2021: Blockchain and Cryptocurrency regulations in Mexico.

Blockchain technology uses encryption to verify and confirm all transactions before writing them to a searchable public ledger. The first "application" for blockchain technology was Bitcoin and other cryptocurrencies. There are countless other uses for this technology, from stock and commodity trading to decentralized finance applications, supply chain management, intellectual property rights, asset management and identity security. computing, real estate and government services, to name a few.

Cryptocurrencies: a term used interchangeably with virtual currency, and generally intended to include the following virtual currencies (and others similar to these):

• Bitcoin.

• Bitcoin Cash.

• DASH.

• Dogecoin.

• Ether.

• Ethereum Classic.

• Litecoin.

• Monero.

• NEO.

• Ripple’s XRP.

• Zcash.

Digital assets are defined as everything that exists in binary format and comes with the right to use it, most commonly consisting of a data structure meant to express the attributes and rights connected with any entitlement.

Fintech: new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.

Protocols: specific code bases implementing a particular blockchain network, such as:

• • Bitcoin.

• R3’s Corda.

• Ethereum.

• Hyperledger Fabric.

• Litecoin.

1. The Fintech Law only provides the legal framework for financial entities (ITFs and banks) to perform operations with virtual assets (see below for more details).

2. The Mexican Central Bank (Banxico) is legally entitled to determine in secondary regulation the characteristics that the virtual assets must fulfill in order to be used by ITFs.

The Fintech Law provides the legal framework for financial entities to operate with virtual assets. However, this law also regulates several tools that promote innovation within the Mexican financial system:

It creates the financial entities known as ITFs: I. Crowdfunding Institutions: their purpose is to facilitate communication between applicants and investors so that the latter can provide resources to the former for specific projects. The law regulates both lending and equity activities.

II. Electronic Money Institutions: their purpose is the issuance, administration, redemption and transmission of electronic money for payments or transfers of funds.

1. Virtual assets: according to the Fintech Law, both ITFs and banks may perform operations using virtual assets prior recognition and authorization from Banxico.

2. Innovative Models (also known as Regulatory Sandboxes): These allow both financial and non-financial entities to carry out regulated operations utilizing novel technical tools or techniques with different modalities than those now available in the Mexican market and with a lower regulatory burden.

3. Application Programming Interfaces (APIs): This technology enables financial institutions to exchange data with other financial institutions or third parties in order to improve the client experience. This will give rise to the "open finance" paradigm, as opposed to the old "open banking" concept.

The use of virtual assets is governed by the Fintech Law and anti-money laundering (AML) rules, however some tokens such as stablecoins, do not meet the qualifications to be considered virtual assets under the Fintech Law. In this context, it is critical to determine if the asset possesses the characteristics of a security under the Mexican regulatory framework, in which case that framework will apply.

In general, all Mexican citizens, whether individuals or businesses, are required to contribute to public expenses in accordance with applicable regulations. When considering an investment in our country, there are numerous government contributions to consider, including income tax and value-added tax. Income tax is a direct contribution placed on income obtained by Mexican residents and individuals from other countries who have a permanent establishment in Mexico. This tax is derived by applying a 30% rate to the taxable base, which is defined according to the law's criteria. The tax is usually paid through a withholding in the case of residents who do not have a physical presence in Mexico.

The Regulatory Sandbox, which is a business model that aims to carry out an activity reserved for financial entities authorized by the Mexican financial regulator using innovative technological tools or means or with different modalities than those currently available in the Mexican market, gives the applicant a safe space to test financial services in a real, temporary, controlled environment with less regulatory burden. This is accomplished through the acquisition of a temporary authorization that allows you to provide financial services.

• Mining is not subject to any special rules. In Mexico, however, a general rule applies: Whatever is not prohibited by law is permissible for unregulated individuals or businesses. As a result, mining is a lawful activity because there are no laws or prohibitions in place.

• 
  

• There are no explicit rules in Mexico that apply to border restrictions or the requirement to report bitcoin ownership.