1.
CRYPTOCURRENCY

2.
OVERVIEW
1. Conventional Currency vs. Cryptocurrency
2. Regulation
3. Risks & Failures
4. Consumer Recourse
5. Questions

3.
OVERVIEW
1.Conventional Currency vs.
Cryptocurrency
2. Regulation
3. Risks & Failures
4. Consumer Recourse
5. Questions

4.
CONVENTIONAL CURRENCY VS.
CRYPTOCURRENCY
◦Background: Conventional Currency
◦System of money
◦Controlled by governing body
◦The US Dollar
◦Old: Gold standard
◦Each $ corresponded to a certain amount of gold. Finite.
◦$1 = 1.5g of gold
◦1971: Nixon cancels Dollar-Gold convertibility
◦Now: Fiat money
◦Dollar’s value not fixed to any physical unit. Infinite (potentially).
◦Value defined by policy  Federal Reserve decides money supply

5.
CONVENTIONAL CURRENCY VS.
CRYPTOCURRENCY
Cryptocurrency
(exemplified by bitcoin)
◦System of digital money
◦Controlled by complex
math
◦Obtained by
◦Mining
◦Receipt of payment
◦Purchase

6.
CONVENTIONAL CURRENCY VS.
CRYPTOCURRENCY
◦Similarity to Gold Standard USD
◦Finite amount
◦Similarities to Fiat Money USD
◦No intrinsic value (not redeemable for any mineral, etc.)
◦Purchasing power fluctuates
◦Unique Qualities
◦No physical form
◦Not “legal tender”
◦Supply not determined by central bank
◦Peer-to-Peer (no intermediaries)
◦Algorithm determines creation of new BTCs

7.
CONVENTIONAL CURRENCY VS.
CRYPTOCURRENCY
Intro Video- https://www.youtube.com/watch?v=Gc2en3nHxA4

8.
OVERVIEW
1. Conventional Currency vs. Cryptocurrency
2.Regulation
3. Risks & Failures
4. Consumer Recourse
5. Questions

9.
REGULATION: PROPERTY OR
CURRENCY?
IRS
◦ Cryptocurrency is not “real” currency, but
◦ Cryptocurrency is property
◦ Taxable based on fair market value
◦ Capital gains/losses
Courts
◦ Bitcoin cases referred to it as “virtual currency”
◦ Seemingly treat it as variation on regular currency, rather than property
◦ E.g. “Bitcoin is a decentralized digital currency that may be used to purchase goods and services online….” Securities
and Exchange Commission vs. Shavers, E.D. Tex., No. 4:13-CV-416 (Sept. 18, 2014)
Are these conflicting classifications a problem?
◦ What cryptocurrency is classified as influences its regulation
◦ Example: Paying employee in bitcoin

10.
REGULATION:
CRYPTOCURRENCY-SPECIFIC
No enacted cryptocurrency-specific laws
◦ Except for NY licensing law
Proposed Law
◦Cryptocurrency Protocol Protection and Moratorium Act (CryptPMA),
H.R. 5777
◦ Proposed December 2014
◦ “Died” in Congress
◦ Would have:
1. Prevented the government from creating “any statutory restrictions or regulations
specifically identifying and governing the creation, use, exploitation, possession or transfer
of any algorithmic protocols governing the operation of any [cryptocurrency]”
2. Declared cryptocurrency be treated as currency, not property
◦ Only tax when converted to an official government currency

11.
REGULATION:
CRYPTOCURRENCY-SPECIFIC
New York State “BitLicense”
◦“No Person shall, without a license obtained from the
superintendent as provided in this Part, engage in any Virtual
Currency Business Activity.”

12.
REGULATION:
CRYPTOCURRENCY-SPECIFIC
New York State “BitLicense”
◦The regulation defines “virtual currency” as follows:
◦"Virtual Currency means any type of digital unit that is used as a
medium of exchange or a form of digitally stored value. Virtual Currency
shall be broadly construed to include digital units of exchange that
◦(i) have a centralized repository or administrator;
◦(ii) are decentralized and have no centralized repository or administrator; or
◦(iii) may be created or obtained by computing or manufacturing effort."

