Cryptocurrencies Legal Regulation

• Author: I. Cvetkova
• Position: Baltic International Academy (Riga, Latvia)
• Pages: 128-153

BRICS LAW JOURNAL Volume V (2018) Issue 2

CRYPToCuRREnCIES LEGaL REGuLaTIon

IRINA CVETKOVA,

Baltic International Academy (Riga, Latvia)

DOI: 10.21684/2412-2343-2018-5-2-128-153

This article evaluates the legal framework of cryptocurrency in various countries. The new

currency instrument is abstract currencies. They are currencies in the sense that they can

be exchanged peer-to-peer. They are representations of numbers, i.e. abstract objects. An

abstract currency system is a self-enforcing system of property rights over an abstract

instrument which gives its owners the freedom to use and the right to exclude others from

using the instrument. Cryptocurrency or virtual currency is a cryptographically protected,

decentralized digital currency used as a means of exchange. Due to the development of

new technologies and innovations, the rate of use of virtual currency is rapidly increasing

throughout the globe, replacing not only cash payments and payments by bank

transfer, but also electronic cash payments. Among the best-known representatives of

cryptocurrencies are Bitcoin, Litecoin and Ethereum. Legal scholars have not yet reached

a consensus regarding the nature and legal status of vir tual currency. Virtual currency

possesses the nature of obligations rights as well as property rights, since it may be both

a means of payment and a commodity. Depending on the country, the approach to

cryptocurrencies may be dierent. Today there is already an international cryptocurrency

community that does not have a single coordinating center. Only progressive jurisdiction

and state regulation of cryptocurrency activity will allow the creation of the conditions

that will ensure the implementation of legitimate and safe cryptocurrency relations.

Keywords: bitcoin; blockchain; cryptocurrency; e -money; mining; token; vir tual

currency.

Recommended citation: Irina Cvetkova, Cryptocurrencies Legal Regulation, 5(2)

BRICS Law Journal 128–153 (2018).

IRINA CVETKOVA 129

Introduction

Cryptographic currencies appeared due to technological progress and the

evolution of money as a completely liquid medium of exchange. Indeed, originally

money fullled the function of the exchange of goods. It was then assigned to gold

as the universal equivalent. The next stage was the transition to paper money, until,

today, we have the emergence of electronic money (e-money).

Money is rst and foremost a social convention, which emerges to build trust

between strangers in their economic transactions, both inter-temporal and in spot

markets. A convention of monetary exchange facilitates valuable inter-temporal

exchanges that would not occur otherwise.

According to this view, individuals who may neither know nor trust each other

choose to settle their transactions by oering symbolic objects-bank deposits or

banknotes, for instance, in exchange for labor, goods and services because they nd

this trading arrangement superior to the available alternatives.1

A monetary system can thus be viewed as a social convention that emerges to

build the trust needed to support valuable economic interactions between strangers.

In a way, condence in the institution of money can shore up the lack of trust in

other members of society. Laboratory research provides some empirical support

for this view.2

Historically, public condence in a currency largely referred to the quality of the

coins that formed the basis of the currency. States had an obvious advantage over

private issuers in guaranteeing this quality, not only because they could set and

enforce quality standards more easily than private issuers, but also because states

can internalize the long-run benets of a stable currency, thus strengthening the

incentive to avoid debasements.3

Digital money or e-money has been around for a long time. The main forms of

e-money are commercial bank reserves with the central bank and the money created

by commercial banks when they make loans.

The past ten years have seen the creation of a new class of digital instruments that

are not issued by a sovereign institution or commercial bank, are not denominated in

a sovereign unit and do not have physical counterparts. Since these instruments may

be used as a currency, they are variously labeled “electronic cash,” “digital currency,”

“virtual currency,” or “cryptocurrency.”

1 Gabriele Camera et al., Money and Trust Among Strangers, 110(37) Proceedings of the National Academy

of Sciences 14889 (2013).

2 Gabriele Camera & Marco Casari, The Coordination Value of Monetary Exchange: Experimental Evidence,

6(1) American Economic Journal: Microeconomics 290 (2014).

3 Charles A.E. Goodhart, The Two Concepts of Money: Implications for the Analysis of Optimal Currency

Areas, 14(3) European Journal of Political Economy 407 (1998).