How Digital Currencies Are Changing the World – Bitcoin Lawyer
The use of cryptocurrencies, and in particular, the technology which was created to implement them, has grown substantially in recent years. There has been a growing trend of acceptance of cryptocurrencies as a useful, legitimate payment mechanism, and the underlying decentralized public ledger technology has been applied to a number of areas outside the virtual currency world. This has reinforced the public interest in the potential of cryptocurrency as a disruptive technology. There has also been significant growth in investment in businesses operating in the cryptocurrency sector and increasing interest from financial institutions as well.
Against this backdrop, financial regulators have been focusing on the benefits, challenges, and risks posed by the technology and how it fits within the preexisting legal and regulatory framework. Additionally, a number of regulatory initiatives have been announced in different countries, resulting in the emergence of a mixed bag of legislation and regulation. In light of these developments, Pierce Law Group has adapted an understanding of cryptocurrency, and the underlying technology, which makes the global cryptocurrency markets easier to navigate. Moreover, Pierce Law Group understands the newly introduced legal and regulatory frameworks which are aimed at governing virtual currencies.
What to know about Crypto?
Cryptocurrency is a form of virtual currency that uses cryptography to verify that the person attempting to spend the currency is the actual person entitled to do so. This is accomplished by providing a public cryptography key alongside a private cryptography key which is only known to the actual person who owns the virtual currency. Typically, virtual currencies use decentralized peer-to-peer networks to verify transactions and them record the transactions on a decentralized public ledger (commonly known as a “blockchain”).
Bitcoin, the world’s first decentralized cryptocurrency, works without a central repository or a single administrator. Introduced by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto, the peer-to-peer system was released as open-source software in 2009. Bitcoin can be exchanged for other currencies, products, services, and is also created as a reward for mining. Research conducted by Cambridge University in 2017, revealed that there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, with most users having bitcoin in their wallets.
The system of virtual currency is kept secure through the use of both the public and private cryptography keys. For the user to spend Bitcoins, the corresponding private cryptocurrency key is used to digitally sign the transaction. This key is then verified by the network using the public cryptography key. Having a backup of this key is highly recommended, as this is the only method to prove evidence of ownership, hence losing the key means the coins are rendered unusable and lost. There was a unique situation where a person claimed they accidentally discarded a hard drive containing a private key to 7,500 Bitcoins, which would have been worth over $7.5 Million at the time the key was lost.
Privacy in Cryptocurrency Transactions
Bitcoin, and most other virtual currencies, are pseudonymous, which means that the funds are not tied to specific real-world entities, but are simply tied to the bitcoin addresses. The owners of these bitcoin addresses are not identified explicitly, however all the transactions which occur on the blockchain are public. Meaning that some transactions may be linked to certain individuals or companies through idioms of use and corroborating the public transaction data with any known information of owners of particular addresses. Moreover, bitcoin exchanges, which trade traditional currencies for bitcoins and vice versa, may be required by the applicable law of the country to collect personal information.