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Cryptocurrency firms, including wallet providers, smart contract services, digital miners and investors need reliable and experienced legal counsel as they navigate the complex and evolving cryptocurrency regulatory environment. Our blockchain and cryptocurrency team is uniquely positioned to help clients develop and implement blockchain strategies to prevent and avoid potential disputes and investment loss. In addition, our lawyers are experienced securities law arbitration and litigation attorneys who have recovered millions in lost or stolen digital assets for our international clientele.
Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. Like any currency, cryptocurrencies can be used to buy goods and services. But unlike other currencies, cryptocurrencies are digital and use cryptography (the practice and study of techniques for secure communication in the presence of third parties) to provide secure online transactions. Whereas typical currencies are issued from a central bank, cryptocurrencies cut out the middlemen as a peer-to-peer system. This decentralization is touted as one its principal benefits, as it may increase transaction speed and reduce or avoid fees charged by banks.
Cryptocurrencies such as Bitcoin operate on a technology called blockchain. Blockchain is a decentralized public ledger technology spread across many computers that manages and records transactions. Blockchain technology maintains information on how much Bitcoin is owned and who owns it. Rather than possessing physical currency, individuals have a claim to a piece of information contained in the blockchain ledger. When a Bitcoin transaction is made, the currency is transferred between parties as a block of information that gets added to the historical chain of transaction data. This “ledger” is a public file—anyone can download a copy of it. Individual’s identities are encrypted, however, and this feature of the technology is among the many reasons it is so highly touted.
While cryptocurrencies can be used to buy things, much of the interest in these unregulated currencies is to trade them for profit. To buy cryptocurrencies, you must purchase a “wallet,” an online application that can hold your currency. Users access their cryptocurrency using codes called public and private keys.
There is currently no global regulation or standard for Bitcoin and other cryptocurrencies; regulations are handled individually by each nation. However, regulatory frameworks for Bitcoin and other cryptocurrencies have developed differently around the globe, ranging from outright bans to “crypto-friendly” legislation. Within the United States, laws governing exchanges vary by state, and federal authorities actually differ in their definition of the term ‘cryptocurrency’.
The Financial Crimes Enforcement Network (FinCEN) doesn’t consider cryptocurrencies to be legal tender, but since 2013 has considered exchanges as money transmitters on the basis that tokens are “other value that substitutes for currency.” The IRS, by contrast, regards cryptocurrencies as property – and has issued tax guidance accordingly.
Cryptocurrency exchange regulations in the United States are also in an uncertain legal territory, and several of the federal regulators claim jurisdiction. The SEC currently views some cryptocurrencies as securities. Its goal is to apply securities laws to the industry across the board. Unlike the SEC, the Commodity Futures Trading Commission (CFTC) considers Ether, the second-most traded cryptocurrency, as a commodity.
US lawmakers have introduced more than 20 bills this year related to cryptocurrency. The Virtual Currency Consumer Protection Act of 2019 and the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2019 aim to move the regulation process forward so that the US can benefit from the growing cryptocurrency industry.