This legal guide will summarize the key legal issues in the field of Bitcoin Law.
Bitcoin transactions are quick, inexpensive, and (relatively) anonymous. These features have attracted entrepreneurs from across the globe, who have integrated Bitcoin transactions into countless business models. While this ingenious payment system is attractive in many ways, it also generates some unique legal concerns. The main issues are summarized below.
Is it Currency, Property, or Something Else?
Since its inception, courts, regulators, and taxing authorities have struggled with how to categorize the unique form of digital currency known as Bitcoin. The answer is not always clear. However, Bitcoin can fall into different categories for different purposes. For example, the IRS takes the position that Bitcoin should be treated as "property" instead of cash, for taxation purposes. The courts have determined that Bitcoin both is, and is not, a form of "money" for purposes of money laundering statutes. Other courts have determined that Bitcoin is a thing of value, sufficient to form the basis for illegal gambling charges. In short, Bitcoin can fall into various categories, depending on the situation and the evolving legal precedent.
Age and Identity Verification
With Bitcoin, the value of money can be exchanged without any associated personal information of the sender or the recipient. This has allowed the Bitcoin "blockchain" to be abused for various illicit purposes. Remember silkroad.com? However, many mainstream businesses such as overstock.com, have integrated Bitcoin as an accepted payment method. When doing so, online merchants should ensure that sufficient personal information is obtained from the sender to address common business issues such as refunds, underage purchases, fraud, etc. The failure to obtain enough information to "Know Your Customer" can open merchants up to allegations of money laundering. Similarly, selling age-restricted products or services to an unidentified minor can violate numerous statutes and regulations.
Accepting payment for products or services with Bitcoin raises concerns with potential refund requests. Will the customer be refunded in the amount of Bitcoin paid, the amount charged, or some other amount? Will the refund be in Bitcoin or some other currency? Terms and conditions detailing how refunds will be processed are essential when dealing in Bitcoin.
Gaming sites were some of the first to implement Bitcoin payment technology. Bitcoin transactions can be integrated directly into the game. Blockchain technology permits so-called "provably fair games." These options, along with the availability of quick, inexpensive player deposits have attracted gaming site operators to Bitcoin. Note, however, that depending on the jurisdiction and the nature of the business model, wagering Bitcoin on the outcome of a game can constitute unlawful gambling. For example, the operator of a large Bitcoin poker site pled guilty to gambling violations in June, 2015. Some online gaming licensing jurisdictions prevent operators from accepting Bitcoin. A full legal evaluation of any Bitcoin gaming business is essential prior to launch.
The value of Bitcoin can spike or drop substantially in short periods of time. This volatility requires strategic planning for businesses that accept Bitcoin payments. The operator's financial risk tolerance will drive the decision whether to immediately convert each Bitcoin payment to cash (with the associated transaction fees), or whether to retain such payments in their native state. Tax implications will also play a role.
The potential benefits associated with Bitcoin transactions are substantial. By considering the issues raised above, operators can mitigate the legal risks while enjoying the advantages.
Additional resources provided by the author
For additional information about the legal issues associated with Bitcoin, please contact Walters Law Group; www.FirstAmendment.com