Digital currencies “do not exist in a legal vacuum and, therefore, sweeping legislative measures concerning Bitcoin are not needed”, according to a new analytical report on Bitcoin’s legal and regulatory framework published by the Bitcoin Foundation Canada (BFC).
Read here:
http://ca.bitcoinfoundation.org/wp-content/uploads/2014/07/BITCOIN-AND-THE-LAW.pdfEntitled “Bitcoin and the law”, the report was authored by Jillian Friedman, chief legal officer at the Bitcoin Foundation Canada and Joseph Neudorfer, collaborator-attorney.
Contrary to the claims that Bitcoin is not regulated, existing legal and regulatory frameworks already apply to digital currencies. To determine which rules apply, the authors propose a functions-based approach, meaning that one must ask “how is Bitcoin being used in this particular context”?
According to Jillian Friedman, “legal obligations and constraints regarding Bitcoin should be based on the functions or particular services being performed rather than the technology itself”.
Whether or not Bitcoin is classified as ‘money’ does not preclude it from being subject to the principles of private law, criminal law, and, for certain business models, financial services law. In most cases, a simple clarification of existing laws is justified.
*Contracts under private law in Bitcoin: using Bitcoin does not render parties exempt from the application of the rule of law
*Consumer protection: all of the legal obligations resulting from the sale of a good to a consumer apply to transactions with Bitcoin
*Fraud: the investing public is protected by existing criminal legislation against fraudulent Bitcoins schemes.
*Financial services law: the activities of digital currency businesses that are similar to money services businesses will soon have to play by the same rules as their fiat counter parts.
The authors provide much-needed information on other topics such as income and sales taxation, money service business status, securities and capital markets as well as provincial law. The report, which dispels the ongoing myth that Bitcoin is not regulated, will serve as a basis for the Bitcoin Foundation Canada’s testimonials at the Senate Banking Committee hearings in October 2014.
The readers will note that the report’s underlying approach is in stark contrast with heavy-handed and technology-specific alternatives such as the “BitLicense regulations” proposed by the New York Department of Financial Services.
AbstractThis report demonstrates that Bitcoin does not exist in a legal vacuum by detailing how the relevant legal and regulatory frameworks already apply to its use. We posit that whether or not Bitcoin is classified as “money” does not preclude Bitcoin and other digital currencies from being subject to the principles of private law, criminal law, and, for certain business models, financial services law. Regarding contracts under private law, it is clear that the mere fact that Bitcoin is an instrument to an agreement or a contract does not render the parties exempt from the application of the rule of law. In terms of consumer protection, we observe that all of the legal obligations resulting from the sale of a good to a consumer would apply to the transaction, regardless of whether the sale is conducted with Bitcoin or other traditional fiat currencies. Regarding financial services law, the activities of digital currency businesses that are similar to money services businesses, such as exchanges, will likely soon have to play by the same rules as their fiat counter parts. Criminal law is also applicable to Bitcoin related activities; for example, the investing public is protected by existing criminal legislation against fraudulent Bitcoins schemes. In terms of taxation, we review what tax authorities have made clear about the tax treatment of certain Bitcoin transactions and highlight lingering ambiguities. We see great potential for the use of blockchain technology for capital markets, specifically securities. It’s likely that different investment products using blockchain technology might be subject to applicable securities law.
Based on our observations and analysis, we conclude that Bitcoin does not exist in a legal vacuum. Therefore, sweeping legislative measures concerning Bitcoin are not needed.
