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Legal challenges of crypto-money

Anyone, starting a business, wants to build a strong basis for its development. And, of course, the sooner it is done, the better. One of the relatively safer and easier ways to do so has been presented to the world a few years ago: crypto-money.

It is a form of payment which enables to get goods and services online by exchanging it with the latters, and which is different from other forms of payment by some of its characteristics.

Particularly, cryptocurrencies work via blockachain technology – a decentralized system that manages and records transactions across computers. They’re acquired via trading platforms, such Binance, CoinBase, Coinsmart etc.

According to CoinMarketCap.com, more than 5000 cryptocurrencies are traded publicly at this moment and this number, parallelly with the number of purchasers of this monetary means, rises day by day as does the need for those. To accentuate the popularity of crypto-money, it’s enough to mention that in May 2021 the total value of cryptocurrencies has been about 1.5 trillion dollars.

What makes the digital money so desirable?

For some people it is the idea of the cryptocurrency being the money of the future: that’s why they’re investing in it today, so that in future they sell it and get benefits from their investments. For others it is the privacy and the absence of supervision on the digital money flow by central banks and state financial institutions.

But is everything so safe when examining the situation from the point of law?

The rise in use of crypto currencies and crypto assets brings more and more legal challenges.

Some of those legal issues are enlisted and clarified below. Particularly:

  • legality;
  • jurisdiction;
  • privacy;
  • money-laundering;
  • fraudulent transactions.

Each of the enlisted issues is in connection with the other. Specifically, the legality of crypto-money varies from country to country. In some countries it is completely legal, e.g. USA. It is considered as convertible decentralized cryptocurrency by the US Treasury and identified as as a commodity by the Commodity Futures Trading Commission (CFTC).

The next biggest market for the crypto assets after US is the European Union. It is necessary to note that on 24 September 2020, the European Commission (EC) adopted the Digital Finance Package, aiming at developing the financial sector of Europe. It includes This package includes the MiCa — Markets In Crypto-Assets Regulation, the target of which is regulating the technologies of digital money flow, also the risk management, regarding the newly developed digital payment forms. Although it is not in force yet, but the target of EU is to make it into reality in the coming years.

At the same time some countries don’t consider it as a legal form of payment at all. One of the most “eye-catching” examples of those is China.

Some countries don’t even have any specific legislation regarding the crypto assets: one of those is the Republic of Armenia. As in other cases of the absence of specific legislation, the general regulations are used to fill in the legal vacuum as much as possible.

The absence of legislation and legal framework on the cryptocurrencies in a country makes it risky for a person to acquire crypto assets in that country, as he/she won’t be backed by a centralized regulatory body or government, which accordingly will make it more difficult to protect the his/her rights, regarding this matter.

Another legal challenge is the applicable jurisdiction. As the operation of cryptocurrencies is carried out through nodes on the particuar blockchain’s network. Therefore, it is not clear which jurisdiction applies to a specific case: the one where the “creator” or the “user” of the cryptocurrency “resides or the one where the blockchain operator resides or another one?

One of the main factors that draws attention to cryptocurrencies and makes them more desirable than the traditional forms of payments is privacy and the absence of control and supervision by central banks and financial institutions, as the transactions are made via blockchain technology which makes it possible to make those transactions anonymously. This makes it possible to commit fraudulent transactions and dive into money laundering as those transactions cannot be tracked due to their anonymity. This arises a question: are cryptocurrencies that much reliable?

It is important to note that according to the estimations of the Blockchain analytics firm Chainalysis, in 2019, criminal entities transacted $2.8 billion in Bitcoin exchanges, up from around $1 billion in 2018.

All in all, crypto money is a “new thing” in the financial market and the governemnts of the countries should put much effort to keep pace with the times and thus comply the legal regulations with the existing situation.

Author:Lilit Harutyunyan / Associate


This material is produced by Legelata LLC. The material contained in this newsletter is provided for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this material.

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