As businesses become more and more interested in cryptocurrency, it’s important to be aware of the various laws that govern this digital currency. Here are a few of the most important cryptocurrency laws that businesses should look out for.
What is cryptocurrency and how does it work?
Cryptocurrency is a digital currency that uses cryptography to secure its transactions and to control the creation of new units. Cryptocurrency has seen a surge in popularity in recent years, as businesses have begun to see its potential as a payment method.
Unlike traditional currency, cryptocurrency is digital and doesn’t rely on a central authority to control its value. This makes it a more secure and efficient payment option for businesses. Cryptocurrency also allows for faster transactions and lower fees than traditional payment methods. This led to many companies integrating cryptocurrency in their operations and marketing cryptocurrency to their advantage.
However, because cryptocurrency is a relatively new phenomenon, there are still many unanswered questions about how it should be regulated.
What are the different laws that regulate cryptocurrency transactions and exchanges?
There are many different laws that apply to cryptocurrency transactions and exchanges. All these laws fall into two categories: those which provide a framework for the movement of coins, and those which provide a framework for buying and selling cryptocurrencies.
Some of these laws include:
- The Bank Secrecy Act (BSA)
This law requires U.S.-based exchanges that handle the trading of cryptocurrencies to register as Money Service Businesses (MSBs). The BSA has its roots in the U.S. Government’s efforts to fight money laundering, terrorism financing, and other financial crimes. This registration under this act requires businesses dealing with cryptocurrency to put in place an anti-money laundering program, keep records for at least 5 years, and file reports when certain transactions occur.
- The Securities Act of 1933
This US law prohibits the sale or purchase of security interests in interstate commerce unless a registration statement has been filed with the SEC or an exemption from such filing applies. In July 2017, the SEC issued its report on its investigation into The DAO (decentralized autonomous organization) and concluded that DAO tokens were “securities,” but did not say anything about the ability of DAO token holders to sell their tokens without a registration statement.
- The Securities Exchange Act of 1934
This law establishes the requirements for companies intending to offer securities in interstate commerce and requires businesses dealing with cryptocurrency to register as Brokers, Dealers, or Exchanges.
- The Unlawful Internet Gambling Enforcement Act of 2006
This U.S. law prohibits businesses from accepting payments in connection with the participation of another person in a bet or wager that involves the use of the internet and that is unlawful under any federal or state law.
What are the benefits of cryptocurrency in your business?
Despite these laws, cryptocurrency gives businesses many benefits including:
- Lower transaction fees
The absence of a central authority means that transactions are made at low or no cost. This can greatly benefit businesses by reducing the amount they pay in processing fees when accepting payments.
- Faster transactions
Transactions are confirmed within minutes due to the decentralized nature of cryptocurrency. This is a much faster process than traditional payment methods such as credit cards, which usually take up to seven days before they can be finalized.
- Open and permissionless protocols
Cryptocurrency transactions use open-source software protocols that allow them to run without restrictions or downtime, making it an ideal form of payment for businesses where time is of the essence such as in supply chains and logistics.
- Security
Cryptocurrencies typically use 2-factor authentication, which means that even if your password is compromised, it is still difficult for hackers to gain access to your account. This provides peace of mind and assurance that businesses’ funds and transactions are protected from cybercrime.
What are the risks of using cryptocurrencies as a business?
Cryptocurrency does offer many benefits, but businesses should also understand the risks associated with it. Some of these issues are:
- The pseudonymous nature of cryptocurrency can make it difficult for businesses to identify customers and complete transactions.
- Cryptocurrencies are volatile, meaning their value can significantly change on a daily basis. This can damage a business’s balance sheet and its credibility with customers
- Cryptocurrencies aren’t regulated by a central authority, so it’s difficult to file complaints against cryptocurrency exchanges or track stolen funds. This also makes it difficult to resolve issues between buyer and seller
Cryptocurrency is an unregulated digital currency that has many benefits for businesses, but it also comes with risks. The law provides some guidance on how to manage these risks by requiring cryptocurrency exchanges and other companies dealing in this form of payment to be registered or exempt from registration. However, there are still issues such as the pseudonymous nature of cryptocurrency which may make identifying customers difficult and lead to transactions being lost due to volatility in value. It’s important for business owners who want to use cryptocurrencies as a form of payment to have a strong understanding of their obligations under U.S. law so they can take steps towards mitigating any potential legal risk associated with operating a business while using this type of currency.
