattacks.
The legislation stipulates that providers of virtual asset services must adhere to specific security standards to safeguard their clients' assets. These standards encompass information security and consumer protection, as outlined in Article 4 of the Cryptocurrency Law.
Another essential concept is the "tokenization" of assets, a process that involves converting a physical asset or a right into a digital token on the blockchain network.
Transparency stands as a cornerstone element in Act nº 14.478/2022.
Service providers are required to provide their customers with precise and comprehensible information regarding their services, coupled with a comprehensive understanding of the risks associated with cryptocurrencies.
The emphasis on transparency is pivotal for enabling consumers to make well-informed decisions and for maintaining trust within the cryptocurrency market.
In conclusion, Act nº 14.478/2022 addresses a variety of key concepts that are fundamental to understanding the regulation of cryptocurrencies in Brazil.
By analyzing and understanding these concepts, it is possible to understand the extent and relevance of the law and the significant impact it produces on the digital economy.
To learn more about the subject, read the e-book Annotated Cryptocurrency Law: