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The adoption of cryptocurrencies is a significant part of the future of monetary transactions. Cryptocurrency is defined by the Merriam-Webster Dictionary as “any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies on cryptography to prevent counterfeiting and fraudulent transactions.” This new phenomenon is regarded by some as what will eventually move the world to become completely cashless. The effortless transfer of funds has many advantages including that they are decentralized, self-governing, and protected from inflation. However, there are various disadvantages that consist of illegal transactions, risk of data loss, power in the hands of a few, and vulnerability to hacks. Considering that Bitcoin, a form of cryptocurrency, is becoming increasingly popular, countries must decide if the benefits outweigh the costs of regulating these types of transactions.
Bitcoin and other cryptocurrencies have varying legal statuses in different countries often concerning its usability as a means of payment. While some countries permit it for international trade others place outright bans. The nuanced and progressive nature of cryptocurrencies pushes countries to adopt laws accordingly as a better understanding of the causes and effects of these transactions emerge. Many countries have created anti-money laundering and counter-terrorism financing laws to reduce the illicit activities associated with cryptocurrencies and to target the lack of control over cryptocurrency. Bitcoin is legal in the U.S., some EU countries, UK, Canada, Australia, El Savador, Iceland, Japan, and Mexico. In these countries Bitcoin can be utilized in transactions with some regulations. Bitcoin is implicitly banned in Bahrain, Burundi, Cameroon, Central African Republic, Gabon, Georgia, Guyana, Kuwait, Lesotho, Libya, Macao, Maldives, Vietnam, and Zimbabwe. There are absolute bans of cryptocurrency in Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar, and Tunisia. These bans are due to the “volatility and decentralized nature” of Bitcoin. In some of these countries, Bitcoin is viewed as a threat to the economic sector similar to drug trafficking and terrorism. To enforce such bans, countries have attempted to eliminate banking and financial support for this type of trade.
Cryptocurrency in Nigeria
Cryptocurrency is booming in various states, one of them being Nigeria. They are a leader in the world for the implementation of cryptocurrency. The country has not determined it to be illegal but has rather left it unregulated. According to the country’s laws, what one does with cryptocurrency determines if the transaction is unlawful or not. However, there are no specific laws that criminalize the use of it. The Central Bank of Nigeria (CBN) asserted “that cryptocurrencies are created by unregulated and unregistered companies, and hence usage in Nigeria violated existing laws since they are not legal money.” This statement appeared to ban the use of Bitcoin and other digital assets; however, despite the ambiguous legal status of these currencies they have continued to thrive. The CBN later clarified that they were enforcing the notion that banks should not be involved in crypto trades and there was no new restriction on the currencies. Nigeria’s Bank does not support crypto because of the illegal transactions, anonymity, and high risk it poses. This “ban” that is imposed in Nigeria allows for consumers to find ways to avert the regulations and utilize cryptocurrencies in all transactions. There have also been additional concerns about data protection. The Cybercrimes (Prohibition and Prevention) Act, 2015 shaped cyber law in Nigeria. This Act allows consumers’ intellectual property to be protected and punishes cybercrime. This Act serves as an argument in favor of cryptocurrencies in debates over their legality since it protects consumers’ information. Nigerian lawmakers are being urged to develop a more specific legal framework and some legislation for cryptocurrencies due to their rising popularity in the country.
Cryptocurrency in the U.S.
Focusing specifically on the U.S., it has become clear that the unprecedented nature of cryptocurrencies calls for new laws and regulatory frameworks. The U.S. Securities and Exchange Commission (SEC) “views cryptocurrencies as securities, and will apply existing securities laws to digital assets.” Essentially, taxpayers are required to report all monetary flow from cryptocurrencies. There has been a major effort to enforce this policy. However, the Commodities Futures Trading Commission (CFTC) views Bitcoin as commodities and not securities. The commodity market is less restrictive which is why the crypto industry favors the classification of commodities rather than securities.
Overall, the exchange of cryptocurrencies in the U.S. must be enforced by Anti-Money Laundering and Know-Your-Customer programs. Additionally, cryptocurrencies need licensing from the Financial Crimes Enforcement Network when they operate. The Biden Administration has vowed to become more strict so that people do not take advantage of the loopholes in the crypto trade. SEC Chairman Gary Gensler affirmed “that bad actors in crypto should be prepared for tougher enforcement under Biden; that his agency will aggressively pursue enforcement actions; and that Congress should consider a law to regulate crypto exchanges.” He believes that it is in the best interest of the American people to have more regulation around cryptocurrency. Additionally, the Treasury Department’s tax plan incorporates laws about cryptocurrency to ensure that all transactions are adequately reported in annual tax filings. As of now, the Federal Reserve has yet to manage the regulations of cryptocurrency, but, as time progresses and crypto becomes more widely adopted by Americans, changes are bound to occur.
Some of the legal liabilities associated with cryptocurrencies are contractual issues, jurisdictional issues, privacy concerns, money laundering, tax implications, and intellectual property burdens. Concerning contractual issues, cryptocurrencies utilize “smart contracts” that “automatically pays the other party when they perform their contractual duties.” Contract law is not structured to include the complexity of smart contracts. Thus, the precedent that contract law provides is ineffective when it comes to cryptocurrency. There are also various jurisdictional issues that come with cryptocurrencies. For example, crypto transactions in different jurisdictions can have conflicting legal frameworks. Deciding which laws to enforce for transnational disputes is difficult for lawmakers. Additionally, the U.S. only has sector-specific and regional privacy and data security laws like the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act (HIPAA), and the California Consumer Privacy Act (CCPA). The current laws are not comprehensive enough to account for the new concerns that have arisen with cryptocurrencies. The CCPA is based on a centralized system, yet cryptocurrencies are based on a decentralized system; therefore, this Act is inapplicable. Furthermore, because of the lack of regulation, there are concerns over the potential for money laundering. Since the traders of cryptocurrencies have the ability to be anonymous, the anti-money-laundering rules require identifications. This means that the traders of crypto have to identify themselves by law. Despite this, illegal actors have found ways around this. To prevent people from circumventing taxes through cryptocurrencies, the U.S. requires investors to pay capital gain taxes on profits from cryptocurrencies. However, if a U.S. investor bought crypto on foreign exchange, there are other reporting requirements that are unclear. There is also uncertainty about intellectual property ownership, controlling and tracking of intellectual property, and enforcing intellectual property laws concerning crypto. All of these issues are plaguing the legal community in the U.S. in an effort to protect consumers and investors for the country to have the best economic prosperity.
Thirty-three states and Puerto Rico in the U.S. are developing legislation to better regulate crypto. Seventeen of these states have already enacted their legislation. Arizona developed a cryptocurrency committee; Arkansas and Indiana clarified their Codes and Acts to include a virtual currency; and Hawaii requested that the Department of Commerce and Consumer Affairs reconsider its ruling on virtual currencies so that cryptocurrency classes can do business in their state. Lastly, Kentucky, Louisiana, North Dakota, and Wyoming all have adopted new resolutions that optimize the potential of Bitcoin.
Overall, cryptocurrencies are changing the way the world conducts transactions and the legal barriers that are implemented in order to ensure that there is proper regulation. However, the extent to which these laws adequately cover the nuances that cryptocurrencies bring remains in question. Countries that have allowed cryptocurrencies to be utilized such as Nigeria and the U.S. are thriving, yet there are many legal liabilities that even these countries have yet to settle. It is of utmost importance for lawmakers all around the world to ensure that there is protection and fair trade among consumers. Such developments will promote economic opportunity for countries that they take place in as this new means of transaction continues to grow.