Cryptocurrencies offer a level of anonymity that can be beneficial for criminal activities such as drug trafficking, fraud and money laundering. The dark-web marketplace Silk Road, which operated from 2011 to 2013, used bitcoin to facilitate the sale of narcotics, forged documents and ransomware, for example. The site’s operator, Ross Ulbricht, was arrested in 2015 and convicted on charges related to narcotics, conspiracy to commit a crime of violence and money laundering. This has led to concerns that cryptocurrencies are being used for illicit purposes and some governments have introduced regulations to try to counter this.
In the United States, the federal and state government have created a patchwork of regulation related to cryptocurrencies. While they haven’t banned them, they are regulating how they are sold and traded and how you can purchase products and services with them. The Securities and Exchange Commission (SEC) considers many cryptocurrencies to be securities, which means they need to be registered. This is based on a 1946 Supreme Court case called SEC v. W.J. Howey Co.
Because of this, you should only buy cryptocurrencies from exchanges that are registered in your country. If you do, then the exchange will have to follow FinCEN rules and report your purchases to the IRS. If you purchase a cryptocurrency from a non-registered exchange, then you could be exposed to scams and have no way of getting your money back.
The SEC also requires that cryptocurrency exchanges verify the identities of their customers before they can accept new deposits. It is important to understand these regulations so you can make smart investment decisions.
Regulatory bodies around the world have struggled with how to treat cryptocurrencies. Some have banned them, while others are more welcoming. The Iraqi Central Bank, for example, issued a statement in 2017 that banned bitcoin and decentralized digital currencies while the Ministry of Interior of the Kurdistan regional government has been trying to stop money brokers and exchanges from handling cryptocurrencies.
However, in the European Union, it is becoming more common for businesses to accept cryptocurrencies as payment. The EU’s sixth anti-money laundering directive (AMLD6) brings cryptocurrencies under the same regulations as fiat currencies, which includes KYC/CDD and standard reporting requirements. The European Parliament has also debated banning the energy-intensive proof of work mining method for some cryptocurrencies, which has been a concern because it contributes to climate change.
In addition, it’s also becoming more common for companies to pay wages in cryptocurrency. This is a convenient option for global teams and can be easier for them to transfer funds to their local currency, if needed. However, you should be aware that this can affect your tax status, so it’s best to consult with an accountant or tax professional before you start accepting cryptocurrency as a form of payment.