Jennifer Brun, Fortior’s Associate, writes on selected legal issues in relation cryptocurrencies & blockchain

Jennifer Brun, Fortior’s Associate, writes on selected legal issues in relation cryptocurrencies & blockchain

After almost a decade since their inception, cryptocurrencies are raising many concerns regarding their use and future in our society globally. As history tends to repeat itself in major changes affecting almost anyone on the planet, these concerns are fueled both by the compelling enthusiasm of its proponents and the fear of its opponents. More recently, a debate attempting to reconcile the arguments of both sides has developed, recognizing both the cogent and numerous upshots of letting cryptocurrencies develop and grow in our society, as well as the undeniable dangers of letting it do so without any regulatory supervision at all, effectively allowing the phenomenon to evolve without limitations and above the law. In parallel, and extending far beyond cryptocurrencies, the technological processes whereby these digital currencies have been developed and operate, via so-called blockchains, offer interesting prospects in the domain of commercial contracts, further underscoring the need to develop viable regulatory frameworks in the face of these new technologies.

This article will present and discuss the antagonistic needs and desires of our society embedded in the cryptocurrency debate, and whether any room for reconciliation exists at all in order that the future of cryptocurrencies not be stifled by overregulation, while gaining legitimization in the eyes of those who believe it to be the new weapon against all institutions involved in the national and transnational political, financial, economic and social order. This paper will also briefly touch upon the current developments and potential benefits to use the crypto-related technologies beyond the frontier of currency, specifically in the context of “smart contracts”.

Though falling short of a worldwide accepted definition, cryptocurrency is broadly understood as a means of exchange, processed via cryptographic tools and peer-to-peer networks, used on a secured digital platform generating virtual coins through blockchains that can in turn be used as an alternative payment method in an array of transactions: “a digital representation of value, which despite not being issued by a central bank or another, comparable public authority, nor being “attached”, subject to certain exceptions, to a fiat currency, are voluntarily accepted, by natural or legal persons as a means of exchange, and which are stored, transferred and traded electronically, without a tangible, real-world representation.”[i] The issues generated by cryptocurrencies from a regulatory standpoint emerge right from the outset, being that its very creation and at least its early developments, occurred outside any conventional governmental oversight or institution. Money as we generally know it is indeed regulated by laws and policies that each government has an exclusive power to implement through its appropriate institutions and bodies. Forced by the surge of the internet, such laws and regulations have had to be amended and developed in order to provide workable frameworks to cater to new digitally operated systems of exchange. As such, virtual currencies differentiate themselves from any commonly known and widely used E-money apparatuses, that merely simplify the use of fiat money for online transactions and that are as such regulated and overseen by the corresponding legislation.[ii] It is worth noting that the latest definition cited above from the European Central Bank (“ECB”) may very quickly become inadequate with respect to certain countries envisaging the issuance of digital currencies by their central banks. Indeed, England, Sweden and Canada for example, are already engaged in such endeavors. [iii]

The blockchain process, being digitally operated, implies that the issuance of these virtual coins and the generated “cash flow”, once part of this so-called blockchain, are overseen, controlled and operated through artificial intelligence. The blockchain is thus a digital ledger, expanding through the mathematical solving of equations by computers, recording each and every transaction chronologically and publicly distributing that data across these computer networks in order to continue the chain of blocks. Taking the most prominent example of Bitcoin, any transaction across the Bitcoin network involves an exchange of tokens for value from one account (referred to as a “wallet”) to another within the same ledger. Each Bitcoin is linked to a specific account by a public key in order that exchanges can occur between accounts in the network.[iv] In turn, each account itself possesses a unique private key in the form of a code, which allows for a digital signature of a payment that will become effective and part of the blockchain only once so-called “miners” have verified the authenticity of any such transaction. Such verifications by “miners” are effectively the solving of a mathematical puzzle, with the fastest solution ultimately being rewarded by a newly unlocked Bitcoin that will be added to the chain.[v] Without going into much further details as to the technical processes of the Bitcoin network, the above is relevant in the context of cryptocurrencies generally with respect to the anonymity attached to any account users, who remain completely unknown to the world but for their given coded pseudonym attached to their account upon entering a network. On the one hand, we have an allegedly highly trustworthy and transparent system, with a level of certainty in transactions unprecedented before, wherein no tempering can occur and any action taken in a given network is digitally and perpetually engraved, chronologically and publicly recorded, while on the other, it is effectively impossible to identify anyone behind any of these transactions.

