More and more previously unknown cryptocurrencies are taking pride of place in the lives of many people. Recently, legal issues related to cryptocurrencies have become more and more of interest to users, as they increasingly crowd out ordinary money.
The main advantage of blockchain technology, according to many users, is smart contracts. They are a unique code where, when each party fulfills certain obligations, the other party automatically receives the previously agreed amount in the form of transactions.
It is legally difficult to determine how they fit into the legal framework. For example, in the United States, everything depends on the specific state. There is no single law on them that would apply throughout the country. The only law that is indirectly related to them is the 2000 Global and National Trade Electronic Signatures Act. It implies the limited legal force of smart contracts.
When carrying out transactions in blockchain technology, the data of the recipient’s registry about its location is almost impossible to trace. On the one hand, this provides good confidentiality. On the other one, there is a legal problem.
Three problems can be distinguished here at once:
- the location of crypto nodes in different jurisdictions may fall under conflicting frameworks;
- it is impossible to determine the physical location of the cryptocurrency software;
- the transnational nature complicates the solution of legal issues.
Thus, cryptocurrency legal can be a great problem.
Stealing the data and financial scamming
Since the blockchain is outside the rules, some dishonest users find workarounds for their financial transactions.
In 2017, a professor at Cornell University discovered a security hole in Ethereum. The risk was $ 250 million. And due to the leakage of data from the manufacturer of crypto wallets Ledger, the data of 9,500 users were declassified. all this only confirms the fact that the security of different cryptocurrencies is in doubt.
Moreover, the constant improvement of blockchain technology casts doubt on its anonymity. Earlier, a blockchain analyst firm said it could track the vast majority of Zcash and Dash transactions. In fact, even the term “confidential coin” loses its meaning.
There are sector-specific privacy and data security laws and regulations apply—such as the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act (HIPAA), and the California Consumer Privacy Act (CCPA) in USA. Legal issues related to cryptocurrencies are difficult to solve. The CCPA’s assumption of centralized controller-based processing does not match with the decentralized blockchain system.
Legal issues related to cryptocurrencies money laundering
Recently, claims have begun to emerge that cryptocurrencies are providing criminals with the data they need in a new way. Since traders are difficult to track, this market is rightfully considered “shadow”. Government agencies even call people who use cryptocurrencies to pay for drugs and weapons as “next generation criminals.”
There is also a version that the criminals found a way to bypass the rules of money laundering, where, in order to withdraw them into cash, they must be converted initially into liquid ones. Many firms are required to identify clients in order to combat money laundering. Some researchers believe these criminals are bypassed by using over-the-counter trading (OTC).
The US federal income tax does not apply to cryptocurrency as much as traders would like it to be. It is his property and every citizen is obliged to account for each transaction on the day of its origin with the calculation of the amount in US dollars. It is worth indicating the money in the annual tax returns. This even applies when the legal issues related to cryptocurrencies resolved in the United States, although the acquisition took place in another country. Nevertheless, whether US investors who purchased their crypto holdings on foreign exchanges are required to fulfill additional reporting requirements in filing their taxes remains unclear.
With the introduction of cryptocurrencies, they are increasingly used in the pharmaceutical, automotive, luxury goods, and especially counterfeit or “gray” goods. Those industries where IP is actively used have some difficulties:
- IP ownership and authorship is in doubt; 2. control and tracking of both registered and unregistered IP addresses is incomprehensible; 3. establishing and enforcing IP agreements, licenses, or exclusive distribution networks through smart contracts.
February 2020 brought many benefits for legal issues related to cryptocurrencies. Thus, different types of cryptocurrency became legal: bitcoin, Ethereum etc were officially allowed in developed countries: USA, Great Britain, Japan and Canada.
The fact that currencies in price are not regulated in any way by any issuing authority, it is difficult to regulate issues and costs or underpayment in terms of transactions. It is known that their price is constantly changing and depends on what the owners and investors ascribe to them.
It should be understood that legal issues related to cryptocurrencies can’t be settle by court for sure, thus it’s decentralized and no intermediary or authority has the exclusive jurisdiction to settle cryptocurrency-related disputes.