Bitcoin, which utilizes the underlying technology of
all convertible virtual currencies (CVCs), was created by an
anonymous user who goes by the name Satoshi Nakamoto. CVCs serve as
a digital medium of exchange for goods and services. In his
Nakamoto's white paper, Bitcoin: A Peer-to-Peer Electronic Cash System,
Nakamoto believed that the current financial systems were inefficient by requiring a
third party 'clearing house' (1) to alleviate the risk
of fraud through double spending. Nakamoto proposed Bitcoin as a solution
tothe current use of financial institutions when dealing with internet
commerce.
Implementing "a purely peer-to-peer version of electronic
cash would allow online payments to be sent directly from one party
to another without going through a financial
institution."(2) Nakamoto believed that the trust- based system,
which we have learned to blindly follow, allowed for any dispute to be
mediated by the financial institution, creating an inherent weakness in
the way we transfer currency. Nakamoto therefore proposed "a solution
to the double-spending problem [by] using a peer-to-peer distributed
timestamp server to generate computational proof of the chronological order of
transactions."(3)
Compared to a fiat currency (4), CVCs serve a
similar use. The Department of the Treasury Financial Crimes Enforcement
Network has described CVCs as "a medium of exchange that operates
like a currency in some environments, but does not have all the attributes
of real currency."(5) In particular, in most environments CVCs
do not have a legal tender status, which is one of the reasons why
CVCs lack widespread use. Further, this has created difficulty when
attempting to utilize CVCs to pay for goods and services. But the main
difference between currency and CVCs is the IRS' guidance on the taxation
of CVCs.
If you or your company are interested in further exploring
your ability to utilize CVCs and the legal aspects connected to it, please feel
free to reach out to Bridgehouse Law to schedule a call to better assess your
situation.
1 Clearing house - such as a bank or intermediary, a
clearing house acts as a middle man to confirm that the transaction takes place
and the transaction is not a subject of fraud.
2 www.bitcoin.org/bitcoin.pdf
3 Id.
4 A government backed currency such as the US dollar or
Chinese yen
5 Fin-2013-G001
No comments:
Post a Comment