Bitcoin as Legal Tender - Legal and Technical Challenges of Digital Cryptocurrency

Abstract

Since the inception of Bitcoin, individuals have been curious about its nature and the wonders it can reveal. Currency plays a pivotal role in our daily life as each and every aspect of life is somehow associated with it. Bitcoin as a novel currency has also caught everyone’s attention. This article discusses the invention of Bitcoin, elaborating on its technicalities and relevant statistics and highlights the legal issues associated with the use of Bitcoin.

List of Abbreviations

AML: Anti-Money Laundering
BSA: Bank Secrecy Act
CFBF: Consumer Financial Protection Bureau
CFTC: Commodity Futures Trading Commission
FDIC: Federal Deposit Insurance Corporation
FinCEN: Financial Crime Enforcement Network
FTC: Federal Trade Commission
FTCA: Federal Trade Commission Act
IRS: Internal Revenue Service
MSB: Money Services Business
NCUA: National Credit Union Administration
OCC: Office of the Comptroller of the Currency
SEC: Security and Exchange Commission
SPA: Stamp Payment Act

List of Cases

Federal Trade Commission v. BF Labs, Inc, Federal Court, Western District of Missouri, 4:14-cv-00815-BCW 2014 (FTC file number: 142 3058)
Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Saving & Trust, United States District Court, Eastern District of Texas Sherman Division, Case No. 4:13-CV-416, District Judge Mazzant (2013)
United States of America v. E-gold, Ltd, United States District Court, District of Columbia, 550 F.Supp.2d 82 (2008), District Judge Rosemary M. Collyer (2008)
United States of America v. Ross William Ulbricht, U.S. District Court Southern District of New York, 14 Cr. 68 (KBF) , Hon Katherine B. Forrest (2015)

Enforcement Actions

FinCEN against Ripples Labs, Inc.
CoinLab against MT. Gox Co, Ltd

Introduction

Money itself has no intrinsic value. It gains its value when it is widely accepted and has been made a medium of exchange. Thousands of years ago, people used to exchange goods and services in order to buy or gain something. There was no concept of currency as it exists today. The barter system prevailed in the previous ages¹ where an axe could be traded for 2 kilograms of rice and a goat for a sack of flour. After that, specific items² began to be considered valuable for trade and savings. A drastic change occurred when gold and silver coins started to be used as currency, followed by the use of paper money or, more specifically, fiat currency.³

As the world becomes a global village, advancements are at a climax. Science has revolutionized each and every aspect of life, be it medicine, education, business or finance. Virtual currencies or digital cryptocurrencies are some of the latest currencies that have made the current era a cashless age. With its promising behavior and compatibility, digital currency has revealed many wonders.⁴ But despite all of this, a user or consumer must still be vigilant about the status of this new technology. Furthermore, the status of Bitcoin from an Islamic perspective should also be clarified in a country like Pakistan.

Literature Review

We are living in an era of cashless currency where Bitcoin has emerged as a new digital currency, followed by extensive heated debates and media attention. In October 2008, Satoshi Nakamoto, the founder of Bitcoin, published a paper on digital currency.⁵ He defines an electronic coin as a “chain of digital signatures”.⁶ The author writes that an electronic payment system permits two willing parties to transact directly without depending on a third party, for example a financial institution. There is detailed analysis of the electronic network of digital currencies. The paper also suggests various solutions, such as timestamp servers and proof-of-work, for the “double spending”⁷problem. Since no central entity issues Bitcoin,⁸ significant issues such as privacy concerns and payment verification have been highlighted.

An informative book⁹ by Ian Demartino revolves around three basic questions: ‘What is Bitcoin? How does it work? What can it do?’ The book includes details about how one can purchase¹⁰ and sell Bitcoins.¹¹ The author further discusses that in order to make digital currency properly functional, “verifiable security” is essential.¹² This is because digital currency cannot gain an individual’s trust if it has security flaws. The important specification highlighted by the author regarding Bitcoin is that it is a “distributed or electronic ledger”¹³ and is free from centralization. The focal point of the book is Bitcoin’s regulation, what gives it its value, the usage of encryption and cryptography methods to mitigate anonymity, and its resistance to inflation.

John Davidson in his book¹⁴ focuses on multiple aspects of digital currencies, such as their functions and key features, advantages and drawbacks, incentive provision for involved persons¹⁵, and the importance of digital currency as a medium of storing and transferring money. The author also briefly discusses merchant processing and legitimate and underground economic activity.¹⁶ In the end, he discusses the promotion of safe and sound E-commerce through cryptocurrency.

Reuben Grinberg in his article¹⁷ highlights the key legal issues surrounding cryptocurrencies, such as the government’s monopoly, its hostility towards private currencies¹⁸and its control over money supply and regulation.¹⁹ The author describes how certain laws pose risks to digital currency developers.²⁰ He also highlights cryptocurrency’s limited usage in commercial exchanges and how speculative trading is conducted with digital currencies.²¹ There is detailed analysis on Bitcoin’s status which discusses whether it is a virtual commodity, security,²² note, stock, technology or currency. In the end, Bitcoin’s sustainability and how it is supported without the danger of fiscal seizures is discussed.

Kazan Erol & Chee-Wee Tim in their paper²³ describe the cryptocurrency network as an innovative ecosystem due to its market capabilities. Further, they discuss that after becoming an interesting investment vehicle, Bitcoin’s market capitalization²⁴ has increased. It is efficiently operating cross-border payments as well. The authors also discuss how it is drawing a huge influx of venture capital²⁵ due to its promising behavior regarding significant efficiency gains and its assistance to remittance services and companies in achieving business goals. In the end, a detailed contrast²⁶ between fiat and cryptocurrency network has been highlighted and the authors have concluded it well.

Charles W. Evans in his paper²⁷ mentions that Bitcoin is a better substitute for riba-backed fiat currency in Islamic banking and finance. As the Bitcoin financing system observes all major Islamic principles regarding currency, such as prohibition of riba, maslaha²⁸ and mutual risk-sharing,²⁹ it is a more appropriate exchange medium.

Objectives

The object of this research is to point out the legal status of Bitcoin. The study also aims to highlight the concerns of law enforcers regarding the nature of cryptocurrencies. Lastly, the research analyzes how cryptocurrency is a better substitute for fiat currency.

Methodology

The research paper is based on doctrinal research as it systematically analyzes statutory provisions in order to derive the legal status of Bitcoin.

