The status of cryptocurrencies has been one of the hottest and most debated topics in recent years. Earlier in 2019, a court in Florida changed a previous court’s dropping of charges of illegal money transmission, reversing the previous finding and categorizing bitcoin as a payment instrument under Florida law.
The State of Florida charged the defendant, who allegedly was running a business exchanging bitcoin for US dollars, with one count of running a money transmitting business without being registered with the state as a money transmitter and two counts of money laundering. The chargers were dismissed by the trial court. The reason for that was because the instrument in question, bitcoin, was not considered under the money transmission statute in Florida.
This ruling was appealed and the court of appeals reversed the trial court’s decision, stating that bitcoin does not completely fit within the definition of a “currency,” but it does qualify as a payment instrument. Under Florida’s money transmission statute, a payment instrument is defined as a “medium of exchange, whether or not redeemable in currency.” The court reached this ruling by finding examples of businesses that accepted bitcoin as a form of payment. These included multiple restaurants in Miami, a prominent plastic surgeon, and the defendant’s own lawyer. The defendant’s lawyer confessed that he was paid in bitcoin for multiple previous jobs he had finished. Because of this ruling, the defendant and all other businesses that are conducting bitcoin for cash exchanges are required to register as a money transmitter.
This is a significant development under Florida tax law and has significant implications on cryptocurrency businesses and tax. This broadens the types of cryptocurrency businesses that must now register under the Florida MSB Code. The change comes from brokers who facilitate the buying and selling or exchange of cash for bitcoin are now considered as acting in the “selling or issuing methods of payment for compensation.” It still leaves open the possibility of including other cryptocurrencies in the future. This ruling leaves a daunting tax for cryptocurrency businesses that must change their strategy on a state-by-state basis.
This is a result of cryptocurrencies being used in ways that are illegal, such as tax evasion and the purchasing of illegal products. Because of this nature, governments must be extremely careful on letting their citizens use something as a form of currency that is not traceable and is not highly regulated. Governments will continue to crackdown on the regulation of cryptocurrencies while the middle ground is figured out by the public.
Another aspect that creates legal issues for cryptocurrency is the use for scams and fraud. Cryptocurrency is a common medium for scammers to take money from unsuspecting victims in order to have an untraceable and essentially liquid asset. The recent news and hot initial coin offering (“ICO”) market makes it easy for the general public to get tricked into what is a potential ICO. Since the public are not experts, the government must do what is necessary to protect its people. The easiest way to do that is put heavy regulation and keep a watchful on the cryptocurrency market and ICOs, until there is more time to learn about the process. Central banks also have an issue with cryptocurrency due to the concern with inflation and an influx of foreign currency that could potentially be rushed into their country. If this occurred, then a country could have what is called a currency drought, in which a central bank would be forced to print more money to stabilize volatility.
With all of these issues, cryptocurrency has just begun its journey. The categorization of cryptocurrencies in the legal realm is and will be a complex issue. Any decision will have lasting effects on business and crypto tax throughout the entire world. As cryptocurrency is accepted more and more like a regular form of currency, laws will have to adapt to fulfill that need. The United States is moving toward a broader acceptance of cryptocurrency but currently lies in a fragmented state that is challenging to navigate through.