The current paradigm of commercial relationships is changing rapidly, mainly because of technological advances and innovations such as bitcoin. The website
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Essentially, the legal challenges Bitcoin faces will intensify over time in a wide range of jurisdictions. As an example, we can cite how recent changes to the Chinese law that was to regulate Initial Coin Offering (ICO) and the use of privately mined cryptocurrencies had an imposition by China’s central bank as a way of preventing money laundering in financial services and imposing new rules on foreign investment.
The changes make it possible for authorities to shut down offshore cryptocurrency trading platforms and activities, including doing away with the anonymity associated with such traded products. These measures may significantly impact China’s global blockchain market growth. China has been a significant force driving this market toward rapid growth and adoption over recent years.
But more importantly, these regulatory measures will enormously impact economic growth. They could be partially responsible for driving capital outflows from the country, which have reached record-high levels since 2008. The Chinese government is trying to improve its capital account controls to counteract the outflow of capital from the country and prevent prices from increasing further. Let’s explore the legal challenges bitcoin might face in the future.
International trade regulations:
As we have seen with the recent impact of cryptocurrencies on the financial markets, they are transforming the way commercial transactions are carried out. But one question that is bothering regulators is whether artificial digital currencies will have recognition as money under international trade regulations. The question arises because these products do not meet several existing criteria typically associated with financial products, such as being able to measure and transfer value equivalent to or backed by liabilities.
Many countries will find it very hard to regulate cryptocurrencies in the future because of their decentralized nature, making them difficult for governments and law enforcement agencies to control. One example is how Chinese authorities have been unable to do anything about unlicensed cryptocurrency exchanges active in the country.
Governments need help to develop conclusive legislation that can effectively deal with the challenges posed by cryptocurrencies, including how to tax and regulate them. It is especially true in the case of countries that want their cryptocurrencies to compete with conventional currencies across the globe.
Taxation Challenges:
Regulators will watch closely as cryptocurrency transactions become increasingly popular and, in many cases, entirely tax-free. The question is whether governments will be able to effectively address the technological challenges posed by these products, such as how to regulate them.
These doubts about the future of cryptocurrencies have been emphasized by the recent legal developments in Switzerland, where cryptocurrencies have become more of a reality and have changed the way we think about money and financial services in several ways.
Recently, 31 banks have pledged not to do business with those that deal with illegal industries such as narcotics production and gambling. Unfortunately, other measures have followed this development to make it possible for banks to deny banking facilities to crypto exchanges.
Money laundering challenges:
Cryptocurrencies are not regulated under money laundering regulations like conventional currencies, so regulators fear that people may use them to facilitate money laundering operations. Using blockchain technology, funds can be transferred between anonymous accounts in any part of the world without necessarily involving banks. As a result, it makes it extremely difficult to identify the origin of such transactions.
In light of all the above challenges, crypto exchanges have already begun designing new products that will make it possible for them to operate within the legal framework in countries where they are required to have a license. But despite all these measures, more legal challenges will continue to arise as regulators position themselves to embrace this new technology.
Why are legal challenges for bitcoin increasing?
- Mass adoption:
Market participants are heavily invested in cryptocurrencies as innovation drives blockchain technology forward. These technologies are gaining more and more attention from people because of the transparency they provide. However, one thing is for sure; legal challenges will continue to arise as regulators try to accommodate the growing interest in these innovative technologies.
- Volatility challenge:
Since its inception, Bitcoin has been the most dominant cryptocurrency in the market. Many people use it because it enables them to settle payments quickly and at a relatively low cost. However, we expect more people to start using virtual currencies as more proponents use blockchain technology to improve business transactions and operations efficiency.
- Criminal activities:
One thing is clear; cryptocurrencies have provided criminals with an opportunity to launder their ill-gotten cash into digital currency and, from there, into mainstream businesses through exchanges and over-the-counter (OTC) markets. Even regulations have been unable to stop criminals from using cryptocurrencies.