Legal Questions

The first main concern regarding Bitcoin is its legal status. Is it a legal tender? Will government bodies and repositories accept this currency? What if someone suffers damage? Will the court take action against such breach? Is there any effective redressal mechanism for an individual suffering substantial harm?

An important argument regarding Bitcoin is that strict applicable laws are causing hurdles in its growth. The question arises whether there are any laws that are hindering Bitcoin’s growth. If yes, then what are the implications of such laws, how does Bitcoin comply with such laws and regulations and, in the long run, how will Bitcoin compete against such strict laws?

A currency, posing risks and involving legal uncertainties, is not appreciated at a large scale. Individuals, law enforcers, financial institutions and government bodies are all concerned with certain questions. What are the legal uncertainties involved with digital currency? How can consumers be alerted against such uncertainties? What kind of strategies should be established to counter these uncertainties?

As Bitcoin is being adopted around the globe, one particular question is whether Bitcoin is complementary with Islamic banking or finance.³⁰ Does it conform to Islamic financial settled principles?

Chapter One

Bitcoin: A Digital Cryptocurrency

The first chapter is an introduction to this novel cryptocurrency. A brief overview will be given regarding Bitcoin’s origin, systematic working, transactional procedure and unconventional value gain. Further, its significant features, advantages and challenges will be highlighted. Questions such as how to buy, sell and store currency will be answered. Bitcoin will be compared to other crypto and traditional currencies in order to highlight the main differences. Lastly, the scale of Bitcoin usage under different capacities and its effects in the long run will be discussed.

1.1. Bitcoin

There are many cryptocurrencies³¹ and Bitcoin is one of them. As a new currency, Bitcoin first emerged in January 2009, created by computer programmer Satoshi Nakamoto.³² His idea was to produce an independent, electronic and instantly transferable currency with low transaction costs. Bitcoin can be defined as a digital currency that is electronically transacted, run by an open-source software³³ based on peer-to-peer³⁴ networking and cryptography. It is the world’s first ever decentralized currency, independent of relying on intermediaries such as banks and financial institutions. The buyer and seller interact directly as all transactions are wholly made by its users. Unlike other conventional currencies, Bitcoin has no central monetary system, meaning that it is not regulated by government bodies or government aided sectors, making it totally independent. The currency itself is not redeemable for valuable assets such as gold,³⁵ silver or any other commodity, rather it is backed by strong computational mathematical algorithms and formulas.

Amazingly, one Bitcoin has even been worth $6,719.605.³⁶ Weekly transactions from January 2009 to April 2017 increased from $56.00 to $248,072.00.³⁷ As cryptocurrencies gained wide acceptance, out of 740 cryptocurrencies Bitcoin had a market capitalization of about $123,915,923,443³⁸ – a huge dominance over other cryptocurrencies. This currency is expected to dominate more areas in future.

1.2. Systematic Working and Transaction Procedure of Bitcoin

Normally, one has to open an account in a bank to store and transact their money. Likewise, a person who wants to own and transact Bitcoin can open an account on a website that runs Bitcoin client (protocol) for its users.³⁹ People use physical wallets to store their money while Bitcoin holders use digital wallets.⁴⁰ As all programs are connected to one another, peer-to-peer transactions are made instantly. For a transaction to be validated, first it has to be verified by the miner. For successful verification, the miner is awarded with incentives. Any single transaction ever made is recorded on a public ledger that is available to everyone.

1.3. Anonymity of Bitcoin

The anonymity of Bitcoin has always been an attractive tool for offenders and a challenge for financial regulators. There is a huge misconception that Bitcoins are transacted anonymously and no single record is kept. Bitcoin falls somewhere between the two extremes of anonymous and non-anonymous transactions. A more appropriate term to describe Bitcoin transactions can be “pseudo-anonymous” as it doesn’t reveal the identities of the parties involved in the transactions but keeps a complete transaction record on a distributed ledger that is open to public view.⁴¹ Currently, due to law enforcement concerns, the exchanges (Bitcoin banks) are limiting pseudo-anonymity by imposing certain policies. Similarly, a transaction containing a huge amount of Bitcoins can easily be tracked down.

1.4. Procurement of Bitcoins

There are three ways to obtain Bitcoins. The first simple way is to exchange conventional money (dollars, rupees, dinars, etc.) with Bitcoins through exchanges.⁴² The other way is to exchange goods and services with Bitcoins. For purchasing items online, many retailers accept Bitcoin as a payment option.⁴³ Similarly, people providing services, such as employees and freelancers, can ask for payment in Bitcoins. Lastly, one of the technical methods to gain Bitcoins is through a mechanism known as “mining”.⁴⁴ Unlike traditional currency, Bitcoin is not printed when required, rather it is mined by miners. It is a process which allows miners to apply maximum computational power to generate new Bitcoins as an incentive. The incentive (25 Bitcoins) is awarded only when the miner verifies the transaction, adding blocks to the general ledger known as “blockchain”. All of the above ways allow users to acquire Bitcoins easily.

1.5. Unconventional Value Gain of Bitcoin

Many people consider Bitcoin as another economic bubble,⁴⁵ speculating that it will soon collapse like the tulip mania.⁴⁶ They wonder how Bitcoin gains its value or what makes Bitcoin valuable. Unlike conventional currency, which is backed by valuable assets such as gold or silver, Bitcoin is not backed by commodities. Rather, it is backed by a code. Bitcoin’s worth depends on supply and demand. The more useful it is, the more utility it implies. When currency is being churned out easily it loses its value (conventional currency). On the other hand, Bitcoins are scarce and this scarcity renders it valuable. Similarly, the speculation and volatility involved with Bitcoins can easily be predicted in advance, making it even more useful. Hence, its value depends entirely upon its utility.⁴⁷

1.6. Scale of Bitcoin Use

Bitcoin can be used for purposes similar to those for which conventional currencies are used. The question is, what is the scale of Bitcoin use? To what extent is it accepted in the market, or how widely is it known? The more broadly it is accepted, the more usage it implies. According to CoinDesk’s survey report,⁴⁸ 60% of Bitcoin users belonged to the age group of 25-35 years (most users were male). In terms of geographical location, 49.85% were North American users, 32.99% were European users, and only 9.36% were Asian users. 23.9% of users with an average income of $50,000-$10,000 were at the top of Bitcoin use. From January 5, 2015 to April 17, 2017 the number of circulating Bitcoins increased from 13.7m (13,703,039.29) to 16.3m (16,283,566.67).⁴⁹