13.
REGULATION:
CRYPTOCURRENCY-SPECIFIC
NY BitLicense
Virtual Currency Business Activity means the conduct of any one of the
following types of activities involving New York or a New York Resident:
(1)receiving Virtual Currency for Transmission or Transmitting Virtual Currency, except
where the transaction is undertaken for non-financial purposes and does not involve the
transfer of more than a nominal amount of Virtual Currency
(2)storing, holding, or maintaining custody or control of Virtual Currency on behalf of
others;
(3)buying and selling Virtual Currency as a customer business
(4)performing Exchange Services as a customer business
(5)controlling, administering, or issuing a Virtual Currency

14.
REGULATION:
CRYPTOCURRENCY-SPECIFIC
NY BitLicense
oFingerprinting
oBackground checks
oCapital requirements
oCyber security requirement
oDisaster recovery plan
oAdvertising disclosure requirements
oConsumer protection

15.
REGULATION: LAWS THAT
COULD APPLY TO
CRYPTOCURRENCY
1. Bank Secrecy Act
2. Securities Regulations
3. Stamp Payments Act
4. Electronic Funds Transfer Act
5. Uniform Commercial Code

16.
REGULATION: UPCOMING
oUnited States
oUniform Law Commission to discuss draft model law specific to cryptocurrencies
oCalifornia
oA bill regulating cryptocurrencies made it through numerous rounds of voting but was
rendered inactive by veto
oMassachusetts
oNothing yet, but the Massachusetts Office of Consumer Affairs and Business
Regulation issued a consumer alert to inform consumers about the dangers of virtual
currencies
oVarious initiatives aiming at state cooperation

17.
REGULATION: INTERNATIONAL
oUK
o Government says that it plans to regulate soon
oBangladesh
o Outlawed bitcoin
oJapan
o Considering regulation, such as a licensing scheme for
exchanges
oChina
o Prohibited financial institutions from handling
cryptocurrencies
oEuropean Central Bank
o Advised financial institutions to trade in cryptocurrencies
until they are regulated
oBrazil
o Does not regulate cryptocurrencies

18.
OVERVIEW
1. Conventional Currency vs. Cryptocurrency
2. Regulation
3.Risks & Failures
4. Consumer Recourse
5. Questions

19.
RISKS & FAILURES: POLICY
oMoney laundering
oMethods such as “tumbling” can obscure the source of the
cryptocurrencies.
oPurchase of illegal goods
oSites such as Silk Road offer many goods such as drugs and fake
IDs
oSilk Road gone, but many other DarkNet markets in its place
ohttps://dnstats.net/
oSupporting criminal activity
oCryptocurrencies can be used to anonymously purchase goods,
launder money from illegal activity, and purchase illegal services

20.
RISKS & FAILURES: CONSUMER
•Hackers. Cryptocurrencies are targets for highly
sophisticated hackers, who have been able to breach
advanced security systems.
•Fewer protections. If you trust someone else to
hold your cryptocurrencies and something goes
wrong, that company may not offer you the kind of
help you expect from a bank or debit or credit card
provider.
•Cost. Cryptocurrencies can cost consumers much
more to use than credit cards or even regular cash,
often due to price volatility.

21.
RISKS & FAILURES: CONSUMER
(cont’d)
•Scams. Fraudsters are taking
advantage of the hype surrounding
virtual currencies to cheat people
with fake opportunities.
•Lack of Transparency. The
anonymous nature of
cryptocurrencies make
transparency and accountability
difficult for consumers seeking to
ensure the safety of their
investments.

22.
OVERVIEW
1. Conventional Currency vs. Cryptocurrency
2. Regulation
3. Risks & Failures
4.Consumer Recourse
5. Questions

23.
CONSUMER RECOURSE
•Anonymity and lack of transparency make attribution difficult
•Victims of hackers or scammers have found trouble identifyIing legally
cognizable damages
•Little to no recourse under current regulations for average consumers
•Consumer Finance Protection Bureau has identified problems for
consumers
•Insurance for digital wallets
• Private – Lloyd’s of London began offering insurance for bitcoin wallet Elliptic
• Public – No protection currently, but perhaps a future model similar to FDIC

24.
CONSUMER RECOURSE: ADVICE
•If you can't afford to lose the money you
have, you should not buy cryptocurrencies.
•Due diligence
• Weigh risks
• Understand how the currency works, how
much currency is currently valued, and
whether you can retrieve the value at any
time.
•Take proper precautions
◦ Protect private key
◦ Don’t leave large amounts in virtual wallet

25.
OVERVIEW
1. Conventional Currency vs. Cryptocurrency
2. Regulation
3. Risks & Failures
4. Consumer Recourse
5.Questions

26.
OUR QUESTIONS
•Should cryptocurrencies be regulated separately?
•Should we try to fit cryptocurrencies into existing bodies of
law?
•Is it even possible to regulate cryptocurrencies, given their
anonymous nature?