Cash, Credit, Bitcoin? The Law of Digital Currency

Tuesday, March 17
12:30PM – 1:30PM 

Austin Convention Center

Digital currencies present a host of complex legal, regulatory, and
policy questions.  Policymakers paid little attention to digital
currencies until 2013, when the rise of Bitcoin forced them to confront
the issues raised by these products.  Policymakers must decide how to
prevent digital currencies from being used for money laundering and
terrorist financing and to protect consumers from fraud—but without
stifling innovation in this nascent field.

Further, regulators face the
challenge of trying to regulate providers of digital currency services
within a traditional regulatory framework that is often wholly unsuited
to the unique characteristics of digital currencies.

This presentation will explain the issues that regulators and
lawmakers are addressing with respect to digital currencies, and
describe the key actions taken to date.  The presentation also will
discuss legal issues that businesses involved with digital currencies
should consider and address. By David Beam. #sxsw #CLEbitcoin

Key takeaways:

  1. Digital currency community is divided between pundits that believe a major advantage is its unregulated state in which it operates as an alternate to state-sponsored currency and some who believe that regulation will add credibility.
  2. Because few digital-currency laws exist, regulators are using existing tools that don’t fit digital currency well.
  3. In the US, lawmakers are (surprisingly?) eager to see digital currency thrive.
  4. In the US, no real regulation of pure P2P transactions–just the intermediaries.

Regulatory Issues:

Money laundering and terrorism financing must be prevented. Despite early press that Bitcoin was essentially “tool for drug dealers” and other illegal activities, Bitcoin essentially has the ultimate “paper trail.” Regulation in this area is inevitable, even though Bitcoin’s usefulness for crime is debatable, because governments will need assurance due to the importance of combating terrorist financing.

The traditional primary weapon to combat the financing of criminal activities is to strip away anonymity and secrecy. Financial institutions must report “suspicious activity” to law enforcement. Many sanctions laws are strict liability – you are liable if you transact with a person on the Office of Foreign Assets Control even if you didn’t know the person was on that list. How does Bitcoin work when can’t know the identity of the sender or recipient?

Prudential supervision may or may not be an obligation of the government in regard to Bitcoin. Many aspects of traditional finance are under the jurisdiction of federal, regional or local governments and some are controlled through private alternatives. Further, should regulation apply to the location of the service provider (similar to the supervision of banks), or the location of the money transmitters who are its customers?

Consumer protection is an important consideration. The Consumer Finance Protection Board (CFPB) put out a very useful Consumer Advisory that serves as a basic Bitcoin 101 for the uninitiated. Currently digital currency is not a high priority for the CFPB because so few people use it, and they only jurisdiction over transactions involving consumers, as opposed to businesses.

Regulators at the CFPB are genuinely excited about BitCoin’s potential, but they are uncomfortable with Bitcoin’s irreversibility and the danger to consumers who’s private key is compromised. Congress, however, could pass a law requiring that liable parties who received an improper Bitcoin payment must refund the money.

Securities and commodities futures regulation must be addressed.

Taxation is usually collected by most tax authorities as if the digital currency were an asset acquired in a barter transaction. This is partly because most income tax laws refer only to government-backed currency. Sales tax is another issue: would the tax be collected in traditional or digital currency and what elements of the transaction would trigger the tax?

Michael is responsible for client SEO work, reporting, FB ads, and web hosting. Prior to joining NSI Partners, Michael received his Bachelor of Science in Business Management Information Systems from Liberty University, and worked at the school’s Network Operations Center. Michael resides in Lynchburg, VA, with his wife, Megan. His hobbies include gaming, watching Atlanta Falcons football, and reading.

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About NSI Partners

A digital marketing company with almost two decades of experience, NSI Partners helps clients achieve robust results in search marketing, social media, and other digital marketing spaces.

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