Cryptocurrencies can be accepted by not only typical E-commerce sites but also by brick-and-mortar stores. After adding Bitcoin as a payment option, one can buy any digital content such as apps, games and videos on Microsoft.⁵⁰ Dell⁵¹ is also a multinational computer technology company which is one of the biggest businesses to accept Bitcoin. There are some businesses which only accept payment in Bitcoin, such as VPN and Usenet.⁵²

Overstock, Newegg, Showroomprive, TigerDirect, Monoprix, Memory Dealers and others⁵³ are among the major retailers and companies that accept and allow purchases through Bitcoin in over 100 countries around the globe. These firms offer a broad range of appliances and goods including everything from furniture, jewelry, electronics, computer hardware, software, clothes and fashion accessories to cosmetics, etc. Airlines such as AirBaltic⁵⁴ and Air Lituanica⁵⁵ have also been accepting Bitcoins for flight tickets in order to assist their customers with innovative methods. Plenty of trendy gift card businesses are accepting Bitcoin too. A complete list of items which one can buy with Bitcoins is mentioned on Bitcoin Wiki. This brief review of Bitcoin usage in the market suggests that there are many opportunities for investing in these currencies.

1.7. Distinct Features and Advantages of Bitcoin

Bitcoin varies from conventional or traditional currency due to numerous reasons. Its uniqueness lies in the distinct features which distinguish it from the rest of the currencies (fiat). Some of the variations are illustrated below.

1.7.1. Nature of Currency

Bitcoin is an intangible virtual currency.⁵⁶ It has no physical existence. On the other hand, traditional currency is tangible. It physically exists in the form of coins, paper money and bonds, etc.

1.7.2. Regulation

The most prominent aspect of cryptocurrency is that it is decentralized and independent. Unlike traditional currency, it is not regulated by government bodies or central banks,⁵⁷ which means that factors such as inflation and interest rates do not affect it. A person can use and store his or her money the way he or she wants to without relying on a third party or intermediary.

1.7.3. Limited Amount

Only a finite number of Bitcoins exists in total (around 21 million at the time of this research). Once all the Bitcoins have been mined, no single coin will ever be generated. On the other hand, fiat currency is created repeatedly under required circumstances. This causes high inflation rates due to which money can lose its value. Bitcoin is not inflationary⁵⁸ and its value depends on demand; the more the demand, the more value it possesses and the more stable it is.

1.7.4. Low Risk of Counterfeiting

Normal money is easily counterfeited and forged for multiple illegal purposes which disturbs the whole circulation.⁵⁹ However, Bitcoin poses less risks of fraud and forgery as no technology exists that can generate fake Bitcoins. Even though there exists a considerable risk of criminal activity, this risk can be curtailed by imposing strict policies.⁶⁰

1.7.5. Low Transaction Charges

Under normal conditions, banks and credit card companies implement heavy transactional charges while Bitcoins have minimal charges. A merchant already making a low profit margin has to pay a 3-4% fee charge on one credit card transaction.⁶¹ By adopting Bitcoin, merchants, retailers and even stock markets can make high profit margins.⁶² Similarly, people can use Bitcoin for remittance purposes (transacting with low charges applied).

1.7.6. Fast and Instant

Usually, a person depositing a cheque in a bank has to wait for some days for verification purposes. Luckily, Bitcoins can be sent instantly and received twice as fast without being confined under territorial jurisdiction. They are free to use and can be accessed 24/7 without any limitations.⁶³ Bitcoin transactions are even faster than inter-bank transfers.

All these significant features make Bitcoin unique in its nature.

Chapter Two

Legal Issues Pertaining to the Use of Bitcoin

There are many legal and regulatory issues associated with Bitcoin’s adaptation, such as the status of private currency emerging as a strong competitor against national currency, currency posing risks or having a potential for criminal activities, and limitations upon a currency functioning without any depository institution. This chapter provides a detailed insight into all such issues. Other issues, such as tax evasion using cryptocurrencies, cryptocurrency’s legal status from an Islamic perspective, and cryptocurrencies being viewed by financial and international regulators will also be discussed. Lastly, the regulation of cryptocurrency under specific jurisdictions will be highlighted.

Applicability of Certain Laws and Regulatory Treatment of Cryptocurrency

2.1. The Stamp Payment Act 1862 (SPA), USA

According to section 2 of USA’s Stamp Payment Act, it is considered to be a crime if any institute, company, authority or individual is issuing, circulating or paying out any note, check, memorandum or token or other obligation for a sum less than $1 or intending to circulate, receive or use that particular currency in place of official United States’ money.⁶⁴

This Act was passed to promote the untrammeled circulation of currency, as, in the course of history, during the Civil Wars, the face value of currency exceeded its intrinsic value due to which people started hoarding metal coins. The situation created scarcity of currency and eventually coins were out of circulation, granting private companies a chance to create and issue private currency in the form of tokens and notes.⁶⁵ These tokens started endangering official currency by causing inflation. After the commencement of the Act, all such companies were outlawed.⁶⁶

Whenever a currency competes with or threatens an official currency, the situation falls under SPA’s jurisdiction. The Act requires any private currency to avoid four particular things:⁶⁷

Unlike official currency, it should not be circulated in a wide area (only accepted in a limited area).
It must not resemble official currency (similar physical appearance).
It should not be issued for a sum less than $1.
It should not be considered as money as it is only payable in goods (redeemable only in goods, one cannot invest such private scrip).

Bitcoin does not fall under the ambit of SPA due to the following reasons.⁶⁸

The Act explicitly mentions the physicality of an object. Tokens, notes, memorandums and checks – each of them possesses a tangible nature while Bitcoins exist electronically on an online market.
Secondly, Bitcoin cannot be taken as an obligation as it does not rely on an intermediary (third party issuer).
One might argue that Bitcoin usage is extended to a global level as a person sitting in China can transact with a person in India. This clearly implies that Bitcoins are violating the SPA. But, the proper understanding of the Bitcoin system infers that this currency is specifically used over the Internet (accepted only online).⁶⁹ It is only competing with alternatives such as PayPal and credit cards as it is never used for face-to-face transactions. So, again, this verifies that it is used in a limited capacity, though entirely on the web.