This brings us to an already existing and broad conundrum for regulators, which is that of overseeing activities, particularly of criminal nature, carried out on the internet in association with, or in defiance of, these artificial intelligences. The combination of monetary value intrinsic to cryptocurrencies and the versatility of the internet have certainly open the door to a new era of very serious crimes potentially untraceable and thus unpunishable due to the anonymity afforded to users of cryptocurrencies. This is very much seen as one of the most important drawbacks of virtual currencies, specifically in areas of criminal activities such as money laundering, tax evasion, drug trafficking, terrorism financing, contraband transactions and extortion.[vi] Additionally, cybercrimes such as theft of a given cryptocurrency itself are equally legitimate sources of concern, underscoring some undeniable cracks in the cryptocurrency system that this very system was designed to fix.

Now that we have very briefly explained the basic and technical premises of cryptocurrencies, it is worth analyzing the original vision held by the pioneer of cryptocurrencies, Satoshi Nakamoto, in order to grasp better the dichotomy between regulations and cryptocurrencies. At the heart of what Satoshi Nakamoto envisioned rests precisely the desire to develop a decentralized, self-governing and trustworthy system to act as a watchdog for individual wealth, precisely unconditioned by humanity and the flaws of its institutions that have failed us time after time. Instead, by relying on conclusive, immutable and systematic processes generated by computers, cryptocurrencies provide, according to their advocates, an infallible means to protect the wealth of all participants, thereby removing any questionable government-controlled third party from the process. For Satoshi Nakamoto, “the root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts.”[vii]The rift between what governments wish to achieve and the underpinning elements of cryptocurrencies is evident. In light of the most recent developments in the field, we are now going to take a closer look into the impressive ascendance of cryptocurrencies by virtue of the benefits they offer in our modern free-market economy, as well as the undeniable threats they pose to our society if they are to remain unregulated.

The advent of cryptocurrencies was and continues to be largely propelled by its alignment with ideals pertaining to a free-market economy, rooted in the desire to establish simplified processes of exchange for any kinds of goods or services across the world, without the added burden of any barriers, and especially ones stemming from cross-border transaction fees, exchange rates, third party institutions, lack of access to payment systems, ineffective policies and oversight etc.[viii] Digital currencies effectively remove all of the aforementioned barriers and provides mostly time and cost saving payment methods potentially available to everyone. The world we live in is a fast-paced one, yet crippled by social disparities, and cryptocurrencies respond admirably to some needs this is generating in our modern society. Its proponents vehemently argue that by creating a financial apparatus independent from common fiat currency schemes, we are insulating ourselves from the phenomenon of inflation or devaluation of fiat currencies largely caused by poor national economic policies.  Additionally, though as we have seen there are two sides to this coin, anonymity has also been a major argument for proponents of cryptocurrencies. In addition to having cryptocurrencies operated through decentralized exchanges (i.e. no reliance on a custodial third party, but direct exchange between traders), digital currency users are not required to supply any personal information on either end of a transaction’s spectrum, therefore reducing the risk of fraud where such information could be misused.[ix] The decentralization of the networks further enables to see the exact order of all confirmed and irreversible transactions, further increasing confidence in the accuracy of the records and avoiding the issue of double payments more commonly faced in centralized schemes where third party custody is present. Cryptocurrencies also betoken the impressive technological advancements in the last decade, the FintTech industry and impressive R&D in the robotization of many tasks we have always traditionally carried out ourselves. Naturally this leads to a broader debate on how trustworthy these robots and computers alike can and will be, and how legislation will come into play once control is completely relinquished in the performance of some of these tasks. For digital currency supporters, there is no doubt that these artificial intelligences are far more able to handle efficiently and securely all exchanges occurring on crypto networks than any third party or governmental institution would ever be. And indeed, the mathematical puzzles solved by miners in extremely short time periods is a testament to their superhuman capabilities. Furthermore, the technology developed in the realm of cryptocurrencies has opened the door to many further possibilities applicable in other areas, particularly that of “smart contracts”, which will be briefly touched upon in our conclusive remarks.[x]

