Currency denominated in cryptocurrency is not legal tender. Crypto-assets are digital tokens, and bitcoin remains the leading cryptocurrency.
Cryptocurrency market valuation is soaring due to its high fees and use as a technology platform, and Bitcoin has become the best known cryptocurrency.
The creation of new cryptocurrency solutions by Bitcoin or by cryptocurrencies has many potential upsides. Data show rising consumer adoption of online storage, advertising, and online pay-pal services which provide much quicker and cheaper solutions than is available today.
But as much as Bitcoin has attracted significant consumer interest and has become ubiquitous in the market today, it has not been an effective solution for many problems that businesses face today.
Bitcoin’s use as a financial payment platform has been reduced.
The launch of a decentralized near-instant payment system using the blockchain infrastructure has brought down transaction costs to a fraction of 0.0005 BTC.
Banks can convert fiat into crypto-assets rather than setting up a Bitcoin exchange.
The IPO of two and a half years ago of “initial coin offerings” (ICOs) has brought an alternative set of funding mechanisms to the market.
This opens up the possibility of business models that are not native to Bitcoin, but that run entirely on the blockchain and are therefore not subject to the regulatory duties in the blockchain space.
By doing so, blockchain can be a mechanism for innovation in a broad array of industries where large amounts of capital and currencies are required.
But Bitcoin does not solve all problems that the markets and the economy faces today. It does not help when it is hijacked as a front for money laundering and other financial crimes.
And it does not solve data security issues.
Thus, many blockchain and cryptocurrency solutions have to be designed to solve the following:
A currency is a cryptographic symbol of value and responsibility that is used to conduct transactions.
So Bitcoin is a currency denominated in dollars, euros, yen, pound sterling, etc.
A cryptocurrency is a digital token that can be used as a medium of exchange and to conduct transactions.
When promoting a use case for a cryptocurrency, its proponents will be careful to describe it in ways that make the product consistent with the currency itself.
The success of a single crypto-currency tends to foster its relative importance, which can have unintended consequences.
Poor Legal Burden
Banks, corporations, governments, and other traditional entities are already well-practiced at structuring transactions that comply with common law law and state laws.
Consequently, many of the solutions now being marketed may not actually bring the major legal challenges of making use of a digital token as currency.
By contrast, Bitcoin lacks extensive legal protections and is specifically intended to have minimal legal requirements.
There are important legal judgments indicating that Bitcoin can be used as currency, and some are making their impact felt today, and some in the future, with specific authority and backing.
A cryptocurrency’s legal status affects the legal framework of a specific jurisdiction by requiring the contract to be adequately constructed and produced in that jurisdiction.
There can be laws that define monetary transactions for the use of the token in a cryptocurrency.
Further, cryptocurrency systems that are marketed as debit or credit cards must be governed under state and local law.
All, or a significant proportion, of the key questions of legal rights and liabilities associated with usage of a cryptocurrency will be governed by laws in the jurisdictions where a token is widely used.
These laws are written on a contractual basis that may include a coin of the realm. Therefore, there is not an additional set of state law governing crypto-currency transactions that need to be developed.
The challenge for a cryptocurrency market that offers many channels for digital money transfer and investment is to be careful in navigating its legal obligations so as to avoid misallocation of funds.
To-Be-Applied Cryptocurrency Model
In addition to the legal issues of currency design, blockchain also has a responsibility to address material business risks for customers and customers’ businesses.
While it is easy to think of financial risks as being things that a coin can be used for, the reality is quite different.
For example, Bitcoin transactions are run with the leverage of a global currency system, that is subject to further regulation.
All cryptocurrencies also face problems of counterfeiting, data security, and money laundering. And customers of cryptocurrencies can be subject to actions from businesses whose systems they own and manage.