However, there are still two valid claims regarding Bitcoin:

First, the smaller unit 1 Bitcoin is further divisible while according to SPA the currency should not be a sum less than $1.
Secondly, Bitcoin is not only redeemable in goods, it is also used as a payment option. Many merchants and retailers accept it as a currency parallel to official currency.

In the end, the whole argument relies on the nature of physicality, exempting Bitcoin from the SPA’s reach.

2.2. Federal Anti-Money Laundering Laws and Regulations (AML)

Money laundering⁷⁰ is a matter of grave concern for law enforcers and financial institutions. Approximately $1-2 trillion is laundered annually.⁷¹ As Bitcoin is more of a decentralized currency, the absence of regulatory and counter authorities to supervise transactions and official formalities, such as authorization and registration, makes Bitcoin an attractive tool⁷² and a novel way for delinquents, corrupt politicians and businesses to mask their ill-gotten wealth and finance terrorist activities.⁷³

In the famous case of United States of America v. Ross William Ulbricht,⁷⁴ the defendant had created an underground website known as “Silk Road”.⁷⁵ The website was a criminal marketplace fostering illegal activities such as the sale and purchase of drugs and illicit goods. Millions were laundered through such illegal transactions and purchases. Silk Road was alleged to be in violation of 18 U.S.C. § 1956, as the defendant was well aware of the fact that the financial transactions involved proceeds from unlawful actions. This landmark case damaged Bitcoin’s repute and gave rise to serious speculations regarding Bitcoin use.

To restore the trust of individuals in digital currency and curtail unlawful activities, law enforcers have been taking firm action against all virtual and digital currency services. The Financial Crime Enforcement Network (FinCEN) has passed regulations such as the Bank Secrecy Act (BSA). Under BSA, all financial institutions working in an independent capacity must register themselves with FinCEN as “money services businesses (MSB).”⁷⁶ The businesses are also required to develop risk mitigation strategies, maintain record keeping, monitor transactions, constantly report transactions exceeding a limit of $10,000, and, to curtail anonymity, businesses should establish customer identification programs.⁷⁷ BSA specifically aims at two particular things:⁷⁸

to preclude financial depositories acting as intermediaries from transacting and depositing money sourced from unlawful activities, and
to help agencies (law enforcement) in conducting their criminal investigations.

For the purpose of maintaining checks and balances on entities, FinCEN has delegated independent authority to federal agencies. The agencies under their supervision examine whether financial bodies are complying with BSA and anti-money laundering (AML) rules and regulations. In case of non-compliance, civil and criminal penalties are imposed. Some of the federal agencies are described below.

2.2.1. Banking Regulators

Regulators such as the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, the National Credit Union Administration (NCUA) and the Office of the Comptroller of the Currency (OCC) provide guidance to MSB, depository institutions and exchanges to develop secure systems by complying with BSA and AML regulations.⁷⁹ The regulators view two particular things:

whether the entities have developed effective systems to spot and trace suspicious activities; and
whether the entities are properly complying with BSA by maintaining records and monitoring transactions.

If noncompliance is observed, the agencies can implement civil money penalties⁸⁰ and cease-and-desist proceedings.⁸¹

In United States of America v. E-Gold, Ltd,⁸² heavy penalties were imposed on defendants for continuing and operating unlicenced money transmitting business. The defendants violated 18 U.S.C. § 1960.⁸³ The section enforces criminal penalties on anyone owning, conducting, handling and supervising unlicenced business.⁸⁴ None of the transactions were reported to the Internal Revenue Service (IRS) and no record was maintained. Similarly, FinCEN brought the first enforcement action against Ripples Labs, Inc⁸⁵ for not registering as an MSB and failing to maintain AML programs. A total penalty of $700,000 was imposed for violating the criminal statute.

2.2.2. Securities and Exchange Commission (SEC)

FinCEN has delegated examination authority to the SEC to regulate the securities market. The market includes different bodies such as security exchanges, investment companies and consultants,⁸⁶ traders (brokers) and dealers. The two motives of SEC⁸⁷ are:

to protect investors against unfair practices, theft, fraud and volatile risks; and
to maintain effective markets.

Whenever a company or depository deals with securities (selling and offering), they are subject to SEC regulations and guidelines. SEC, under its delegated authority, supervises entities to determine whether the institutes are complying with BSA and SEC requirements. If the entity is not conforming to SEC requirements or is violating security laws, strict enforcement actions are brought against it.

SEC brought an enforcement action against Shavers in Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Saving & Trust.⁸⁸ The defendant was alleged⁸⁹ to be violating the Security Act 1933⁹⁰ and the Security Exchange Act 1934.⁹¹ Shavers created an online investment platform known as “BTCST” where he misappropriated investor funds, misrepresented profit gains and committed fraud by first shifting funds to his personal account and then selling those funds.⁹² Due to his illicit behavior, the BTCST investors suffered a combined harm of $149m (265,678 Bitcoins). Shavers defended himself by claiming that BTCST did not fall under “securities exchange” so SEC had no jurisdiction over it, but his claim was rejected on solid grounds.⁹³

2.2.3. Consumer Protection Bodies

Both FTC and CFBP circulate around the protection of consumers and their relation with the market. However, FTC has taken a more active role as compared to CFPB. Both regulators ought to be more vigilant in terms of consumer issues arising out of the novel currency.

2.2.3.1. Federal Trade Commission (FTC)

Just like the Competition Commission of Pakistan, the Commodity Futures Trading Commission⁹⁴ (CFTC) and FTC serve dual purposes.⁹⁵ The primary goal is to safeguard the interests of consumers by protecting and securing them against unlawful trades and deceptive and false practices.⁹⁶ The Commission educates the public regarding their rights and duties, conducts inquiries and sues law offenders. The secondary goal is to encourage fair and open market competition.⁹⁷ If certain practices are harming consumers, the Commission can bring an action against uncooperative businesses, mergers and companies.

According to the Federal Trade Commission Act (FTCA),⁹⁸ any practices that affect consumers and commerce are prohibited. FTC also extends its authorized power over digital currency exchanges, repositories, online trading platforms and retailers to monitor seller-consumer behavior.

In Federal Trade Commission v. BF Labs, Inc,⁹⁹ the defendant violated the FTCA by committing consumer fraud. The company sold mining software on the internet through its website and other social sites such as Facebook and Twitter. It claimed that encrypted machines, services or software would solve complex mathematical formulas at high speed, use less computational power and electricity and result in maximum valuable gain (Bitcoin).

