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Legal issues that bitcoin and blockchain might face

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Bitcoin, blockchain and other similar financial technologies have been heralded for their potential to reshape every aspect of the finance industry. If you are new to cryptocurrency trading and investing, you should look into bitqt. The withdrawals on this platform are quick with extraordinary security.

However, recent legal developments in different countries show that not all regulators are keen on adopting open arms. This post examines a few legal issues that bitcoin and blockchain might face in various countries worldwide.

The key question for regulators and courts worldwide is: does it matter what the underlying commodity or asset is, or just that the technology protocol used in the financial product has some link to a blockchain? In other words, blockchain technology and smart contracts are used as intermediaries in transactions to transfer real estate ownership or commodities. Does this protect the “technology” from the regulatory intervention?

The answer to this question could potentially affect any company that uses distributed ledger technology to execute transactions. For example, suppose the non-intervention of regulators and courts does not protect blockchain-based financial products. In that case, investment banks that currently use internal blockchain prototypes for trading and settlement may have their internal systems more regulated.

  1. Taxation issues:

An Australian tax agency has warned that its approach of treating bitcoin as property would expose the cryptocurrency to a capital gains tax, despite a lack of clarity even in Australia about whether bitcoin qualifies as money. In this case, the asset itself is not identified, but instead if it can be classified as property or an intangible capital asset.

The South African Revenue Service has said it is “not yet clear” how the country’s laws covering both bitcoins and other virtual currencies will apply to customers of local exchange-traded fund ETX Bitcoin Cash tokens. The IRS says South African taxpayers should look at their tax treaties and determine the extent to which these particular tax issues apply.

  1. Service levels and performance:

Bitcoin exchanges and applications for bitcoin-based remittance services are coming under scrutiny. Regulators have been looking into the potential risks of these platforms, which companies could use for money laundering, tax evasion, terrorist financing and other financial crimes.

The Chief Regulatory Officer at the Japanese Financial Services Agency has warned that bitcoin exchanges must meet “high standards” as he called on them to clarify their security measures. The FSA is also introducing a more stringent regulation system for cryptocurrency exchanges, requiring them to obtain either a payments business license or a foreign exchange business license.

  1. Cryptocurrency and Foreign Bank Account Regulations:

On January 18, 2018, the US Department of Treasury and the Puerto Rico Department of Treasury announced that Puerto Rico would be exempting digital currency business operations from US federal and Puerto Rican laws aimed at restricting the flow of funds from US territories to foreign countries. The announcement resulted from a coordinated effort by US citizens in Puerto Rico seeking an exemption for their digital currency creation businesses.

In China, cryptocurrencies such as bitcoin have been declared illegal and outlawed as their use can lead to capital flight. However, in contrast with other countries anti-money laundering policies regarding bitcoin and blockchain use, China does not inhibit cryptocurrency trading activities or notice that the user with third-party currencies cannot calculate its actual value.

  1. Cryptocurrency and the IRS:

The US Internal Revenue Service’s (IRS) guidance on the taxation of virtual currencies is still very much ambiguous. As a result, taxpayers find it hard to comply with their tax obligations. As a result of this lack of clarity, the IRS has not made any efforts to tax digital currency transactions.

The IRS was expected to issue guidance on the tax treatment of virtual currencies in 2014. Still, it lingered in doing so until mid-2016 when the IRS finally announced that digital currencies would be treated as property, not currency. Nevertheless, it raised specific issues for taxpayers with significant long-term capital gain exposure while engaging in some transactions involving bitcoin and other cryptocurrencies traded on exchanges. Recently the government termed these currencies as a commodity.

  1. Cryptocurrency and Consumer Protection:

In this sense, the treatment of virtual currencies by financial intermediaries has yet to be defined by the European Commission and the European Central Bank. The remaining legal obstacles include many issues such as consumer protection, anti-money laundering regulation and taxation.

The Japanese Financial Services Agency (FSA) is taking a completely different approach from that of other regulators, such as the European Union (EU), to keep pace with technological developments in virtual currency. However, virtual currencies are not under its jurisdiction. Instead, the FSA regards cryptocurrency trading platforms as securities dealers, subject to capital-raising requirements imposed on financial institutions.

Especially in the case of Bitcoin, blockchain is emerging as a focal point for several legal and regulatory opportunities. One such opportunity arises in the EU’s Third Directive on Anti-Money Laundering, which exempts certain types of financial entities from its ambit but does not exempt public registration.

The regulation would apply to any “entity” that serves as an intermediary between buyers and sellers of cryptocurrencies, not just exchanges. In this way, people can argue that the Directive provides specific exemptions for crypto exchanges concerning anti-money laundering requirements while imposing those requirements on any entity engaged in facilitating cryptocurrency transactions.


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