On the other hand, much has been said to rebut most of the above arguments favoring the expansion of cryptocurrencies, but without the desire to debunk the system entirely, some jurisdictions are currently attempting to find regulators solutions. Some of these criticisms have been iterated earlier, for example with respect to anonymity and its potential to provide a cloak of invisibility to criminals in financing of their activities or hiding of assets.[xi] Along the same lines, the decentralized feature of the cryptocurrencies network has been attacked for being prone to fraud through their own verification process, and the need to account for possible pools of miners that could temper with the ledgers and affect the authenticity of the records is very real. The beginner’s guide to the Bitcoin White Paper itself provides, “The system is secure so long as honest participants collectively control more computing power than attackers/hackers.” [xii]The question becomes, what happens if hackers beat the system; indeed, if fraudsters were to control 51% or more of the Bitcoin network, this would enable them to meddle with transactions and defeat the promise that all transactions are safe and accurate, potentially opening the door to extraordinary manipulations on the network. Finally, the idea that cryptocurrencies could offer the most viable modern solution to inflation has been heavily refuted on the grounds that their constant price fluctuations and erratic character substantially hinder economic stability. Similarly, the absence of fees related to crypto-transactions has also been questioned, as nothing prevents and in fact has prevented miners to apply such similar fees comparable to what a credit institution would impose for a transfer as a token for adding a block to the chain.[xiii]

This short summary of some of the issues surrounding the cryptocurrency era provides us with a launchpad to assess some of the responses that have been put forward to find ways to exploit cryptocurrencies through government-backed schemes.

As explained earlier, the lack of consensus on what digital currencies truly constitute is the first challenge faced in providing a workable regulatory framework, especially in light of the discord between countries on the topic. This definitional hazard is all the more difficult to overcome when considering the transnational nature of cryptocurrencies and how it might easily hamper the global effort towards uniformity across jurisdictions. Indeed, in the mist of the first national regulations being enacted in some countries, much is being discussed on whether cryptocurrencies are to be considered a “currency” per se, or another type of proprietary asset.[xiv] The legal implications in the mere endeavor of defining key terms within regulations are considerable if one is seeking a minimum certainty in their application. Furthermore, proper definitions are of the essence for any legislation seeking to regulate the taxation of crypto-related revenues and transactions. At least in countries showing a desire to regulate cryptocurrencies in a forward-looking manner, rather than an intrusive one, there seems to be a move towards accepting cryptocurrencies as akin to a currency: they allow for exchanges, have store value and carry units of account.[xv] The Court of Justice of the European Union was faced with the question of whether VAT was chargeable on the purchase and sale of Bitcoins, and by dismissing the posture that it is, it offered an opinion consistent with the proposition that Bitcoin has in the least equivalent features pertaining to a currency.[xvi] Though certainly not uniform across all states yet, the U.S. has tended to take the same stance, stating firmly on one occasion that Bitcoin “clearly qualifies as “money” or “funds” as bitcoin could be easily purchased in exchange for ordinary currency, acts as a denominator of value, and is used to conduct financial transactions”.[xvii] Another example is that of Japan, the first country to legislate on Bitcoin and officially recognizing it as a payment method (i.e. not per se legal currency but an accepted alternative to currency) while considering digital currency an asset for fiscal purposes.[xviii] The difference in treatments in the Japanese approach underlines the intricacy in defining what cryptocurrencies really are, as they could both legitimately be viewed, depending on a particular scenario, as a currency with all its intrinsic features and as an asset generating a taxable return. Finding harmony in the basic definitions pertaining to cryptocurrencies is and will be the first and foremost step in order to expand regulatory frameworks, whether on a national or international scale.

One of the main purpose to dedicate resources into regulating cryptocurrencies is to give it the necessary legitimacy in order that it can flourish within the prevailing and institutionalized financial system. Exponentially, such regulations would enable to profit from the blockchain technology in much broader contexts, such as contracts and potentially add valuable tools to the process of dispute resolution. In relation to digital currencies, the spectrum of criminal activities that needs to be addressed is considerable, and this paper will only cover a few salient ones. The Japanese’s initiative discussed above illustrates perfectly the need to legislate in order to prevent fraud on cryptocurrencies platforms. In the wake of the Mt Gox scandal and theft of US$437 million worth of bitcoin on the Mt Gox exchange platform, the most staggering case of Bitcoin theft, Japan took it upon itself to enact legislation to provide, among other things, definitional grounds to regulate the industry and afford greater consumer protections. The Mt Gox hack also demonstrates the aperture between the contention held by Satoshi Nakamoto’s that the blockchain process provides the best safeguard against fraud, and the reality that digital signatures can in fact be manipulated within the network prior to the closing of a transaction by changing codes sent to the ledger. Nevertheless, Japan has foregrounded the interest in regulating cryptocurrencies and possibly initiated the revamping of the banking industry.[xix] The recent US$530 million hack on the Japanese exchange Coincheck shows however that much needs to be deployed to fight against criminal hacking and ensure strong consumer protections are in place.[xx] And indeed, even countries with initially very reluctant stances on allowing cryptocurrencies to penetrate their financial markets have progressively changed their views. Russia offers a good illustration of this, with an approach that within a year’s time, seems to have evolved drastically from a very restrictive position on cryptocurrencies, to a much more open-minded approach accounting for the need to legislate this fast-growing phenomenon.[xxi] Along the same progressive lines, Singapore’s Deputy Prime Minister Tharman Shanmugaratnam held early this year that “the country’s laws do not make distinction between transactions conducted using fiat currency, cryptocurrency or novel ways of transmitting value[xxii], also emphasizing the corroborating need to protect consumers in view of their vulnerability with respect to hackers.