The consumers, by relying on the misleading advertisements, suffered a substantial loss as they never received the machines or, if they did, the machines either failed to generate Bitcoins or had not been delivered as promised.¹⁰⁰ The court passed an order to freeze Butterfly’s assets as the company was making unjust profits by substantially harming consumers.¹⁰¹

2.2.3.2. Consumer Financial Protection Bureau (CFPB)

The CFPB, as the name indicates, covers all consumer problems arising out of unfair conduct. Consumer protection has become a major issue with many websites being involved in fraudulent and deceptive practices. When MT. Gox collapsed into bankruptcy, apparently $460 million disappeared.¹⁰² This was a huge financial disaster for Bitcoin users and investors who had invested their money in MT. Gox Co. Ltd. The Bureau has a wide range of responsibilities such as creating public consciousness regarding financial risks, supervising markets, taking action for consumer complaints and examining consumer behavior. The Bureau also enforces consumer protection laws under this supervisory, such as the Electronic Fund Transfer Act.¹⁰³ The Act does not specifically apply to digital currency as no financial institution is involved in its networking.¹⁰⁴

All these regulatory bodies revolve around two particular factors:

providing guidance and helping entities develop better systems for efficient working; and
monitoring and supervising entities so that stability can be maintained.

Conclusion

Every new invention possesses harms and benefits. The novelty of Bitcoin lies in its distinct features which make it user friendly. On the other hand, the darker side of Bitcoin is too scary. While it has emerged as a tool which can benefit everyone and is being used for legal purposes, it is also being misused for unlawful activities.

Bitcoin currently resides in a legal grey area. Neither has its use been strictly declared illegal, nor is it being considered as a legal tender in many jurisdictions. However, the rising speculations and risk factors involved have led to serious growing concerns for law enforcers and regulators regarding its use.

In order to lessen the severity of these issues, many federal agencies are currently regulating Bitcoin circulation. To limit the authority of institutions, strict laws have been imposed on bodies working in independent capacities. These entities are bound to follow the laws as violation can result in heavy penalties. Another question arises as to whether strict laws hinder the growth of digital currencies. Most of the laws are seen to be causing impediments in the active growth of currencies due to which Bitcoin’s decentralized uniqueness is being affected. Now, without the approval of regulatory bodies, an individual cannot open an exchange or trading platform.

Another issue for Muslims around the world is to determine the legal status of Bitcoin from the perspective of Shariah. While Islamic scholars and commissions have not been taking keen interest in Bitcoin use, whether or not Bitcoin conforms to Islamic requirements regarding currency can be easily deduced. Money should possess the following essential elements:

it must hold an intrinsic value;¹⁰⁵ and
it should be used as a medium of exchange.¹⁰⁶

Other issues regarding Bitcoin use, which have not been mentioned in this article but which should be highlighted nonetheless, include tax evasion through Bitcoins, international issues regarding foreign exchange and current regulatory treatment under select jurisdictions.

