Francisco A. Laguna & Wojciech Kornacki
This week, we conclude our series on bitcoins and virtual currencies. Previously, in Part I, we defined virtual currencies, and their legal framework. In Part II, we discussed various risks, opportunities, and dangers associated with using virtual currencies. Today, we examine the future outlook for virtual currencies and new developments. Contact us at Translegal with any questions or to discuss the use of virtual currencies.
Bitcoin and other virtual currencies gain wider and wider acceptance. With more regulation, their value should stabilize, and they will become greater market participants. The primary concern of the U.S. Federal Government and its European counterparts about virtual currencies involve anti-money laundering measures, terrorism-financing, and taxation. In the United States, the individual states may take an active role in setting new regulatory standards on day-to-day exchanges of virtual currencies. Also, many businesses see the benefits of virtual currencies. Most recently, in April 2014, Bloomberg, began providing bitcoin pricing for its subscribers.
The Financial Crimes Enforcement Network
In January 2014, the Financial Crimes Enforcement Network (FinCEN) issued an administrative ruling, FIN-2014-R001, stating that the Bank Secrecy Act, applied to virtual currency transmitters. Generally, these are the individuals who provide services of transmitting the currency or something of value from one person to another. Individual users who mine bitcoins, and use them for their own use, are not regulated under the Bank Secrecy Act.
The Federal Election Commission
On May 8, 2014, the Federal Election Commission approved fundraising in virtual currency which will most likely impact the future of election fundraising. The Commission concluded that virtual currencies fell within the definition of “money or anything of value” even though the Federal Government still has not decided whether virtual currencies should be treated like real money. However, the Commission specified that virtual currencies must be converted to U.S. Dollars.
The Internal Revenue Service
In March 2014, the IRS issued its own notice, Notice 2014-21, stating that it considered virtual property as taxable property, and that general tax principles applied to virtual currency transactions. It also explained that individuals who mine for virtual currency have to report their bitcoins at fair market value as part of gross income.
New York State Department of Financial Services (NYDFS)
NYDFC has been conducting hearings on regulating virtual currencies since August 2013. As of March 11, 2014, the Department of Financial Services is accepting proposals and applications in connection with the establishment of virtual currency exchanges in the State of New York. This could provide an additional source of income and also make the use of virtual currencies more legitimate.
Virtual Currencies May Replace the Financial System as We Know It
According to the 2012 European Central Bank study, virtual currencies do not use our current financial systems. Bitcoins do not rely on current financial institutions, clearing houses or central banks. Virtual currencies are not bound by country restrictions and are accessible world-wide so long as you have access to the World Wide Web. Thus, it could be argued that bitcoin is the first global currency.
Currently, virtual currencies have limited impact on world economies because they are relatively new and not widely distributed. It is expected that with the growth of the internet, and the spread of virtual currencies, this may change rapidly. Since virtual currencies offer lower transaction costs and quicker transfers of funds, it is financially beneficial to almost anyone to use them instead of traditional currencies.
Bitcoin is not the only virtual currency. Other emerging virtual currencies are Solarcoin, Auroracoin, Litecoin, and many others. Each solarcoin is supposed to represent 1 megawatt hour of solar electricity generated. This virtual currency provides incentives for uses of solar electricity. Auroracoin comes from Iceland and was launched in February 2014. It is supposed to offer an alternative to the Icelandic currency which is very restricted by the national legislation. Litecoin allows for swift and inexpensive payments around the world between two users without any financial institutions taking part.
Contact us at Translegal with any questions or to discuss the use of virtual currencies.