On the other hand, countries such as South Korea, India, or China, have taken very different approaches, at times even taking substantial steps backwards with the result of smothering any developments of digital currencies on their financial markets. On January 23rd of this year, South Korea officially prevented the use of anonymous accounts from trading currency. Like India and China, much of these severe rules are established on account of the risks of illegal activities associated with cryptocurrencies. China for example, has established a nationwide ban on all Bitcoin miners and online access to all activities relating to digital currency trading in its effort to combat corruption. [xxiii]With such approaches however, the risk for these countries is to miss the boat onto which more progressive countries have embarked. This could have far-reaching consequences in the years to come, effectively delaying their ability to participate and benefit from a more adequately regulated cryptocurrency system. For example, a properly established framework for taxing revenues emanating from crypto-related transactions are at the forefront of many countries already involved in the task of regulating cryptocurrencies. Equally, failing to protect consumers and investors properly could have huge drawbacks on a country’s economy and attractiveness, especially in developing countries. As seen above, many sizable risks and pitfalls are attached to digital currencies and more generally the blockchain process which is evidently flawed. Whether these are affecting consumers, investors or governments themselves, the way to address these risks isn’t by closing the door to the conversation completely, but by allowing it to continue constructively in order to have the best possible apparatus in place to combat crypto-related criminality in whatever form it may take. The current state of affairs remains that digital currencies are traded on unchecked platforms across the world, removing basic protections and legal remedies fundamental in the event of a hack or collapse. Furthermore, it is unlikely that outright bans would solve the problem in order to have cryptocurrencies disappear altogether.  For one, some countries are evidently preparing themselves to take on the challenge of institutionalizing and regulating digital currencies. Secondly, private individuals are likely to continue doing so privately, potentially generating even more unchecked activities, increasing the risk of criminal activities and creating more jurisdictional and regulatory grey areas.

The case of African countries exemplifies the potential benefits of cryptocurrencies in developing countries, especially in light of the limited access to banking services of these populations, while showing their potential to fuel criminality where no regulations are in place. Indeed, in countries that have allowed the conversion of Bitcoins into local currencies, the effect has been said to create “a universal bitcoin payment and trading platform that seeks to give pan-African continent unfettered access to the benefits of the global economy”.[xxiv] For example, BitPesa in Kenya, allows fast and secure ways of sending payments from Kenya to countries who trade in this particular digital currency. For Nigeria, Bitcoin offers interesting possibilities in a country where the national currency’s value is particularly low. However, the ramifications of the use of digital currencies in countries particularly prone to illicit activities and where populations are particularly vulnerable to Ponzi schemes are serious. Taking Nigeria by way of example again, a country with a heavy history in money-laundering activities and corruption to the highest governmental ranks, raises considerable concerns as to the role that cryptocurrencies could potentially have in fostering such activities given the underregulated environment in which digital currencies are prospering.[xxv]

But developing countries with generally less advanced legal systems are not the only victims of illicit activities related to cryptocurrencies. We have seen it with Japan, and just very recently in the U.S., wherein the Texas State Securities Board Investigation uncovered thirty-two illegal schemes carried out by unlicensed fraudster companies, yet another reminder that every country is concerned by crypto-criminality and must act and regulate to contain counterfeited securities offerings and exchanges.[xxvi] In this context, it has been suggested that financial institutions and governments themselves start using blockchain platforms that would “give regulators, auditors and other stakeholders an effective and powerful set of tools to monitor complex transactions and immutably record the audit trail of suspicious transactions across the system.”[xxvii] As technology will continue to foster a criminal-friendly environment, it is primordial that law enforcement itself stay on the cutting edge of technology. Legitimately however, one could certainly read a deeper libertarian rationale at the origin of cryptocurrencies begotten by a loss of trust in governments and institutions alike. It is therefore perfectly reasonable for the many who have lost this trust to be wary of such technologies being used by governmental bodies, granting them even stronger tools to invade their privacy. On the other hand, the challenges posed by the anonymity afforded by blockchain platforms is a concurrent concern for law enforcement agencies, and the innovations fueling criminal endeavors is appearing to have the lead over them at the present time.

The importance of staying attuned to these technological developments isn’t confined to cryptocurrencies. Indeed, the advent of decentralized ledgers such as used for digital currencies offer promising avenues in the context of what is developing under the name of “smart contracts”. Again, given how inchoate these smart contracts are, no consensus on how to define them has yet been reached. The ECB has suggested the following definition: “contractual-type arrangements embedded in software, which the latter can validate, execute and record automatically, on a DLT platform, as soon as certain pre-programmed conditions, agreed upon by human agents, have been met, fed into the DLT itself or received from a pre-defined (mostly external) source.”[xxviii] For ease of understanding, DLT refers to computer technology responsible for storing, sharing and recording data, with the aim to authenticate any transaction on a ledger. Blockchain is therefore encompassed in the term “DLT”. By storing the terms of an agreement in a software, parties to that agreement can potentially reach absolute certainty as to the performance of their own, and their counterpart’s contractual obligations or lack thereof. Though much more could be said about these new age contracts and their related legal intricacies, the purpose of their reference in the present case is merely to demonstrate the far-reaching impact of cryptocurrencies and blockchain technology extending far beyond the financial industry. Hence, the need for regulators to take resolute steps towards enacting laws able to follow the genius of ongoing and fast technological breakthroughs and combat the myriad of crimes they unfortunately enable.

Jennifer Brun


[i] European Central Bank Legal Working Paper Series, Impact of digital innovation on the processing of electronic payments and contracting: an overview of legal risks, No 16 October 2017

[ii] Journal of International Banking Law and Regulation, Bitcoin – is it just a fad? History, current status and future of the cyber-currency revolution, Tracey A. Anderson, JD, LLM, CPA, 2014

European Central Bank Legal Working Paper Series, Impact of digital innovation on the processing of electronic payments and contracting: an overview of legal risks, No 16 October 2017

[iii] European Central Bank Legal Working Paper Series, Impact of digital innovation on the processing of electronic payments and contracting: an overview of legal risks, No 16 October 2017, p.12, footnote 31

[iv]  Journal of International Banking Law and Regulation, Disintermediating electronic payments: digital cash and virtual currencies, Benjamin Geva, 2016

[v] Bitcoin Whitepaper: A Beginner’s Guide, September 15, 2017,

[vi] Computer and Telecommunications Law Review, Regulation of virtual currencies in select jurisdictions: giving Nigeria a sense of direction, Marcus Ayodeji Araromi, 2018

Journal of International Banking Law and Regulation, Disintermediating electronic payments: digital cash and virtual currencies, Benjamin Geva, 2016

[vii] P2P Foundation,

[viii] Journal of International Banking Law and Regulation, Bitcoin – is it just a fad? History, current status and future of the cyber-currency revolution, Tracey A. Anderson, JD, LLM, CPA, 2014

[ix] Bitcoin Whitepaper: A Beginner’s Guide, September 15, 2017,

[x] European Central Bank Legal Working Paper Series, Impact of digital innovation on the processing of electronic payments and contracting: an overview of legal risks, No 16 October 2017

[xi] Forbes, Using Bitcoin Or Other Cryptocurrency To Commit Crimes? Law Enforcement Is Onto You, December 28th, 2017,

[xii] Bitcoin Whitepaper: A Beginner’s Guide, September 15, 2017,

[xiii] Journal of International Banking Law and Regulation, Disintermediating electronic payments: digital cash and virtual currencies, Benjamin Geva, 2016

[xiv] European Central Bank Legal Working Paper Series, Impact of digital innovation on the processing of electronic payments and contracting: an overview of legal risks, No 16 October 2017

Journal of International Banking Law and Regulation, Disintermediating electronic payments: digital cash and virtual currencies, Benjamin Geva, 2016

[xv] Journal of International Banking Law and Regulation, Bitcoin – is it just a fad? History, current status and future of the cyber-currency revolution, Tracey A. Anderson, JD, LLM, CPA, 2014

[xvi] Case C-264/14, Skatteverket v David Hedqvist

[xvii] United States v Faiella 39 F.Supp.3d 544




[xxi] BitcoinMagazine, Cryptocurrency Regulation in 2018: Where the World Stands Right Now, Andrew Nelson,

[xxii] supra

[xxiii] supra

[xxiv] Computer and Telecommunications Law Review, Regulation of virtual currencies in select jurisdictions: giving Nigeria a sense of direction, Marcus Ayodeji Araromi, 2018

[xxv] supra



[xxviii] European Central Bank Legal Working Paper Series, Impact of digital innovation on the processing of electronic payments and contracting: an overview of legal risks, No 16 October 2017

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