References

People used to trade directly in goods and services.
Rice, sugar, tools and weapons, clay pots, tulip bulbs etc were items in which people used to trade. They specified these items as measuring standards.
Money, which is backed by some valuable asset such as gold or silver.
All the pros and cons will be highlighted in detail later in the text.
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When one Bitcoin is spent more than once for any transaction.
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A person can buy Bitcoins from an individual or an exchange (Bitcoin banks). In the United States the renowned exchanges are Circle, Coinkite, BitGo and Coinbase. In Pakistan, Urdubit is a platform which acts as a facilitator.
An owner can lose Bitcoins if the exchange goes insolvent.
This is achieved through the process of “digital signing”, permitting users to digitally sign the document, meaning that it cannot be forged.
An electronic ledger keeps records of balance and of every transaction that has occurred. It works using the concept of blockchain.
John Davidson, The digital Coin Revolution: How to Make Money Online (2013).
Id, 2.
Id, 3-32.
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According to the Stamp Payment Act, 1862, it is a violation of the law to issue, create and circulate any private coin or currency which competes with official currency, but Bitcoin cannot be prohibited as it conforms to the government’s regulation.
Id, 182.
Under the Bank Secrecy Act, 1986, and the Money Laundering Control Act, 1986, an independent financial institution ought to report certain transactions that they make and apply anti money laundering procedures.
Id, 198.
Digital currency cannot be considered as security as it does not fall under the Security Act, 1933.
Kazan E.Tan &Chee W. Tan , Value Creation in Cryptocurrency Network: Toward a taxonomy of Digital Business Model for Bitcoin Companies, PACIS 2015 Proceedings. 34. (2015).
In March, 2015, the market capitalization of Bitcoin was equal to USD $4 billion.
Id.
The fiat payment network is based upon four party schemes, for example, sender, receiver, issuer and acquirer. On the other hand, the cryptocurrency payment network is based on two party schemes , for example, sender and reciever.
Charles W. Evans, Bitcoin in Islamic Banking and Finance , 4 Islamic Banking and Finance J. (2015).
Securing benefit and preventing harm.
Id, 10.
Suraya Zainudin, Is Bitcoin Halal? What Scholars Say and Where It Stands in Islamic Banking and Finance (2016).
Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash, Ripple (XRP) and Monero (XMR) are other famous 6 cryptocurrencies.
In October, 2008, Satoshi published his paper, Bitcoin: A Peer-to-Peer Electronic Cash System. The paper does not provide much information regarding creation and systematic working. Rather, it provides a solution for different problems in transaction and spending. Satoshi highlights four main problems: the reliance of current internet commerce on third parties for transactional purposes, high mediation costs, reduction in small transactions due to high transaction charges and trust issues arising out of such reliance.
The computer which operates it can be publicly viewed.
Peer-to-peer computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the application.
Reuben Gringberg, Yale Law School, Bitcoin: An Innovative Digital Currency, 4 Hastings Sci & Tech. L. J, (2011).
See CoinDesk, Bitcoin Price Index Chart http://www.coindesk.com/price/ (last visited April. 4, 2020).
See CoinDesk, Bitcoin-Daily Number of Transactions http://www.coindesk.com/data/bitcoin-daily-transactions/ (last visited May. 16, 2017).
See Cryptocurrency Market Capitalizations https://coinmarketcap.com/ (last visited April. 4, 2020).
Edward V. Murphy et al., Bitcoin: Questions, Answers and Analysis of Legal Issues, Congressional Research Service (2015).
There are different kinds of wallets such as desktop wallets, mobile wallets, online wallets and hardware wallets.
Id, 2.
The renowned exchanges are Circle, Coinkite, BitGo and Coinbase. In Pakistan, Urdubit is a trading platform.
Mathew Elias, Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy (2011) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1937769 (last visited May. 17, 2017).
Id, 6.
Fredrick Kennard and Addison Hanne, Boom & Bust: A look at Economic Bubbles (2015).
1637 was the peak era of tulip mania, in which one tulip bulb was worth more than 10 times the annual income of skilled craftsmen. Even a land of 12 acres was sold for one Semper augustus bulb. When the mosaic virus hit the tulips, it resulted in economic downfall for Dutch commerce. All the investments were devastated. It is considered as history’s first economic bubble (asset price more than intrinsic value). Metaphorically, speculative bubbles are referred to as tulip manias.
Ian Demartino, The Bitcoin Guide Book: How to Obtain, Invest and Spend the World’s First Decentralized Currency (2016).
CoinDesk, Who really uses Bitcoins? (2015). It is a 45 page report with Bitcoin’s demographics. Almost 4,000 responses were received. It highlights the users’ age, gender, location, background and income. Along with it, certain tips for companies and problems related to Bitcoin are discussed.
CoinDesk, Bitcoin-Total XBT in circulation http://www.coindesk.com/data/bitcoin-total-circulation/ (last visited May. 17, 2017).
CoinDesk, What can you buy with bitcoins? https://commerce.microsoft.com/PaymentHub/Help/Right?helppagename=CSV_BitcoinHowTo.htm (last visited May. 17, 2017).
See Dell’s official website http://www.dell.com/learn/us/en/uscorp1/campaigns/bitcoin-marketing?c=us&l=en&s=corp (last visited May. 17, 2017).
Adam Dachis, What is Bitcoin and what can I do with it? (2013).
CheapAir.com, BTCTrip, UK’s Theatre Tickets Direct, Honest Brew, Coco Mats’ n More are online booking services and websites that provide a variety of different services in just one single click.
Latvian airline.
Eastern European airline.
The transactions are done electronically on an online forum. Transaction records are kept in a digital ledger while currency is stored in digital wallets just like traditional bank accounts.
The Federal Reserve in the USA and the State Bank of Pakistan control and circulate all the money.
Edward V. Murphy et al., Bitcoin: Questions, Answers and Analysis of Legal Issues, Congressional Research Service (2015).
For illicit purposes, the currency is printed repeatedly.
Strict policies impose anti money laundering laws to secure the transactions.
Ian Demartino, The Bitcoin Guide Book: How to Obtain, Invest and Spend the World’s First Decentralized Currency (2016).
Larissa Lee, New Kids on Blockchain: How Bitcoin Technology could Reinvent the Stock, 12 Hastings Business L.J (2015).
John Davidson, The digital Coin Revolution: How to Make Money Online (2013).
18 U.S.C. § 336.
Kerry Lynn Macintosh, The New Money, 14 Berkeley Tech. L. J 659 (1999) http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1242&context=btlj (last visited May. 17, 2017).
Id.
Reuben Gringberg, Yale Law School, Bitcoin: An Innovative Alternative Digital Currency, 4 Hastings Sci & Tech. L. J. (2011).
Id.
Id.
Shawn Turner, U.S. Anti-Money Laundering Regulations: An Economic Approach to Cyber-Laundering, 54 Case W. Res. L. Rev, 1389, 1391 (2004), the dirty money (ill-gotten gains) is converted into legal money by moving money through certain procedures.
Anti-Money Laundering: Global Economic Crime Survey 2016: PwC http://www.pwc.com/gx/en/services/advisory/forensics/economic-crime-survey/anti-money-html (last visited May. 01, 2017).
Other elements such as anonymity and fast and instant online transactions make Bitcoin a more attractive vehicle.
In terrorist financing, legal money is used for illegal activities but it falls under the ambit of money laundering.
United States of America v. Ross William Ulbricht, U.S. District Court Southern District of New York, 14 Cr. 68 (KBF) , Hon Katherine B. Forrest (2015).
The defendant Ross William Ulbricht a.k.a “Dead Pirate Roberts” was also held with several other charges against him. He violated Narcotics Law, Controlled Substances Act under 21 U.S. C. § 844 (a) (1), committed felony under 21 U.S. C. § 952, 960 and 963, violated 21 U.S. C. § 812 by distributing narcotics and drugs (LSD) online, continued criminal enterprise by violating U.S.C. § 841, 843 and 846 and committed computer hacking and provided hacking softwares by violating 18 U.S. C. § 10130 (a) (2).
Under 31 C.F.R. §1010.100 (ff)(1)-(7) money services businesses include all those individuals and institutes working in the capacity of currency dealer or exchanger, money transmitter, provider and seller of prepaid access, check casher, issuer or seller of traveler’s check or money orders and U.S. Postal Service.
Policies such as Know Your Customer (KYC) require businesses to acquire minimum identification of customers, such as their National Identity Card Number, Date of Birth, occupation and account holder’s identity.
United States Government Accountability Office, Virtual Currencies: Emerging Regulatory, Law Enforcement and Consumer Protection Challenges, Report to the Committee on Homeland Security and Governmental Affairs, U.S. Senate
Id, 15.
It is a punitive fine imposed for the violation of rules and noncompliance with policies.
In a cease-and-desist proceeding, the agency orders the institution to discontinue certain practices by adopting affirmative actions or correct wrongful conditions arising out of such practices.
United States of America v. E-gold, Ltd, United States District Court, District of Columbia, 550 F.Supp.2d 82 (2008), District Judge Rosemary M. Collyer (2008), E-Gold was also used for child abuse, credit card and identity theft and investment frauds.
The section further illustrates that continuing business without license and not conforming with the official formalities of authorization and registration amounts to felony under state law.
Id.
United States Department of Treasury, FinCEN, First Enforcement Action Against a Virtual Currency Exchanger https://www.fincen.gov/sites/default/files/2016-08/20150505.pdf (last visited May. 01, 2017).
According to the Investment Advisor Act, 1940, investment advisors and councilors are under the jurisdiction of SEC and are considered fiduciaries.
U.S. Security and Exchange Commission, What We Do, https://www.sec.gov/Article/whatwedo.html (last visited May. 01, 2017).
Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Saving & Trust, United States District Court, Eastern District of Texas Sherman Division, Case No. 4:13-CV-416, District Judge Mazzant (2013).
Id.
15 U.S.C. § 77 (a).
15 U.S.C. § 78 (a).
Shavers shifted at least $147,102 to his personal account GPUMAX at Dwolla.
According to the SEC, BTCST provided a platform for investments which falls under the ambit of securities. Under the 15 U.S.C. § 77 (b) notes, stocks, bonds and investment contracts are considered securities. The investments in BTCST were more like investment contracts. Three elements are necessary to constitute investment contracts: the investment must be done in common enterprise and there must be reliance upon a third party to make profits (expectations of profits). All these elements were present in BTCST investments. Hence his claim was rejected.
U.S. CFTC, 17. C.F.R. Chap. I, http://www.cftc.gov/lawregulation/commodityexchangeact/index.htm (last visited May. 01, 2017).
Federal Trade Commission, What We Do, https://www.ftc.gov/about-ftc/what-we-do (last visited May.
Id.
Id.
15 U.S.C. §41-§58.
Federal Trade Commission v. BF Labs, Inc, Federal Court, Western District of Missouri, 4:14-cv-00815-BCW 2014 (FTC file number: 142 3058) https://www.ftc.gov/enforcement/cases-proceedings/142-3058/bf-labs-inc .
Id.
Id.
Report (under Article 157 of the Bankruptcy Act), Tokyo District Court 2014 (fu) No. 3830.
15 U.S.C. § 1693.
The Act provides a framework for electronically transferred money of users (personal and family accounts) held in any financial institution (banks, unions and associations).
Money gains its intrinsic value when it is backed by a valuable asset or commodity such as gold or silver. Money created out of thin air is not considered to be halal. Bitcoin possesses qualities similar to gold and silver. First, both are mined, both are scarce in availability and both can be used as currency on its own (in previous ages, metals were used as a medium of exchange). Further, value gain of both Bitcoin and metals depends upon the supply and demand formula.
Bitcoin is used as a medium of exchange as one can buy goods and consume services through it.
Bitcoin is a better substitute for fiat currency as it is not backed by heavy loans which are even greater than the total currency in regulation. Bitcoin also conforms to the principles or maslaha and mursalah and involves mutual risk sharing. Mutual risk sharing is different from the principle of “gharar” which prohibits risky and hazardous investments. In Bitcoin networking, the miners share common benefits and losses while conducting mining operations. So, the concept of mutual risk sharing reflects, to some extent, in Bitcoin networking.
None of the Fatwas declare Bitcoin strictly haram, however, a user should be aware of all the risks involved in Bitcoin use.

