With a broad scope, it is not surprising that the legality of Bitcoin and other cryptocurrencies has been questioned. The website will assist traders in their bitcoin journey with the best trading tools, fast payouts, and phenomenal customer support. The blockchain technology that underpins Bitcoin transactions is decentralized, but its legality is not. While the World Bank and the International Monetary Fund (IMF) have stated their intent to use blockchain technology, their position on Bitcoin and cryptocurrencies needs to be clarified. If you are into crypto, you may consider knowing about how blockchain enhances Fog computing security and privacy
Their silence on this critical issue reflects that both organizations gather data and analyze financial transactions worldwide, so they must consider legal requirements. The intersection of law and finance requires that financial institutions talk in the same language as other industry participants.
The legal requirements for a blockchain, a distributed ledger system, are precise. It is not an electronic cash system like Bitcoin; it does not pay interest or have predefined “payment schedules.” In addition, an industry application of blockchain technology must not generate revenues for the company using it. As a result, no one receives income for using a blockchain, which is a significant distinction.
If a company uses a blockchain, it can be an operational tool, not an investment vehicle. In essence, the company must use the technology to solve real-world issues—a process referred to as “legally agnostic.”It means that the technology users do not consider legal or regulatory issues in their implementation planning. It’s an interesting concept but not one most people will likely embrace anytime soon. So let’s explore the legal hurdles that bitcoin and blockchain can face.
- Compliance issues:
If Bitcoin were deemed by government legal tender (fiat currency), it would have to comply with all anti-money laundering statutes, including KYC/AML. In addition, it means that bitcoin exchanges would have to report every transaction and undergo the same due diligence processes as other financial institutions—a costly and time-consuming requirement.
- Regulatory compliance:
Regulation of cryptocurrency exchanges and wallets has yet to be finalized in several U.S. states. Still, it is likely to happen at the federal level, with the IRS being a significant player in this process.
- Security issues:
A distributed ledger system requires cryptography to safeguard user data and prevent tampering or breaches. But the cryptography used in blockchains could be better available. Moreover, because the security requirements for a blockchain are very stringent, it’s unlikely that the adoption of blockchain will occur in a vacuum.
- Intellectual property issues:
Blockchain technology is to be regarded by people as an innovation created by its developers, and entities using it must protect their rights from others using it without their consent. Therefore, the use of blockchain in business applications must be deemed reasonable under current intellectual property (IP) laws, including copyright and trade secret laws, to avoid possible infringement claims.
- Taxation issues:
Some countries, like Australia and Canada, are in the process of adopting laws to tax cryptocurrencies so they can collect revenue.
- Legal jurisdiction issues:
Every entity using blockchain technology must comply with all local, state, and federal laws. In the United States, this means federal regulations will supersede any state regulations in case of conflict. As a result, companies will have to comply with two-way regulations from the state and Washington. If a country or entity uses blockchain technology, it will be required to comply in most cases with all tax laws of that country as they apply to that technology.
- Litigation issues:
Several lawsuits have already been filed against virtual currency exchanges and wallet providers, alleging violations of federal law, including money laundering and tax evasion. The level of risk associated with these cases is increasing, so more legal actions are likely in the future, particularly if the use of cryptocurrency by companies becomes widespread.
- Strategic issues:
The question remains whether people can use blockchain technology as a strategic competitive advantage for a particular company. The currency aspect of bitcoin will always remain with it; however, it is not essential for using blockchain technology. Blockchain technology is not dependent on bitcoin and vice versa—although they have grown up in tandem, they are different technologies.
- Technology issues:
As mentioned earlier, to function correctly, blockchains require high levels of encryption and sophisticated internal algorithms that are hard to maintain and difficult to analyze by third parties. In addition, the programming language used in blockchain development is not easy to implement and requires highly-skilled individuals who can manage the requirements locally in most cases.