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Practical And Legal Aspects Of The Crypto Currency

The Bitcoin phenomenon is becoming more popular and it is going headlong into economic relations. Even the biggest critics are forced to admit the increasing influence of this new currency in the traditional economy.

In technical terms, the Bitcoin currency has the following essential characteristics:
- It is a subject to mathematical and not political laws that ensures the accuracy and reliability of the financial transactions;
- the Bitcoin exchange value does not follow the influences as the traditional currencies, but it depends on the current state of the market;
- the Bitcoin system is not a subject of public and private institutions control and influence;
- the Bitcoin payments exceed a lot the established functions of the well known credit card, paypal, cash payments, etc.

Currently, more countries recognize this currency which is imposed by the needs of modern economic exchange. But at this moment there are radically different views from whether Bitcoin is electronic money, a currency or a type of possession and leads to a legal regulation of the operations with this cryptocurrency. Some difficulties in this regard come from the fact that it is questionable whether Bitcoin respects the definition of electronic money within the meaning of the Directive 2009/110 EU.
An example of these fluctuations is the decision of the French court from December 2011, which determines a company operating in Bitcoin exchange as falling under the definition of payment service provider (PSP) proposed for the purposes of the European Payment Services Directive 2007/64.

Still many countries are skeptical and delay the regulation of Bitcoin. This is mainly due to the following problems related to the basic characteristics of this currency: the increased opportunity to launder money, for purchase of illegally acquired goods in the so-called deep web, possibilities for financing the terrorism and the the lack of control over the Bitcoin system.
Nevertheless, countries such as England and the United States are starting to introduce a simplified regime for operating with Bitcoin. In contrast, Russia and China categorically banned the Bitcoin payments.
Bulgaria's legislative position regarding this phenomenon is still unclear. But in the practice there is some development in this direction because of the opening of the first Bitcoin terminal in the summer of 2014 and the introduction of Bitcoin payments from some companies.

The fact which delays the introduction of this cryptocurrency is that Bitcoin is an example of decentralized system (peer-to-peer system) that makes it uncontrollable by the governments. As often happens, however, the life is ahead of the legal regulation of a new phenomenon - Bitcoin payments are already accepted by some big names in the business such as Apple, Dell, Wikipedia, and in Bulgaria - from the website for collective shopping Grabo.
Nowadays it is becoming more widespread in the practice of gaming and gambling websites to use the Bitcoin currency which, undoubtedly, needs a specific control and special laws should be extended to this phenomenon. Moreover, in this area "money laundering" is easily possible because of the fact that players can leave a deposit or withdraw funds from accounts that are not under their real name.

In summary: the cryptocurrency ensures the anonymity and makes possible the illegal activities. At the same time the declaration of Bitcoin as illegal by the legislation is a mistake and, actually, will not stop the illegal operations. However, this prohibition will deprive the private sector of the imporrant benefits offered by this cryptocurrency. Without a government approval the legitimate businesses and the consumers will not be able to use the privilege of the speed, the low costs, the flexibility and the privacy offered by Bitcoin. All these considerations not only should not be ignored by the legislators but immediately require a regulation in order to control and limit the illegal operations and also to fix the economic exchange in the business.

The experts in the field focus on the following main issues that need a legal regulation:
- ban the use of "tumblers" - tools that allow their users to hide the source of their Bitcoin;
- setting a security standard for those who want to store or exchange Bitcoin;
- outlaw operations of organizations which transfer in the network, invest or use their customers money without their consent and without a previous announcement;
- setting a minimum Bitcoin reserves and publishing of accounting Bitcoin balances as a guarantee of solvency;
- introduce warranties and liability for client funds which the companies handle.

LEGAL ASPECTS

Bitcoin as an electronic signature
Bitcoin owners order the transactions using so-called "private key" in their possession. This key actually is an unique electronic signature certifying the statement of the account holder for each Bitcoin transaction.

For example, an order for bitcoin transaction as "Send 1 bitcoin from ADDRESS_1 to ADDRESS_2" is signed with the private key. This message enters in the Bitcoin network and thousands of independent computers check whether it is really signed with the private key of address_1 and whether the address_1 holder has an available funds to cover the payment. When this transaction is completed with approval of all participants in the network, it is considered unchangeable.

Signature with a public key
Anyone can create a pair of keys: public and private. The public key is visible to others and serves as proof by hash recognition for the authenticity of the texts signed with the private key. In a word, without disclosing the text content which is visible only through the use of the private key, the public key is able to demonstrate to third parties undoubtedly the authenticity of this text.

Proof of Existence
The online service Proof of Existence is an example of how the Bitcoin phenomenon is entering in the legal field and also of the entrance of the law in the digital economy.
More precisely, it comes to the impact of Bitcoin in the field of intellectual property because the digital property often is protected by the copyright.

The Argentinian creator and developer of this service Manuel Ar?oz explains that the Proof of Existance offers a decentralized method of verification through consensus which can be defined as a sort of "cryptographic notary service." The Proof of Existence can be used to demonstrate the ownership of the document without disclosing the information it contains and also that the document existed before a certain moment.

How it works?
The document can be uploaded and registered anonymously and after the required in the network fee payment is created a hash of the document (or any digital file) as part of the transaction. As it was explained in our previous post about the hash function, here even a small change in the original document will lead to a change in the combination of symbols that will automatically generate the creation of a new document. Moreover, the real file is not stored online so there is no risk of undesired use and publication. The block chain only stores data of the uploaded documents and their authenticity and in case of a controversy about copyright this authenticity can be undoubtedly demonstrated.
As the developers of Proof of Existence explain: "We only store cryptographic file extract which is marked with the date on which you've submitted. Thus later can verify that the file existed at the time. "



The ultimate purpose of the Proof Of Existence creator is that the block chain can be used as an evidence in litigation.

This kind of authentication of documents will face a lot of problems and fluctuations by governments around the world because it will lead to a radical change in traditional ways to proof in and outside the procedure with important implications for the legal and the financial field.
There is a reason to think about Bitcoin as a new era in the digital and the legal world. If the public institutions around the world begin to accept the decentralized systems like Bitcoin and if there are more favorable judgments, the Proof of Existence will have wider application in the real world.


Sabina Popova

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