Data theft and financial fraud are other pressing legal issues surrounding cryptocurrencies. The blockchain's promise of anonymity is evident. The blockchain's promise of anonymity and its apparent absence of regulations may entice many users who engage in illegal activities to use cryptocurrencies for their financial transactions.
Cryptocurrencysales can also be regulated if they constitute a money transfer under state law or a money services company (MSB) under federal law.
Under FinCEN regulations, MSBs that are money transmitters are required to implement programs against money laundering and terrorist financing. Before criminals can convert their illegally acquired cryptocurrencies into cash, they have to convert them into liquid cash. The only exception is the Electronic Signatures in World and Domestic Trade Act of 2000, which gives limited legal validity to smart contracts. The UK Government is fully aware of the potential legal problems that may arise from the use of cryptocurrencies.
The above-mentioned legal challenges faced by cryptocurrencies are likely to be further compounded because no intermediary or authority has the exclusive jurisdiction to resolve cryptocurrency-related disputes. Another problem is that of fraudulent merchants and thieves, who limit themselves to claiming that they trade in cryptocurrencies, but in reality they limit themselves to defrauding the unintentional buyer of cryptocurrencies by keeping their money without valid cryptocurrencies being exchanged. In fact, cryptocurrencies have been used to create “underground markets”, where criminals can buy and sell illegal items with little chance of being identified. The Department of Finance periodically issues letters of no action to companies, such as ATMs that use digital currencies, freeing them from licensing requirements.
Three Treasury Department reports published in response to the executive order noted that some risks related to crypto assets are unique to them, while others represent an aggravated version of the risks present in traditional financial markets and could affect consumers, companies and investors. States and the federal government are likely to continue to issue new guidelines and propose new laws that regulate cryptocurrencies to ensure that cryptocurrencies can be purchased and used safely and usefully. Cryptocurrencies are not backed by any centralized issuing authority and intrinsic assets, such as gold or silver, do not constitute the basis of the value of cryptocurrencies. However, although the IRS considers Bitcoin and other virtual currencies to be legal, their legal validity still raises some questions.
Cryptocurrencies are not legal tender anywhere in the United States and are not backed by the government or a central bank. A license is required to sell or issue payment instruments, stored securities, or to receive money or monetary value for transmission. In general, a common legal concern about cryptocurrencies is the certain level of anonymity that cryptocurrencies can offer, as they create a perfect environment for criminal activities.