Note: The use of cryptocurrencies — a digital or virtual currency — is far from common, though interest is growing particularly among digital sophisticates concerned about financial transaction security and privacy. As companies increase their hiring of remote independent contractors, requests to be paid in one or another of the cryptocurrencies is not unheard of. But is that legal? What are the rules? This article is a brief look at the global status of cryptocurrencies.
It’s been nine years since the release of the world’s first ever cryptocurrency, Bitcoin, so how will the law adapt towards the new and ever-developing virtual financial system in times to come?
At present, the legal status of cryptocurrencies varies among countries, especially with the continual progression of the technology associated with it. In countries as varied as Ireland, New Zealand and Turkey, it’s unregulated. In others, it may be legal, but its status as “currency” is questionable. And some countries, such as China and the UAE, have gone to the extent of banning the use of cryptocurrencies altogether.
Can cryptocurrency ever be a plausible means of financial transactions on a worldwide scale and if so, how will law fit into this, given its currently ambiguous nature?
What exactly is cryptocurrency?
Cryptocurrency was designed predominantly as a virtual means of financial exchange, in which cryptography is used so to secure all financial transactions.
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Cryptography is important for securing digital financial transactions, especially as a defence against data theft. One of the key aspects that makes cryptocurrency stand out from other forms of currency exchange is that it uses a decentralised control via blockchain technology. Blockchain acts as a secure, decentralized, public financial transaction database, rather than the centralised recordkeeping of current banking systems.
What are the legal concerns?
The possibility of a digitalized global economy with an unregulated decentralized financial system brings with it many concerns, especially for the legal sector. For instance, on a national level there are local regulations that may be at odds with those of other countries. With the variety of regulations — and their often fluid nature regarding cryptocurrencies — compliance is, at best, a challenge. On a government level, an unregulated and encrypted economy raises worries about tax evasion and a lack of financial transactional transparency.