It is difficult to open your browser without finding a headline related to cryptocurrency, blockchain, or bitcoin. Known as the most sophisticated technology of the century, cryptocurrency is all over the internet. However, a lot of individuals and organizations are still skeptical about blockchain technology and this has led to several legal issues. In this article, we shall explore six legal issues related to cryptocurrencies.
Cryptocurrency Legal Issues.
1. Jurisdictional issues
Using blockchain technology doesn’t necessarily need a physical location. Transactions and operations are carried out through nodes on the blockchain network, spreading across various jurisdictions. This becomes a jurisdictional challenge.
2. Money laundering issues
According to Chainalysis, a blockchain analytics firm, around $2.8 billion [in BTC] was transacted by criminal entities – a whopping $1.8 billion surge from what was recorded in 2018. So far, we’ve heard the news of people using bitcoin, Ethereum, and other cryptocurrencies for money laundering. Accompanied with that is that cryptocurrencies are being used in the dark web for the exchange of illegal items. The problem lies when cryptocurrencies are converted into physical cash by exchangers. Hence, the need for anti-money laundering regulations would require a series of identification of customers using exchanges. However, such regulatory oversight is circumvented via OTC [over-the-counter trading] and various other means.
3. Financial fraud
Transactions done on blockchain technology remain untraceable and this has led to legal concerns among some regulators. In addition, security flaws in the Ethereum blockchain and some crypto wallet makers have compromised personal data and put millions of dollars at risk. Investors are eager for some data and privacy laws to further deter illegal and fraudulent activities.
4. Privacy concerns
Due to the perception of animosity that is attached to blockchain technology and cryptocurrency, privacy continues to be a major concern. The US does have existing data security and privacy laws and regulations; however, it doesn’t address blockchain-specific privacy issues. However, sector-specific privacy and data security laws and regulations such as the California Consumer Privacy Act (CCPA), the Gramm-Leach-Bliley Act, and the Health Insurance Portability and Accountability Act (HIPAA) apply.
5. Tax implications
In the United States, cryptocurrencies are classified as property, not currency. This means that US taxpayers cannot use cryptocurrencies as a functional currency for tax purposes. As a result, cryptocurrencies will be regarded as capital assets, subjecting them to capital gains or losses. US taxpayers are required to determine the gains and losses on each cryptocurrency transaction. Thus, further reporting obligations may be required.
6. Investors are concerned over cryptocurrency’s legality and regulatory
The United States, Canada, Japan, and the United Kingdom are developed countries that have legalized cryptocurrencies. One notable feature of cryptocurrencies is not controlled by a central authority – this means they are theoretically immune to government interference or manipulation. As their price depends upon the value of the market, investors have increased their concerns over legal validity. Investors fear that since cryptocurrency is not backed by a centralized issuing authority, they will have no legal setup to blame for their failure unlike in the traditional setting.
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