Regulating Cryptocurrency

March 13, 2014 Law Research

Dogecoin, a popular cryptocurrency

Online currency has become a growing trend as more people use the internet on a daily basis. This form of currency, or cryptocurrency, has been in the news recently after a man decided to sell his vacation home for 100 million Dogecoins. How much is 100 million Dogecoins? It equals up to $135,000 dollars. With cryptocurrencies on the rise in popularity, do they have any legal regularities? Are they protected by the same currency laws as monetary currency?

What is cryptocurrency?

Cryptocurrency is a digital medium exchange, and plays a role as “online money”. The first form of cryptocurrency was created in 2009, and is called Bitcoin. Since its creation, other cryptocurrencies have been made. Unlike normal currency, cryptocurrency uses cryptography to anonymize the electronic transactions that are taking place.

Since there is so much anonymity with online currency, people are afraid this can lead to an increase in illegal activities, such as purchasing drugs or illegal weapons. Federal and state laws regulate banks, money transmitters, currencies, both foreign and domestic, and securities in many ways. Bitcoins and cryptocurrencies are so recent and under the radar that there are no set laws for them. Cryptocurrency falls into a legal gray area when it comes to being controlled by federal and state laws.

One major issue with cryptocurrency is money laundering. Rather than having a central authority figure in charge of all the currency regulations, Bitcoin payments are processed based on a peer-to-peer method. There are a basic set of rules that are followed, and those who do not follow them are rejected from the transaction. Also, the network operates globally, so regulating and shutting down the entire cryptocurrency network would be extremely difficult.

The Good from Cryptocurrency

In light of this subject, a two-man Jamaican bobsled team was offered a chance to compete in the winter olympics in Sochi. Word got out they did not have enough money to go to Russia. As a result, thousands of people started funds to help the reach the olypmics, including one in Dogecoins. Thanks to the support from strangers and cryptocurrency, the Jamaican bobsled team was able to raise over $184,000. The Dogecoin fund was able to raise $30,000 for the team after it was converted into “fiat currency”, or US dollars. This isn’t the first time Dogecoin has done good. There are, in fact, many fundraisers that used Dogecoins to raise money.

 

Dealing with the legality of cryptocurrency will be a challenge for law enforcement in the coming years, especially because of its growing popularity. Outlawing cryptocurrency completely is difficult due to the many loopholes of the internet. Also, not being able to punish those involved in illegal activities on account of anonymity is a problem. However, we have seen some good come out of cryptocurrencies, such as strangers helping raise funds for good causes. Finding a middle ground between regulating online currency and the law will be the best option for both parties for the time being.

 

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