Digital currencies create electronic transactions, and those transactions are stored in units that act similarly to dollars. There are many types of virtual currencies available for speculation, as well as purchasing goods and services. Bitcoin was the first prominent digital currency to arrive on the scene. All of these currencies have inherent features and drawbacks that their users ought to know. From our offices in Orange County, dedicated Bitcoin attorney Roger E. Naghash serves clients across California and the rest of the United States. Contact us to discuss a question or concern regarding this virtual currency.Common Uses of Bitcoin
The Bitcoin system of payment is an open-source computer project. The open-source nature means that the software behind the currency is readily examined by anyone with the skills to understand it. Some experts have evaluated the software and surmised that it appears to be based on sound principles. Even with general assurances, though, it has experienced a few malfunctions during its history.
When it comes to exchanging digital currencies for goods and services, Bitcoin seems to be the leader in purchase transactions. Thanks to an enthusiastic user base, the currency can be spent in a large number of online purchases, as well as purchases at some restaurants and other establishments. Bitcoin is a pioneer of the distributed ledger system used in digital currencies, but the implementation of a ledger system is mainly limited to trading in these new types of currency alone. In contrast, some competing systems like Ripple are built to trade not only digital currencies but also traditional currencies like dollars, euros, and yen.Issues to Consider When Using Digital Currency
While Bitcoin appears to be the most widely accepted virtual currency, it can be vulnerable to a number of computer problems. For example, this currency depends on its user base to keep going, and some prominent players have had their own technical shortcomings. For example, the massive site “Mt. Gox” lost records of a very large sum of Bitcoin that have never been recovered.
People who fail to back up their records can also lose money. Even though Bitcoin’s underlying software appears to be sound, there have already been malware-tainted distributions of some related software. Any major compromise of a computer storing and transacting in this virtual currency can be potentially troublesome.
Adding to all of this is Bitcoin’s transaction time. Transactions are started somewhat instantaneously, but they can take several minutes or even hours to become finalized. This causes a number of problems. There is no built-in feature to reverse a transaction, and transactions can be somewhat anonymous. These factors combine in a way that can attract people who commit fraud.
Bitcoin’s transactions may also be somewhat slow as a practical matter. This problem presents itself at the cash register. When you buy or sell with this currency, it can take minutes or hours for a final verification of your transaction. This can make buyers and sellers feel uneasy about a transaction until it is finally completed. Some competing digital currencies, such as Litecoin, are intended to facilitate much faster transaction finalization.
Virtual currencies are vulnerable to market fluctuation and market manipulation because they are not “backed” by any government. They are also subject to speculative investment. This leads to intrinsic problems of price instability. Furthermore, it is believed that some digital currencies are manipulated by spreading rumors of problems to deflate the price, or hyping good publicity to increase the price.Laws and Regulations Covering Bitcoin
Governments have been moving towards regulating Bitcoin. Since it offers an alternative to printed currency and banking systems, countries have grown concerned about taxation and other issues. The United States has begun regulating certain digital currency trades in an effort to curb the funding of terrorism and organized crime. Also, the IRS has classified certain digital currencies as assets, which makes them subject to taxation similar to a normal capital gains tax. New regulations can make compliance difficult, and the advice of an attorney is often needed to avoid potential violations of the law.Seek Guidance from a Virtual Currency Attorney in California
The frontier of digital currency is still unfolding, but the exciting opportunities presented are not without their risks. From regulatory changes to transaction problems to criminal issues, Bitcoin brings with it a variety of legal concerns. California virtual currency lawyer Roger E. Naghash has broad experience in fields relating to Bitcoin transactions, as well as an understanding of how digital currency works. If you are trying to comply with regulations, or looking for advice on a legal issue, you need someone with the knowledge to assist you. Contact our offices in Southern California today by calling 949-955-1000 or using our contact form online.