By Jessica Chapman
Cryptocurrency has taken the world by storm due to its exemplary use of blockchain technology. It is, in fact, one of the leading products that are completely powered and dependent on blockchain technology.
With more people starting to invest in cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin, some might ask themselves about the legal standing of crypto. Here are a few points about the legal considerations about cryptocurrency and its transaction system.
Concerns over money laundering schemes
The advent of cryptocurrencies was real-life proof of blockchain technology making huge strides in a real-life environment. This has proved how much it is possible for blockchain to make changes in the business landscape. Through wide-spreading growth, it is proof of blockchain transforming businesses in various industries and sectors. However, the anonymity and shroud of the mystery of the transaction ledger make it hard for the IRS to track down any unpaid taxes.
Also, since cryptocurrency does not have the legal standing of an actual currency, it is viewed as an asset. Therefore it is a currency of choice for people trying to hide their incoming cash away from the relevant tax authorities. As a result, others have strong reasons to believe that cryptocurrencies might be a tax haven for money laundering schemes.
With the popularity of this digital currency growing, it seems to be getting easier to bypass local laws regarding taxation since crypto is regarded as an asset. Even the average citizen has come to a point where their salary might even be paid out as crypto.
Lack of legal accountability
What makes cryptocurrency work so efficiently is that it does not belong to anyone specific individual or company. Even though the inventors and developers of cryptocurrencies built these systems, they do not own them. Nobody does have legal ownership of crypto companies, and this is the main idea behind it.
The intention of cryptocurrency is to decentralize currencies so that no one individual has total control over them. Although this seems like a great aspect of cryptocurrency, some perceive it as a lack of legal accountability. If there is any data leak or other legal issue with cryptocurrency, you can’t really claim or file a suit against anyone. The lack of legal accountability might even be more evident by having no one central office where the servers are.
Instead, they are scattered across the entire globe, making up a worldwide network of blockchain nodes. All of the individuals that own these nodes are also not accountable for the operations of cryptocurrencies because all they do is provide infrastructure to complete a transaction.
Fraudulent activities surrounding crypto
Apart from tax evasion and money laundering, cryptocurrencies might have other legal implications that seemingly promote this digital currency as the perfect platform for fraudulent activities. Due to the very own blockchain system that provides complete anonymity, government organizations have been concerned about what this catalyzes. Using cryptocurrency to complete fraudulent transactions is not something that is surprising.
In the deep dark corners of the internet, some are selling carded and fraudulently obtained goods. On the other hand, anonymity benefits the perpetrators since law enforcement officers find it hard to intercept any payments made for such fraudulent sales. This is in direct contrast with how banks help law enforcement officials when sharing subpoenaed bank statements and other financial records.
Apprehending suspects conducting fraudulent activities has become much harder on law enforcement if cryptocurrency was used. Without strong evidence, the police and prosecutor need a smoking gun testimony or tangible evidence of any wrongdoing. Otherwise, the suspects might as well walk away scot-free from any charges on their name.
Jurisdictional legal implications
Most crimes committed either physically or on the web can be tied to a specific location using geotagging or crime scene spot identification. As a result, law enforcement agencies know exactly who has jurisdiction over the investigation of that case. Depending on the severity of the crime, local police departments might have the authority to investigate. Alternatively, state law enforcement or even federal agencies might need to be involved in more complex cases.
Federal agencies might also be better equipped to handle nationwide crimes. However, crimes committed using cryptocurrency are generally over the internet with no location tied to them. As a result, it becomes challenging trying to ascribe which law enforcement agency has jurisdiction.
There is nothing law enforcement agencies can go on when suspects are using crypto because of the anonymity. Also, there is no one individual who can shed light on the specific users because it is decentralized and there’s no accountability whatsoever. Therefore, jurisdictional divides are blurred out and it is hard to track down crimes committed online using cryptocurrency as the payment method.
The legality of smart contracts fulfilled using crypto
There has been great fanfare regarding a very innovative idea to enter into binding financial agreements. This innovative idea is none other than smart contracts that use cryptocurrency and blockchain ledgers to be completed. Smart contracts are binding agreements that facilitate a sale and payment is only released to the individual once the obligations have been fulfilled.
These agreements could range from something as small as making a second-hand gadget sale to selling your house. As a result, both seller and buyer are safe as this contractual arrangement is a bit similar to the escrow system. Before making a sale, the buyer and seller agree on the obligations that need to be fulfilled before the funds are automatically released.
Although this idea seems very functional and innovative, there are some questions regarding its legality. If anything were to go wrong, are these contracts admissible in court? It is hard to tell, especially since these smart contracts use crypto, which has a veil of secrecy in terms of its transactions.
Operational risks of cryptocurrency
In addition to all of these legal concerns regarding cryptocurrency, this digital currency also poses further implications that impact its legality. There are some operational risks that cryptocurrencies possess because they aren’t backed up by any tangible assets.
Unlike normal currency impacted by the gold reserves of a country, the value of cryptocurrencies is ascribed by the users. If most of the users decide to tip the scales and drive the value of any given crypto down, they have the prerogative to do so. These operational risks have been the ones that impact the legal status of cryptocurrency.
As there is no underlying value to cryptocurrencies, that is why it has been classified as an asset instead of a currency. Subsequently, this has all the other ripple effects regarding tax evasion and money laundering schemes. Additionally, there are no ethical laws that govern cryptocurrencies and price-fixing that are applicable to regular currencies.
The bottom line
Cryptocurrency is here to stay and there are significant benefits associated with using this digital currency. However, there are some legal concerns regarding how cryptocurrency operates, especially regarding the anonymity it provides to criminal activities. Be that as it may, there is very little that can be done about this and cryptocurrency is overall beneficial. Hence its growth might continue on an upward trend since more users are attracted to this digital currency.
About the Author