Freeman Law is an innovative thought leader in the blockchain and cryptocurrency space. Blockchain and virtual currency activities take place in a rapidly-evolving regulatory landscape. Freeman Law is dedicated to staying at the forefront as these emerging technologies continue to revolutionize social and economic activities.
Virtual and crypto-currencies are built on blockchain technology—a technological innovation that allows for a distributed, decentralized digital ledger generally built upon cryptographic mechanisms and complex consensus protocols. From a legal perspective, many of the tax, regulatory, and other legal issues associated with blockchain technology and cryptocurrency require an understanding of this underlying technology.
Cryptocurrencies involve unique tax considerations. Businesses and individuals need up-to-date guidance and insight regarding the tax law and its impact on virtual currency activities at the state, federal, and international levels. Freeman Law is positioned to advise clients on the latest cryptocurrency tax strategies and thinking.
Freeman Law also offers legal and regulatory guidance with respect to Initial Coin Offerings (“ICOs”). ICOs raise particular regulatory challenges and risks. Depending on the circumstances, an ICO may be classified as the issuance of a security subject to state or federal security regulations or a commodity subject to CFTC oversight. Investors and issuers need astute legal counsel regarding these risks and associated compliance measures.
Cryptocurrency transactions can raise a host of other regulatory compliance challenges as well. Cryptocurrency issuers and administrators may be subject to “money transmission” regulations at both the state and federal level. FinCEN and state analog agencies administer “money transmission” regulatory regimes, which may include Anti-Money Laundering (“AML”) and Know-Your-Customer (“KYC”) compliance requirements. Violations and failures to properly register under these regimes may even give rise to criminal violations.
The cryptocurrency and blockchain regulatory landscape is rapidly evolving across jurisdictions. Compliance with this overlapping regulatory patchwork—at both the state and federal level—requires innovation and cutting-edge legal advisors. Freeman Law, as a thought leader at the forefront of this space, offers just that.
Virtual Currencies FAQ’s
Q: What is Virtual Currency?
A: Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and a store of value. It can operate like “real” currency (i.e., the coin and paper money of the United States or any other country designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance). Still, it does not have legal tender status in the U.S. Cryptocurrency is a type of virtual currency that utilizes cryptography to validate and secure transactions digitally recorded on a distributed ledger as a blockchain.
Virtual currency with an equivalent value in real currency or acts as a substitute for real currency is referred to as “convertible” virtual currency. Bitcoin is one example of a convertible virtual currency. Bitcoin can be digitally traded between users and can be purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies.
Q: What are the Virtual Currency Tax Consequences?
A: The exchange, sale, or use of virtual currencies to pay for services, goods, or holding for investment, generally has tax consequences that could result in tax liability.
The IRS IRS Notice 2014-21 and IRB 2014-16, as a guide for businesses and individuals on the tax laws of transactions using virtual currencies. The IRS published “Frequently Asked Questions on Virtual Currency Transactions “ for Individuals who hold Cryptocurrency as a capital asset are not engaged in the trade or business of selling Cryptocurrency.
Q: Is Crypto Illegal?
A: According to the Central Reserve Bank, as the monetary authority, the regulator of the financial system, and watchdog of payment systems, there is currently no legal or regulatory framework applicable.
Q: Is Blockchain Regulated?
A: Despite its increasingly prevalent use among consumers and businesses, blockchain is still a nascent technology when it comes to regulation. In the US and around the globe, no consistent policy has yet evolved.
Q: Can Blockchain be Shut Down?
A: As Bitcoin is decentralized, the network as such cannot be shut down by one government. However, governments have attempted to ban cryptocurrencies before, or at least to restrict their use in their respective jurisdiction.
Q: Can the Government Take Your Bitcoin?
A:Federal law allows the Government to seize and retain – and then, ultimately, to sell with the proceeds going to Government coffers – “any property, real or personal, involved in a transaction or attempted transaction” that violates certain specified federal statutes.
Q: What is the Truth About Bitcoin?
A: Bitcoin is just one type of cryptocurrency, a form of digital asset or money that can be exchanged in a similar way to normal currency. There's no physical money attached to a cryptocurrency, so there are no coins or notes, only a digital record of the transaction.