A Cryptocoins News article reported on a current legal battle being duked out in a California court illustrates just some of the many challenges involved in fully regulating Bitcoin and the entire cryptocurrency system. It sheds light on the number of legal concerns associated with this digital currency. This is along with the other main issue of no standardized set of regulations across countries even though the altcoins are being used across territories to pay for goods and services.
Disagreements About Bitcoin's Role
Is it a commodity or a currency? Can it be both or change roles based on the type of transaction? It's difficult to regulate something where there has yet to be agreement on exactly what role it plays.
For example, the California case involved HashFast Technologies, a company that paid for services using Bitcoin and was trying to sue to recover that currency after it had been paid to a physician. The ruling by the bankruptcy court judge concluded that cryptocurrency is not the same as U.S. currency but was actually considered to be "intangible personal property."
This has proved to be a test on what have been termed "clawback" actions, which are intended to recover money that has been disbursed. As part of the judgment, however, the judge did not rule on the ownership issue and will decide later if the physician must return the Bitcoin or an equivalent in U.S. currency.
Another argument that had yet to be decided is the exact value of the Bitcoin as it fluctuates. The difference in repayment could be as $1 million if the decision is made that it is a currency instead of a commodity. It would seem that this would need to be first determined in order to properly regulate cryptocurrency.
This bankruptcy ruling also brings up another issue, which is that bankruptcy code and most likely many other legal codes have not been written with Bitcoin in mind. Therefore, before regulating cryptocurrency, many codes would need to be updated to reflect this new way of conducting transactions and involve making specific decisions as to how it should be treated.
Different Countries, Different Regulations
It's also difficult to regulate Bitcoin when, in actual fact, regulations vary from country to country. The only similarity may very well be those countries where cryptocurrency is banned or restricted. The issue of how it is classified also comes up again when looking at a global view of Bitcoin.
- Australia wants to tax cryptocurrency like other commercial transactions but is also cautious after security concerns from losses in 2013.
- Brazil has enacted a law about electronic currencies and payment systems, leading the way in evolving its regulations.
- Canada would like to tax Bitcoin but it is currently not recognized as legal tender so as no legal recognition.
- China restricts its use and does allow financial institutions to conduct any transactions using Bitcoin.
- The European Union has spent time debating the issue and has found some ways to tie a legal basis for Bitcoin to its existing laws, but the European Banking Authority is still against it until it becomes regulated.
- Finland has created specific instructions on how it can be used. It also has made any gains from these transactions subject to capital gains tax.
- India has shut down the country's largest Bitcoin trading platform and currently has no regulatory framework for cryptocurrency.
- Russia restricts the use of Bitcoin and is concerned over its potential for use in money laundering or terrorist activities.
- The UK does not currently regulate cryptocurrency but does subject profits or losses on Bitcoin trading to capital gains tax while VAT is applied to any goods that are sold in exchange for this digital currency.
Future Perspectives on Full Regulation for Cryptocurrency
Those that see the true potential of Bitcoin are focused on getting others, including international and national government bodies, banking and financial institutions, court systems, business and consumers, to understand as well. According to an article in The Guardian, they are trying to put past issues behind them, such as the high-profile criminal prosecutions of two Bitcoin entrepreneurs, the suspension of trading on the second-largest Bitcoin exchange, and volatile pricing, and move forward with a focus on finding common regulatory ground to stimulate wider adoption.
Therefore, regulatory measures need to focus on security, price stabilization, and a position for Bitcoin (currency versus commodity) in order to revise existing laws and create new ones that govern this disruptive transaction process. Clearly, cooperation among countries and the associated governing bodies will need to happen with many debates and sessions that end in regulatory resolution for cryptocurrencies.
Why Bitcoin is Not Regulated was originally published on Due Invoicing by John Rampton.