BITCOIN AND BLOCKCHAIN: A LEGAL SNEAK PEEK
Bitcoin is a worldwide crytocurrency[i] and digital payment system. The system is peer-to-peer, and transactions take place between users directly, without an intermediary, steadily making it our future wallet. Assuming that drawbacks of bitcoins are a matter of general awareness, let’s dive into its legality and its legal consequences.
Being of decentralized nature, restrictions on it are impossible to enforce, though its use can be criminalized. The legal status of bitcoin varies substantially from country to country. While some countries have explicitly allowed its use and trade, others have banned it. Bitcoins take the power of making money away from central federal banks and give it to the general public. The accounts cannot be frozen or examined by tax men, and middleman banks are completely unnecessary. Law enforcement and bankers see bitcoins beyond the control of traditional police and financial institutions.[ii] The use of bitcoin by criminals has attracted the attention of financial regulators, legislative bodies, law enforcement, and the media. The FBI prepared an intelligence assessment, the SEC has issued a pointed warning about investment schemes using virtual currencies, and the US Senate held a hearing on virtual currencies in November 2013. In 2014, researchers at the University of Kentucky found huge evidence that computer programming enthusiasts and illegal activity drive interest in bitcoin.
The relationship between Bitcoin and law depends on how the digital currency is being used. Not helping Bitcoin’s reputation with authorities was its prevalence as a payment service for the Silk Road, a digital marketplace where users could purchase illegal goods. Whether or not people use Bitcoin as a way to participate in expressly illegal activities doesn’t make the digital currency itself illegal. According to the U.S. Treasury Department’s Financial Crimes Enforcement Network, as of 2013, using bitcoin to purchase well-natured goods and services is not illegal. However, those who mine bitcoins and trade them for traditional currency or operate exchanges could be subject to special laws, something rarely, if ever, enforced. Many countries have issued statements that bitcoin and other digital currencies do not exist as officially sanctioned currencies: a status putting users at risk but not having them violating any laws. It is important to remain up-to-date on the latest regulations concerning the digital currency. As laws change across borders, governing bodies and, increasingly, as the platform gains popularity, questions about bitcoin’s legality will continue to be raised.[iii]
The doubt clouding Bitcoins can be easily addressed by tracking bitcoins. A Bitcoin holds a very simple data ledger file called a blockchain. Each blockchain is unique to each individual user and his/her personal bitcoin wallet. All bitcoin transactions are logged and made available in a public ledger, helping ensure their authenticity and preventing fraud. This process helps to prevent transactions from being duplicated and people from copying bitcoins. While every Bitcoin records the digital address of every wallet it touches, the bitcoin system does NOT record the names of the individuals who own wallets. This means that every bitcoin transaction is digitally confirmed but is completely anonymous at the same time. So, although people cannot easily see your personal identity, they can see the history of your bitcoin wallet. A public history adds transparency and security; helping to deter people from using bitcoins for dubious or illegal purposes.[iv]
Changes are always opposed as the society follows the law of inertia. But that which stands all objections gets accepted as one that belongs. If bitcoins pass this test of survival, they have the potential to emerge as our wallet in not so far future.
[i] Bitcoins are electronic currency, a form of digital public money that is created by painstaking mathematical computations and policed by millions of computer users called 'miners'. They are, in essence, electricity converted into long strings of code that have monetary value; Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system.
[ii] Gil P.(2017). What Are Bitcoins? How Do Bitcoins Work?, Why Bitcoins Are So Controversial, see https://www.lifewire.com/what-are-bitcoins-2483146, last visited on 09/11/17.
[iii] BITCOINMAGAZINE, Is Bitcoin Legal, see https://bitcoinmagazine.com/guides/bitcoin-legal/, last visited on 10/11/17; Brito, J., & Castillo, A. (2013). Bitcoin: A primer for policymakers. Mercatus Center at George Mason University.
[iv] Gil P.(2017). What Are Bitcoins? How Do Bitcoins Work? see https://www.lifewire.com/what-are-bitcoins-2483146, last visited on 09/11/17.
Author: Suparna Mukherjee
College: University of Calcutta
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