Cryptocurrencies provide many chances in different fields of economy but also pose challenges to regulators as well as entrepreneurs being subject to control by tax institutions. Legal issues inherent in digital money are complex and frequently misunderstood. To find out more about laws concerning Bitcoin, altcoins and blockchain we contacted Adam S. Tracy, attorney with experience in cryptocurrency matters from Tracyfirm.com.
Not so long ago cryptocurrencies were perceived as a black market, underworld ally, enabling the exchange of criminal goods and services for money. Has it changed?
Adam S. Tracy: I’ve been presented with the allegation that cryptocurrencies facilitate or enhance criminal activity many times in the past. I suppose, as an attorney who has practiced, among other areas, white collar criminal defense, my question in response is “was there ever a period of time in the last 100 years where criminals truly had difficulty hiding the proceeds of their crime?” The black market exists for many reasons other than crime. For instance, in countries such as Venezuela where the economy and currency have all but collapsed, there exists a large black market as that is the only means of acquiring basic goods for many people. In other instances, and this is perhaps ripped from an economics text book, but excessive sales taxes or even VAT can create a black market for those who wish to evade paying the tax. Absolutely, is there a degree of anonymity inherent in cryptocurrency, yes. Is that anonymity driven more by the platform of exchange (eg, peer to peer or dark web) versus the currency itself? I believe so. After all, paper currency is less traceable in my opinion. That said, I think the perception has changed as exchange platforms have become more out in the open, but I think there is a subset of many governments that wish to focus on the potential for its use in criminal activity – whether there is a greater risk inherent in cryptocurrency versus traditional paper currency or not.
Bitcoin and altcoins have already been noticed by the regulators. Yet laws regulating the use of cryptocurrencies vary across the world. How long, if ever, before lawmakers from different countries reach a consensus as to what cryptocurrencies really are?
AST: My feeling is that one of the larger economies – the U.S., U.K, etc. needs to take the lead, and other nations will likely follow. There is no real uniformity across the globe with respect to existing Securities or Commodities laws. As such, I couldnt imagine a majority of nations reaching a true consensus on cryptocurrency. After all, we have separate fiat currencies in most nations and a vibrant, highly liquid, global forex market. If a nation such as the U.S. were to enact specific cryptocurrency legislation, that may trigger the larger SRO trading exchanges to start listing bitcoin, for instance. I believe that the legitimization of cryptocurrency is not solely based on the user-consumer, governments must step in to some degree – and I am by no means a proponent of big government.
In USA cryptocurrency is considered property for tax purposes. How big are the chances that digital currencies will gain the status of a legal tender, on par with fiat currencies?
AST: In a country like the U.S., the only business that is allowed to have a monopoly is . . . the U.S. government. The “money” business, for lack of a better term, is a very, very large monopoly indeed. The US government effectively guarantees the Dollar and the underlying lending of the Dollar is globally accepted as the “risk-less” discount rate for financial purposes. How accurate that is in reality anymore, I am not certain, but it remains the accepted standard. Should the US government – or any government with a viable currency, move to allow any form of cryptocurrency to become legal tender on par with the native fiat currency, the value of that fiat currency may decline. It becomes a matter of demand, and if the demand for the Dollar decreases so would demand for US government debt. The country cannot run without borrowing, and borrowing a great deal. For that reason, I would very much doubt that the US government would intentionally do anything that could, in theory, impair their ability to borrow.
Do businesses, funds, investors dealing with cryptocurrencies have problems with adapting to the present legal framework which probably doesn’t cover every issue regarding crypto trade? What are the biggest issues here?
AST: I find that there are issues working within the current framework. Take the U.S., for instance. The government initially proclaimed that bitcoin was a “commodity” as opposed to currency or even a security. That places regulation of cryptocurrency under the auspices of the Commodity Futures Trading Commission in the U.S., and not the more well known Securities and Exchange Commission. That was in 2015. Fast forward until today, and Initial Coin Offerings (“ICOs”) are all the rage. As an attorney, I have to ask myself, is this offering more of an offering of securities as opposed to commodities? And you also need to look at the cryptocurrency itself, does each coin represent an interest in a physical asset – e.g., a commodity? Or does the coin in question represent an interest in an enterprise or fund – e.g., a security? Until there is more clarification – either through the courts or by direct legislation, I contend that one needs to treat each transaction on a case by case basis.
Let’s talk about blockchain. This technology enables so called smart contracts which enable various peer to peer agreements. Any challanges to law makers and law companies here?
AST: I contend that the nature of blockchain and the code that lies on it – ie smart contracts, are far less of a challenge. The nature of a blockchain is a ledger, and to borrow from the accounting concept a ledger in its simplest form is a record of paired, net transactions for a given entity. The smart contracts found along the blockchain should, in theory, contain the specific set of conditions upon which parties agree as well as a set of circumstances at which time a certain action must occur. Note that smart contracts are not based on new technology, rather they are “stored procedures” that first appeared in SQL databases. At a very base level, you can break down smart contracts to the basic tenants of contract law. I believe the nature of the blockchain, with its inherent data disintermediation, makes it far easier for both private and public industry to trust, grasp and adopt the technology. I dont foresee a major reason to regulate blockchain – after all, it is merely a database. As for smart contracts, there is well established contract law that I believe should govern. In this case leave well enough alone.
And let’s finish this conversation in a philosophical tone: how do you think blockchain and cryptocurrencies will change the world?
AST: Tough to say. Blockchain, from an immediate practical standpoint, shows greater promise. A true decentralized database could change the way we transact literally everything – from securities transactions to real estate conveyances. Today, in its current state, blockchain could improve the means by which we conduct business across nearly every industry. Like every technology, however, it is a matter of adoption. On the other hand, existing fiat currency tends to work well, in my opinion. The Romans created a fungible, liquid currency over 2,000 years ago that was used throughout its empire – Im not certain bitcoin is more widely used today. The promise of cryptocurrency, in my humble opinion is twofold. First, I foresee bitcoin and other mainstream coins to become established, global mediums of exchange, albeit secondary sources in the largest nations. Second, I believe that cryptocurrencies that exist within a particular ecosphere, for lack of a better word, mostly created through ICOs and tied to underlying asset, will become tremendous vehicles for raising capital.
Interviewed by Przemysław Ćwik