Abstract:
Defining the legal nature of cryptocurrencies and in turn ascertaining what gives them value is important for many reasons. At its most fundamental level the answer to these matters will determine the regulatory framework within which trading in cryptocurrencies may or may not occur. At one extreme the government may simply prohibit trading in cryptocurrencies, even making such transactions illegal, as in China and Vietnam. At the other end of the spectrum trading may not only be legal, but be facilitated by government concessions. The most important of these concessions is recognising cryptocurrencies as “currency”. To this end it is crucial from the outset to understand that that the term “cryptocurrency” is in itself a misnomer. If it is to obtain the status of “currency”, whether that be foreign currency or equivalent to local currency, will be determined by the government of the relevant jurisdictions. As in the case of Vietnam, New Zealand and Australia’s CGT, it may be determined that transactions involving cryptocurrencies merely involve the sale of property, akin to the sale of shares, futures, or in some cases the parallel that is drawn is gold bullion or oil. Alternatively, as in the case of Japan and Australia’s GST, it may be treated as “currency” that has the same status as foreign currency or, in extreme cases, equivalent with currency issued by the local sovereign state. As to which way a government might turn is anyone’s guess: A toss of a (bit)coin!