Law & Crypto – The History

With such an accessible and modern way to make money from the comfort of anywhere, you may sit back and wonder ‘Is this even legal?’. For the sake of some readers attention span, I am happy to inform you that yes, it is a perfectly legal way to make money (or lose it) any way you see fit. For the sake of my more curious readers, I can imagine you might be thinking ‘How?’ and or ‘Why?’. If those questions happen to be ringing in your ears at this current moment, let us get right to it then, shall we?

When I first began researching, my first inquiry was to attempt to find the link between Law and Cryptocurrencies. Mostly since they share many intricate and confusing aspects.

With Crytocurrencies you have many moving parts such as Blockchains, MetaData, Embedded Coding, Crypto-wallets, constant developments, improvements, Centralization, Decentralization, etc.

With Law you may see just as many dynamic aspects. Torts, Suits, Class Actions, Penal Codes, Civil Codes and a multitude of court types, with just as many variations of law to compliment them, and sometimes yearly updates to Codes and laws.

Now with cryptocurrencies being a ‘modern phenomenon’, when did the legal book for these currencies start being written?

One of the earliest posts I could most readily access was an article from the ‘NewYorker’ which dates back to 2011. Within this article it describes some of the first exciting thoughts and concerns that arises with the introduction of the, now Goliath coin, Bitcoin (BTC).

It’s not clear if bitcoin is legal, but there is no company in control and no one to arrest...” – Joshua David, The Newyorker 10.02.2011

If you do not know the history of the initial introduction of Bitcoin (BTC) to the world, to sum it up, it was a rocky first couple of years.

On January 3rd, 2009, Satoshi Nakamoto silently launched Bitcoin (BTC) which was initially, comically described as “All bit and no coin” to which it would remain in such a state for several years to follow. But unbeknownst to Satoshi Nakamoto, he had coded and given birth to a new, unregulated way for people around the world (With access to internet) to invest and see significant profits within their lifetime.

Within just two years (2009-2011) Bitcoin (BTC) had gone from being worth less than a penny to just around $29USD (June, 2011). Astronomical gains for something that was untested, non tangible, non physical, and completely digital. But it only took three months to throw this brand new currency into turmoil. By September of that same year, Bitcoin (BTC) had fallen to just under $5USD. But this new coin still had around seven million coin in circulation. Even with this massive dip in price, Satoshi Nakamoto had still net thirty-five million USD in profit for his creation.

Not too long after the initial turbulence of Bitcoins dips and upswings, Satoshi Nakamoto vanished. The creator of a new era exited the global spotlight with a vague message to one of his developers saying that he wished to ‘move onto other things’. With all connections to Satoshi Nakamoto being through an untraceable email, he was free to vanish as mysteriously as he arrived. Which he did.

With the creator of a multi-million dollar code exiting the scene, many investors and journalists speculated that Bitcoin (BTC) was nothing more than a Ponzi scheme and were to soon witness the death of cryptocurrencies as a whole.

Not too long after his departure from the development of Bitcoin (BTC), Satoshi Nakamoto released a 500 word explanation for his creation. His deployment of Bitcoin (BTC) was a response to the global recession that resulted from banks around the globe collapsing due to centuries of poor business practices.

“The root problem with conventional currency is all the trust that’s required to make it work,” he wrote. “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.” – TheNewyorker

In short, he just didn’t like banks. So he made a currency dictated by the people of the world. Free of influence from governments an banks alike.

Photo by Alesia Kozik on

Fast forward to 2017, Bitcoin (BTC) is becoming such a significant source of income, and such a significant currency, major governments can’t help but take notice.

The United States at this point had already began taking a heavy interest in the suspicious new currency to which the US Securities and Exchange Commission (SEC) blazed the legal trail into the world of cryptocurrencies.

They started with the simple questions which are listed in a 2017 post on the SEC’s main website by Chairman Jay Clayton. Those questions are as follows:

Is the product legal?

Is it subject to regulation, including rules designed to protect investors? 

Does the product comply with those rules?

Is the offering legal? 

Are those offering the product licensed to do so?

Are the trading markets fair? 

Can prices on those markets be manipulated? 

Can I sell when I want to?

Are there substantial risks of theft or loss, including from hacking?

At the time, the SEC had no clear answer to any of these questions. But this was the start of significant government interest which only brought more public interest along with it.

But with far more questions than answers, the chairman offered this statement in his conculsion; “I encourage Main Street investors to be open to these opportunities, but to ask good questions, demand clear answers and apply good common sense when doing so…” Which, quite frankly, is still sound advice to this day.

Photo by Tima Miroshnichenko on

While the members of the SEC were scratching their heads in the late 2010s, in that same decade the Congressional Research Service (CRS) was hard at work answering those questions in the form of a 36 page document which is accessible online at this very moment (and will be linked below in the citations).

Within this brief document, the RCS meticulously goes through the many aspects of cryptocurrencies (specifically BTC) and answers questions you very well might have at this current moment. I will attempt to coherently summarize the documents contents:

Cryptocurrencies are a direct descendant of cryptography as a whole. “Each Bitcoin and each user is encrypted with a unique identity, and each transaction is recorded on a decentralized public ledger (also called a distributed ledger or a blockchain) that is visible to all computers on the network but does not reveal any personal information about the involved parties.” (The RCS).

This security facilitated the rise of the practice where individuals could safely submit their income into to a secure location to ultimately receive profits because enough people came to the same conclusion about a specific coin.

Unlike banks with online profiles, which can be hacked for your information and sold around the globe to anyone, your can remain anonymous and secure in your investments. *But you are anonymous to only a certain degree. There are ways to pinpoint where an investor with strenuous locating techniques.*

Legal considerations are described within this CRS document. In addition, the document also describes Legislative actions taken towards Bitcoin (BTC) at the current time. For example:

“The Senate Homeland Security and Governmental Affairs Committee has begun to look into how federal agencies are confronting the rise of virtual currencies. On August 12, 2013, the committee’s chairman and ranking Member sent letters to several federal agencies, including the Departments of Justice (DOJ), the Treasury, and Homeland Security; the Securities and Exchange Commission (SEC); the Commodity Futures Trading Commission (CFTC); and the Federal Reserve, seeking information on their virtual currency policies, initiatives, activities, guidelines, or plans regarding virtual or digital currency. The committee envisions a government-wide approach to the threats and promises of digital currency… Subsequently, on August 11, 2014, the CFPB issued a consumer advisory identifying characteristics of Bitcoin and describing pitfalls and issues of virtual currency, in general, and Bitcoin, in particular.” – The CRS.

This led to initial Federal Regulatory Activity:

“In a June 26, 2015, speech at a conference on digital currencies, a Department of Justice official provided a brief sketch of some federal Bitcoin prosecutions and called upon the financial services industry to be alert to possible abuses involving digital currencies… In another enforcement action, the Department of Homeland Security charged Mt. Gox, which is the Japanese-based largest Bitcoin exchange in the United States, with operating an unlicensed money services business in violation of 18 U.S.C. Section 1960 and seized its bank account… The federal banking regulators have yet to issue guidance or regulations governing how banks are to deal with Bitcoin, outside of the anti-money laundering framework…” – The CRS.

To translate, as of 2015, as long as you were not using cryptocurrencies to launder, purchase illegal items such as drugs, and hoarding massive amount of crypto under the jurisdiction of a unlicensed money-service based company, you were most likely in the clear.

The document goes on to highlight State Legislation that was put in place by three states at the current time. Specifically California, Connecticut and New York State.

  • California enacted state wide purchases for good and services with the use of cryptocurrencies on June 29, 2014.
  • Connecticut on June 19, 2015 amended the Connecticut Money Transmission Act to require licenses for all virtual currency businesses operating in the state. The legislation defines “virtual currency business” to mean “any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology.” In addition, under the legislation, virtual currency businesses must maintain a surety bond sufficient to account for the
    potential volatility of the digital currency.
  • New York State on June 3, 2015, became the first state to establish a framework for regulating digital currency businesses when the New York State Department of Financial Services (NYSDFS) issued regulations providing for prudential supervision of virtual currency businesses
    operating in New York State. The final regulations require that businesses involved in transmitting, storing, buying, selling, exchanging, issuing, or administering a virtual currency must be licensed by the NYSDFS. The regulations prescribe standards for virtual currency businesses and establish procedures for the NYSDFS to use in approving, suspending, or revoking virtual currency licenses. Before
    granting a license, the NYSDFS must investigate the financial condition, character, and general fitness of any applicant. A license may be granted only when it has been determined that the business will be conducted “honestly, fairly, equitably, carefully, and efficiently … and in a
    manner commanding the confidence and trust of the community.”

(All paragraphs specific per state are excerpts from the CRS document listed in the citation.)

New York has by far the most substantial and most descriptive set of regulations regarding cryptocurrencies used in general business practices. If you live in New York and own a business that accepts crypto on payment, please make sure your doing it within your states regulatory guidelines.

To conclude, crypto has had an interesting and extensive history as it has seeped its way into everyday use and life resulting in countries taking steps to ensure that everyday people and investors are save within their attempts to utilize this dynamic new currency.

If you’ve made it tot his point, thank you! I hope you enjoyed reading. This is the first of many long, arguably ‘deep’ dives into the world of law and crypto. If you enjoyed, let me know! If you did not, please follow suit and inform me. Either way, thank you for reading and I hope to see you in the comments. Have a great day and invest smart!

CITATIONS: – The NewYorker. – The SEC. – The CRS.