The heavy-handed Bitcoin regulatory proposals touted by lawmakers are largely unnecessary because Bitcoin is already regulated, argues a new report released this week by Bitcoin Foundation Canada.
“Existing legal and regulatory frameworks already apply to digital currencies,” says the report.
Titled “Bitcoin and the Law,” the report is authored by attorney and chief legal officer for Bitcoin Foundation of Canada, Jillian Friedman, along with attorney Joseph Neudorfer. The Bitcoin Foundation Canada will use the report when providing testimonials at the Senate Banking Committee hearings in October 2014.
While the analysis in the report is based on Canadian law, as the report notes, these laws “share many basic legal principles that are similar throughout Canada and the Western world in particular.”
“Since digital currency does not exist in a legal vacuum we therefore do not see a need for sweeping legislative measures.” In order to understand how the law applies to Bitcoin, one must look at the particular function or service being performed, rather than the technology itself.
The report argues that whether or not Bitcoin is classified as money doesn’t really matter when dealing with principles of private law, criminal law, and financial services law. “In most cases, a simple clarification of existing laws is justified,” rather than innovation-killing proposals similar to New York’s BitLicense proposals.
Per Bitcoin Foundation of Canada’s report:
Contracts under private law in Bitcoin: using Bitcoin does not render parties exempt from the application of the rule of law.
“Transactions with Bitcoin are subject to contracts law in general. Payment for the purchase of goods and services or for the purchase and sale of virtual currencies in exchange for fiat currencies requires a mutual expression of intent by the parties and must meet the conditions for the conclusion of a bilateral contract.
The mere fact that Bitcoin is an instrument to an agreement or a contract does not render the parties exempt from the application of the rule of law.”
Consumer protection: all of the legal obligations resulting from the sale of a good to a consumer apply to transactions with Bitcoin, regardless of whether the sale is conducted with Bitcoin or other traditional fiat currencies.
“A professional merchant cannot limit or exclude his repsonsibility, even by agreement with the consumer, for harm suffered by the consumer because of the merchant’s fault. In any event, a person is always responsible for intentional or reckless behavior.”
Fraud: the investing public is protected by existing criminal legislation against fraudulent Bitcoins schemes.
Financial services law: the activities of digital currency businesses that are similar to money services businesses will soon have to play by the same rules as their fiat counter parts.
“A major question remains as to whether trading activities connected with bitcoins are subject to restrictions in accordance with financial market legislation currently in force. There are many conceivable forms and manifestations of trade using Bitcoin. It is possible that in certain circumstances these activities are subject to Federal or Provincial financial services laws.”
This approach is drastically different from the technology-specific BitLicense regulations proposed by Benjamin Lawsky of the New York Department of Financial Services, which focus on regulating Bitcoin technology instead of the service or function being performed.
Considering the decentralized and pseudonymous nature of Bitcoin, New York’s BitLicense requirements for “those dealing in virtual currency” make it extremely difficult to abide by the proposed rules, in turn effectively killing Bitcoin innovation in New York and preventing many from using it at all. As Bitcoin Foundation Canada’s report argues, this can be prevented if instead, regulators simply apply existing laws to Bitcoin, only tailoring the laws where needed.
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