Articles

Charles W. Evans, Bitcoin in Islamic Banking and Finance,4 Islamic Banking and Finance J. (2015).
Edward V. Murphy et al., Bitcoin: Questions, Answers and Analysis of Legal Issues,Congressional Research Service (2015).
Kazan E. Tan, Chee W. Tan, Value Creation in Cryptocurrency Network: Toward a Taxonomy of Digital Business Model for Bitcoin Companies, PACIS 2015 Proceedings.
Kerry Lynn Macintosh, The New Money, 14 Berkeley Tech. L. J 659 (1999).
Larissa Lee, New Kids on Blockchain: How Bitcoin Technology could Reinvent the Stock, Hastings Business L. J (2015).
Mathew Elias, Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy(2011).
Reuben Gringberg, Yale Law School, Bitcoin: An Innovative Alternative Digital Currency, 4 Hastings Sci & Tech. L. J. (2011).
Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008).
Shawn Turner, U.S. Anti-Money Laundering Regulations: An Economic Approach to Cyber-Laundering, 54 Case W. Res. L. Rev, 1389, 1391 (2004).
Suraya Zainudin, Is Bitcoin Halal? What Scholars Say and Where It Stands in Islamic Banking and Finance (2016).

Books

Fredrick Kennard and Addison Hanne, Boom & Bust: A look at Economic Bubbles(2015).
Ian Demartino, The Bitcoin Guide Book: How to Obtain, Invest and Spend the World’s First Decentralized Currency (2016).
John Davidson, The digital Coin Revolution: How to Make Money Online(2013).

Reports

Anti-Money Laundering: Global Economic Crime Survey 2016: PwC.
CoinDesk, Who really uses Bitcoins? (2015).
European Central Bank Report (Eurosystem), Virtual Currency Schemes(Oct 2012)
United States Government Accountability Office, Virtual Currencies: Emerging Regulatory, Law Enforcement and Consumer Protection Challenges, Report to the Committee on Homeland Security and Governmental Affairs, U.S. Senate

The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which she might be associated.

People used to trade directly in goods and services.

Rice, sugar, tools and weapons, clay pots, tulip bulbs etc were items in which people used to trade. They specified these items as measuring standards.

Money, which is backed by some valuable asset such as gold or silver.

All the pros and cons will be highlighted in detail later in the text.

Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008) available at https://bitcoin.org/bitcoin.pdf (last visited April. 18, 2017).

Id, 2.

When one Bitcoin is spent more than once for any transaction.

Id, 4.

Ian Demartino, The Bitcoin Guide Book: How to Obtain, Invest and Spend the World’s First Decentralized Currency 36, 42 (2016).

A person can buy Bitcoins from an individual or an exchange (Bitcoin banks). In the United States the renowned exchanges are Circle, Coinkite, BitGo and Coinbase. In Pakistan, Urdubit is a platform which acts as a facilitator.

An owner can lose Bitcoins if the exchange goes insolvent.

This is achieved through the process of “digital signing”, permitting users to digitally sign the document, meaning that it cannot be forged.

An electronic ledger keeps records of balance and of every transaction that has occurred. It works using the concept of blockchain.

John Davidson, The digital Coin Revolution: How to Make Money Online (2013).

Id, 2.

Id, 3-32.

Reuben Gringberg, Yale Law School, Bitcoin: An Innovative Alternative Digital Currency, 4 Hastings Sci & Tech. L. J. (2011).

According to the Stamp Payment Act, 1862, it is a violation of the law to issue, create and circulate any private coin or currency which competes with official currency, but Bitcoin cannot be prohibited as it conforms to the government’s regulation.

Id, 182.

Under the Bank Secrecy Act, 1986, and the Money Laundering Control Act, 1986, an independent financial institution ought to report certain transactions that they make and apply anti money laundering procedures.

Id, 198.

Digital currency cannot be considered as security as it does not fall under the Security Act, 1933.

