Prepared by lawyers Jillian Friedman and Joseph Neudorfer for the Bitcoin Foundation Canada, Bitcoin and the Law says usage of the leading cryptocurrency is already well covered by existing legislation.
“Bitcoin is a complicated technology,” the BFC’s first policy report concludes. “Law-makers must educate themselves on distributed ledger technology and consult industry players before they extend existing laws to digital currency and Bitcoin technology or create new ones.”
As the domestic affiliate of the Bitcoin Foundation, the BFC is a nonprofit organization that works to promote and protect Bitcoin.
The release of Bitcoin and the Law, which bases its analysis on federal law and Quebec civil law, is timely because Canada’s first legislation dealing with virtual currencies received royal assent on June 19. Bill C-31 amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to regulate Bitcoin dealers as money services businesses.
“As of the date of this writing, we continue to wait for corresponding changes in the regulations that will define a ‘business dealing in virtual currency’. We know from Senate hearings that the amendments will cover digital currency exchanges but not individuals or businesses that accept Bitcoin as payment,” the 17-page report says.
“Although Finance Canada continues to study the matter and consult with industry members, we know that digital currency businesses subject to the new amendments will include persons and entities having a place of business in Canada and ‘dealing in virtual currencies, as defined in the regulations’.”
Bitcoin and the Law starts off by attempting to define the cryptocurrency.
“Bitcoin is a ground breaking technological and financial innovation that can enable consumers to escape from the dependency of the financial system, facilitate banking services for the unbanked and revolutionize payment transactions,” the report states. “Because of the novelty of Bitcoin, the lack of previous comparable alternatives and its multiple applications, its exact nature is difficult to define.”
While many people consider Bitcoin to be a form of money, the report says it’s “doubtful” Bitcoin qualifies as such under the Currency Act. As well, Bitcoin is not legal tender, and the Canada Revenue Agency views it as a property or a commodity.
However, the report asserts that this doesn’t stop Bitcoin from being subject to private, criminal, and financial services law.
“Contracts with digital currency are enforceable in principle, and individuals can be criminally responsible for offences associated with Bitcoin as well as incurring civil responsibility,” the report says. “While it is difficult to foresee how the Bitcoin protocol and the network upon which it runs could be beholden to law enforcement and the rule of law, the people and entities using digital currency or distributed ledger technology definitely are. It is up to programmers, users and businesses to comply with the laws of the jurisdictions in which they operate.”
In addition to contracts, the report also looks at how laws regarding consumer protection, privacy, money laundering, fraud, income tax, sales tax, banking, money services businesses, and securities might be applied to Bitcoin.
Concerning Bitcoin ATMs, the report advises operators that “the fees for the use of the ATM should be precisely indicated to the consumer”.
According to Bitcoin and the Law, it’s not clear whether the GST (goods and services tax) applies to the purchase of bitcoins.
“One key question is whether the CRA expects Bitcoin users to pay taxes on the bitcoins when they are acquired and again when they purchase goods and services with said bitcoins,” the report states. “This would effectively result in a form of double taxation.”
Bitcoin and the Law notes that the decentralized, borderless nature of the cryptocurrency presents authorities with similar challenges as cash when it comes to investigations and seizures.
The report closes by emphasizing that “the technology is distinct from the programs that operate on it”.
“This means that when looking at how the law applies to Bitcoin, legal practitioners and law-makers should take a functions based approach, meaning that regulations and legal obligations and constraints should be based on the functions or particular services performed rather than the technology, or medium, used to execute it.”