Overview of Virtual Currencies
We have recently focused on the blockchain technologies and explained a variety of legal issues that surround them. In the past month in particular, we expanded on a subset of blockchain uses - i.e., those of virtual currencies. In our first post, we began to cover tokens, including innovations with asset-backed tokens, the way they can be acquired, and the legal ramifications of each class according to its means of acquiring. In our second post, we continued our exploration of the technology's different legal implications with the concepts of licensure and the boons and hindrances of regulation. Our third post discussed issues of taxation and ways that regulatory bodies internationally are approaching the subject. As we moved to our fourth post, we discussed two large pieces of regulation that affect virtual currencies: The Patriot Act; and (2) Bank Secrecy Act. We also discussed data security and privacy laws. In our final post, we discussed the regulatory bodies that can govern virtual currency transactions, and how they interact with illegal activity.
As we mentioned last month, jurisdiction can often stump litigators of virtual currency because the new technology finds itself all over the world. It is also difficult to pinpoint the locus of a transaction and thus know which jurisdiction it falls under. Unclaimed-property laws also come into play because owners of virtual currencies might not have always earned them, and so claims under this old doctrine may be brought. Gifts, too, trigger "gift card" laws (even when no "card" is present) which limit the ability for sellers to place expiration dates and fees on them.
In the absence of other government regulation, licensure has played a larger role in the world of virtual currencies. The current state, federal, and international regulations require licenses to engage in activity that involves the acceptance of funds coupled with the agreement to transfer them to another party. The law can even require special registration. Whether these requirements are triggered for a virtual currency, however, depend on whether they are considered assets or merely placeholders for assets under the applicable laws. Most any type of monetary transfers tend to be covered by these types of laws, which include, but may not be limited to, electronic value.
Taxation poses an inconvenient obstacle to the virtual currencies. At this time, Congress is holding hearings and studies inquiring into how best to tax this technology without stunting it. Some states have statutes that are so broad that they envelop the arena of virtual currencies. However, there has yet to be specific guidance on how to comply with taxes, and there are no institutions that shine a guiding light. More autocratic countries, such as China, impose a 20% tax on virtual currency transactions. It is important to keep our core principles of liberty and laissez-faire economics in mind when treating this nascent technology because it has so much to offer to our global economy. Elsewhere, where people are chained from prosperity, for example in Africa, governments shackle these new opportunities from the inception.
The Patriot Act and Bank Secrecy Act apply to virtual currencies depending on the nature of the exchange. A number of anti-money-laundering requirements can apply, noncompliance with which can incur penalties and audits. FinCEN requires that any entity that facilitates or enables virtual currency transactions must register as Money Services Businesses, which subject them to further rules and regulations. There are new laws coming to the aid of consumers concerned with transparency and trust.
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