Legal Issues in Cryptocurrency

The userbase of cryptocurrency is slowly increasing. More and more people are now opting for crypto and using it more frequently. However, crypto can still be a long way from becoming the mainstream, possibly, because of the legal issues involved. If you want to know what legal issues come along with cryptocurrency, read along.

“Smart Contract” Issues

Smart contracts are one of the most striking features of cryptocurrency. It’s basically a digital contract that automatically executes as per the terms registered within the contract. As you may know, two parties are involved: one is sending money, and the other one is receiving. So, when the receiving party does the asked job or tasks, he/she gets paid as per the agreed terms.

However, the system behind this smart contract is a complex one. It’s why determining whether smart contracts will fit into the present legal system is hard. If you consider the United States, there’s not any law that applies across the country. The laws vary from state to state. As a result, the legality of smart contracts is an issue. 

Jurisdictional problems

The laws of the United States apply only within the United States. Let’s say a person commits a crime in the USA and runs to some other country out of the USA’s jurisdiction. In this case, he won’t have to act by the USA’s laws. And this is known as a jurisdiction that changes as we change borders or countries.

Cryptocurrency is quite famous because of the anonymity and privacy it offers. However, this poses some very complex challenges based on jurisdiction:

  • The crypto nodes lie in different jurisdictions, which can create legal conflicts.
  • The crypto software or ledger’s info is unknown. So, you can’t determine to which jurisdiction will apply.
  • Because of no border barrier choosing the correct jurisdiction in case of any crypto disputes is also quite hard.  

Financial frauds & Data thefts 

Of course, cryptocurrency offers anonymity and privacy to its users. However, this anonymity can pose a threat too. Users across the globe who’re involved in illicit activities can freely launder money without anyone noticing. This can lead to massive financial fraud.

Also, in a recent data breach, a ledger compromised over emails of over 1 million users. This is clearly a case of data theft. But whether or not the traditional laws address issues related to crypto is not clear.  

Tax Issues 

Let’s take the example of the US. As per the US, cryptocurrency is not currency. Instead, it’s a property. It means individuals cannot use crypto as a currency for IRC purposes. However, every taxpayer needs to report the crypto transactions in dollars annually on the tax returns.

It means you need to convert the crypto into USD every time you report the transactions. Also, you need to keep a note of the then price of that particular cryptocurrency. Now, this can be quite cumbersome for the taxpayers. Also, the exact requirements or guidelines are still not clear.  

Concerns for the investors

Although cryptocurrency is now legal in countries such as the USA, UK, Canada, Japan and is legal as per the IRS, there are still some legal issues. Let’s understand this better below.

Now, cryptocurrencies do not have a centralized authority for their regulation. The owners or investors somehow change or determine the actual value of the currency. Because of this factor, some investors feel that there should be some laws or legal frameworks to manage the system if an issue arises.