Information Technology and Ethics/Cryptocurrency Legal & Ethical Perspectives

Legal Issues

Ever since Bitcoin became successful, the legalization of cryptocurrency has been a hot issue. There are several cryptocurrencies other than Bitcoin (BTC), such as Ethereum (ETH), Litecoin (TCC), Dash, Ripple, etc., which is why it is hard to keep track of which country is allowing which cryptocurrency.

Legal Standpoints

Although not every country is allowing cryptocurrency, there are a lot of countries that are allowing some cryptocurrencies. For example, Bitcoin is legal in the United States, Canada, Japan, Germany, etc. Some countries that do not allow any type of cryptocurrencies are Algeria, