Lanz Araullo | October 26th, 2021
Nowadays, non-physical payments are the norm for transactions. The simplicity of transferring money from your account paired with your email to your friend’s account paired with their email is an adaptation of smart technology on an almost societal-wide level. One such technology that is now prevalent is cryptocurrency, such as the commonly heard about, Bitcoin, Ethereum or Dogecoin. Regardless of how exciting or innovative it all seems, there is a need for caution. What are the implications of the existence of a legal framework for the regulation of cryptocurrency and other crypto assets, or the lack thereof?
To start off, we need to understand the technology that drives cryptocurrency before delving into the legal framework. Crypto-assets such as cryptocurrency were created due to the emergence of blockchain technology, a secure peer-to-peer transaction method that stores the data in an encrypted online ledger (1). Essentially, they are digital means of exchange that are decentralized and largely unregulated. The technology itself renders the trade of crypto safe, secure and fool-proof, but it still needs law specifically pertaining to it in order to alleviate some concerns and risks that come with a decentralized, unregulated form of assets.
Generally, people see Cryptocurrency as a different form of currency, though legally, this is not the case. Under the Currency Act, only currencies issued by the Royal Canadian mint and the notes that are issued by the Canadian’s central bank, the Bank of Canada, are recognized as official legal tender (2). Instead, Cryptocurrency and other crypto assets are legally recognized as securities, or commodities for purposes of the Income Tax Act alongside ETFs, company shares, and stock options (3). This means that it is currently regulated under the broad legal framework of securities laws but there is no specific framework that addresses the contemporary concerns of crypto assets.
Why is there a need for a legal framework specifically for cryptocurrency? The implications and the argument for a legal framework that is specifically made for cryptocurrency (as it is incredibly complicated and should be scrutinized as such) are clear- it provides more security in the crypto-digital market. This is already aligning with current security laws and regulations which try to balance protection for the investor and free-market efficiency (4 ), but with crypto’s decentralized nature, it begs the need for a more robust understanding of this relationship that goes beyond the current legal framework. Critics would say that it would be antithetical to create such a legal frame that might restrict and inhibit the decentralized and unregulated nature of cryptocurrency, yet it is crucial to provide certainty and clarity in law for people that are looking to participate in the crypto market but do not necessarily have the knowledge to ensure security without overarching legal principles designed specifically to address concerns regarding crypto assets. It would help engender more waves of constituents investing in cryptocurrency as it will provide not only clarity (due to the fact that it will be in written law) but also a level of certainty that would undoubtedly help this innovative idea flourish.
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