By: Kathryn Overby
With the emergence of Bitcoin in 2009 and its rapid growth over the last year, supporters and skeptics of cryptocurrency are asking one main question: What is the future of crypto? As of 2021, there were nearly 6,000 types of cryptocurrencies, many of which made headlines when Reddit traders pushed Game Stop and Dogecoin stock, resulting in a price surge.
The loud buzz around cryptocurrency is, in part, attributable to its characteristics of anonymity, transparency, and accessibility. Cryptocurrency use is wholly anonymous, which paves the way for global use without the confinements of customs and political changes. Since transactions are anonymous, there is no risk of identity theft. This may be a big green check for some, but this anonymity does not come without flaws. Each crypto transaction is stored on an open ledger or blockchain accessible to the public, thereby creating an opportunity for accountability. Additionally, cryptocurrency is incredibly accessible and can be bought and sold wherever and whenever. This opens the door for people across the globe who previously struggled in becoming an online customer to use cryptocurrency. Cryptocurrency seems to be “all the hype” but despite its benefits, it has legal hurdles to overcome to stick around on the market, and these hurdles may be difficult to clear.
The “unique characteristics and global portability of cryptocurrency” raises problems for regulators. One principle problem is how to protect against fraud, money laundering, and terrorism. Cryptocurrency’s value is not determined by a government. It is maintained and valued by the users, making the currency volatile. This volatility is unpredictable which makes regulating fraud difficult because cryptocurrency is exchanged on a person-to-person basis without the need of a third party. The lack of government authority provides easy access for scammers to steal money.
In addition to market volatility, there is a wide selection of cryptocurrencies, which presents an issue in one of the few ways governments can regulate the currency—taxation. Although the government could tax “fiat money” used to cash out a token, the tax would have to apply to specific tokens. This leaves the crypto owner with the choice to avoid taxation, turn their cryptocurrency into another coin, and cash out.
Despite these concerns, regulators are still tackling ways to regulate cryptocurrency. As of Oct. 4, 2021, the Federal Reserve plans to “launch a review of the potential benefits and risks of issuing a United States digital currency” which would be backed by the United States central bank. Additionally, the International Monetary Fund called for an “international discussion and cooperation among regulators” for cryptocurrency. In making these decisions, the United States can look to other countries that have regulated cryptocurrency use. Japan passed the Virtual Currency Act which defined, described, and identified approved cryptocurrencies. In South Korea, “cryptocurrency profits over 2.5 million South Korean won will be taxed at 20%.”
The current global trend toward a push for regulation of cryptocurrency gives great promise to the possibility of cryptocurrency as a government-backed form of currency. However, it also raises the question of whether cryptocurrency will become so regulated as to impair the growth and benefits of its usage.
Kathryn Overby is a second-year law student at Wake Forest University School of Law. Kathryn graduated from Roanoke College in 2020 earning a Bachelors in Business Administration. After law school, Kathryn intends to become a litigator.