What Are the Legalities Behind Crypto Trading?

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There is a great deal of attention and concern surrounding the legalities and definition of the use of crypto currency. First, let’s define crypto currency. Crypto currency is a form of value that is purchased, traded and sold, sans being in a tangible monetary form. Hence, there are no bills or coins that physically represent crypto currency. In addition, crypto currency is not currently considered a financial product, such as a stock or bond. Therefore, it is not regulated by any particular government agency or corporate regulator, such as the Australian Securities and Investment Commission (ASIC). As such, crypto currency is somewhat of a financial enigma.

How is crypto currency treated?

In most countries and in Australia, crypto currency is treated as property. This concept is similar to owning a share of stock. The currency has a particular value per each piece you purchase. The value can go up and down, vacillating in value, in the same manner as stocks held on the stock exchange.

Is crypto currency taxable?

In short, yes. Crypto currency is taxable in a similar manner as any other form of income. It is considered to be held as an investment. Therefore it falls under the tax definition of Capital Gains and is taxable.

If I sell crypto currency am I considered a business?

If you are a company that provides digital currency exchange services, it is considered a business and is required to be registered with the Australian Transaction Reports and Analysis Centre, known as AUSTRAC. This requires the business to complete an application which can be accepted or rejected based upon the following concerns. If the AUSTRAC believes that there is a danger of illegal use of funds, such as to fund terrorist organizations or to launder money, the application can be denied. If, in the instance, that the AUSTRAC becomes suspicious of a current member, the member can be investigated and their registration revoked.

How are crypto currency exchanges secured?

The transfer, purchase and sale of crypto currency is protected by the use of an “online ledger with cryptography to secure online transactions.” This technology is also known as blockchain. The system is meant to decentralize the many transactions over numerous computers to ensure the protection of the transfer of thousands of shares of crypto currency per day.

Smart Contracts

A smart contract, in and of itself, is not legally binding. As with any other contract, there must be terms surrounding the sale and the transfer of the crypto currency. Therefore, there must be a binding agreement between the parties. For a binding agreement to exist, the same elements of any contract must be present. Those elements include an;

  • An offer
  •  Acceptance of the Offer
  •  Consideration exchanged from one party to the other party; evidencing that a sale has taken place
  • The intention of both parties to enter into a legally binding agreement; and
  • Certainty of the terms; meaning that the parties understand the terms contained in the contract and the items being sold/purchased are clearly defined leaving no room for misunderstanding or ambiguity of the transaction that the parties intend to engage in.

Engaging in the buying and selling of crypto currency is here to stay. The ability to use crypto currency for purchases of tangible items, is also a rapidly growing option. Yet, there is still a long way to go with the safe use and regulation of crypto currency. Over time, it is expected that countries around the world will begin to develop and solidify ways to increase the safe use, and overall stability, of crypto currency.

If you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.


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