Kazan E.Tan &Chee W. Tan , Value Creation in Cryptocurrency Network: Toward a taxonomy of Digital Business Model for Bitcoin Companies, PACIS 2015 Proceedings. 34. (2015).

In March, 2015, the market capitalization of Bitcoin was equal to USD $4 billion.

Id.

The fiat payment network is based upon four party schemes, for example, sender, receiver, issuer and acquirer. On the other hand, the cryptocurrency payment network is based on two party schemes , for example, sender and reciever.

Charles W. Evans, Bitcoin in Islamic Banking and Finance , 4 Islamic Banking and Finance J. (2015).

Securing benefit and preventing harm.

Id, 10.

Suraya Zainudin, Is Bitcoin Halal? What Scholars Say and Where It Stands in Islamic Banking and Finance (2016).

Litecoin (LTC), Ethereum (ETH), Zcash (ZEC), Dash, Ripple (XRP) and Monero (XMR) are other famous 6 cryptocurrencies.

The computer which operates it can be publicly viewed.

Peer-to-peer computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the application.

Reuben Gringberg, Yale Law School, Bitcoin: An Innovative Digital Currency, 4 Hastings Sci & Tech. L. J, (2011).

See CoinDesk, Bitcoin Price Index Chart http://www.coindesk.com/price/ (last visited April. 4, 2020).

See CoinDesk, Bitcoin-Daily Number of Transactions http://www.coindesk.com/data/bitcoin-daily-transactions/ (last visited May. 16, 2017).

See Cryptocurrency Market Capitalizations https://coinmarketcap.com/ (last visited April. 4, 2020).

Edward V. Murphy et al., Bitcoin: Questions, Answers and Analysis of Legal Issues, Congressional Research Service (2015).

There are different kinds of wallets such as desktop wallets, mobile wallets, online wallets and hardware wallets.

Id, 2.

The renowned exchanges are Circle, Coinkite, BitGo and Coinbase. In Pakistan, Urdubit is a trading platform.

Mathew Elias, Tempering the Digital Ring of Gyges or Implausible Pecuniary Privacy (2011) available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1937769 (last visited May. 17, 2017).

Id, 6.

Fredrick Kennard and Addison Hanne, Boom & Bust: A look at Economic Bubbles (2015).

Ian Demartino, The Bitcoin Guide Book: How to Obtain, Invest and Spend the World’s First Decentralized Currency (2016).

CoinDesk, Who really uses Bitcoins? (2015). It is a 45 page report with Bitcoin’s demographics. Almost 4,000 responses were received. It highlights the users’ age, gender, location, background and income. Along with it, certain tips for companies and problems related to Bitcoin are discussed.

CoinDesk, Bitcoin-Total XBT in circulation http://www.coindesk.com/data/bitcoin-total-circulation/ (last visited May. 17, 2017).

CoinDesk, What can you buy with bitcoins? https://commerce.microsoft.com/PaymentHub/Help/Right?helppagename=CSV_BitcoinHowTo.htm (last visited May. 17, 2017).

See Dell’s official website http://www.dell.com/learn/us/en/uscorp1/campaigns/bitcoin-marketing?c=us&l=en&s=corp (last visited May. 17, 2017).

Adam Dachis, What is Bitcoin and what can I do with it? (2013).

CheapAir.com, BTCTrip, UK’s Theatre Tickets Direct, Honest Brew, Coco Mats’ n More are online booking services and websites that provide a variety of different services in just one single click.

Latvian airline.

Eastern European airline.

The transactions are done electronically on an online forum. Transaction records are kept in a digital ledger while currency is stored in digital wallets just like traditional bank accounts.

The Federal Reserve in the USA and the State Bank of Pakistan control and circulate all the money.

Edward V. Murphy et al., Bitcoin: Questions, Answers and Analysis of Legal Issues, Congressional Research Service (2015).

For illicit purposes, the currency is printed repeatedly.

Strict policies impose anti money laundering laws to secure the transactions.

Ian Demartino, The Bitcoin Guide Book: How to Obtain, Invest and Spend the World’s First Decentralized Currency (2016).

Larissa Lee, New Kids on Blockchain: How Bitcoin Technology could Reinvent the Stock, 12 Hastings Business L.J (2015).

John Davidson, The digital Coin Revolution: How to Make Money Online (2013).

18 U.S.C. § 336.

Kerry Lynn Macintosh, The New Money, 14 Berkeley Tech. L. J 659 (1999) http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1242&context=btlj (last visited May. 17, 2017).

Id.

Reuben Gringberg, Yale Law School, Bitcoin: An Innovative Alternative Digital Currency, 4 Hastings Sci & Tech. L. J. (2011).

Id.

Id.

Shawn Turner, U.S. Anti-Money Laundering Regulations: An Economic Approach to Cyber-Laundering, 54 Case W. Res. L. Rev, 1389, 1391 (2004), the dirty money (ill-gotten gains) is converted into legal money by moving money through certain procedures.

Anti-Money Laundering: Global Economic Crime Survey 2016: PwC http://www.pwc.com/gx/en/services/advisory/forensics/economic-crime-survey/anti-money-html (last visited May. 01, 2017).

Other elements such as anonymity and fast and instant online transactions make Bitcoin a more attractive vehicle.

In terrorist financing, legal money is used for illegal activities but it falls under the ambit of money laundering.

United States of America v. Ross William Ulbricht, U.S. District Court Southern District of New York, 14 Cr. 68 (KBF) , Hon Katherine B. Forrest (2015).

Policies such as Know Your Customer (KYC) require businesses to acquire minimum identification of customers, such as their National Identity Card Number, Date of Birth, occupation and account holder’s identity.

United States Government Accountability Office, Virtual Currencies: Emerging Regulatory, Law Enforcement and Consumer Protection Challenges, Report to the Committee on Homeland Security and Governmental Affairs, U.S. Senate

Id, 15.

It is a punitive fine imposed for the violation of rules and noncompliance with policies.

In a cease-and-desist proceeding, the agency orders the institution to discontinue certain practices by adopting affirmative actions or correct wrongful conditions arising out of such practices.

United States of America v. E-gold, Ltd, United States District Court, District of Columbia, 550 F.Supp.2d 82 (2008), District Judge Rosemary M. Collyer (2008), E-Gold was also used for child abuse, credit card and identity theft and investment frauds.

The section further illustrates that continuing business without license and not conforming with the official formalities of authorization and registration amounts to felony under state law.

Id.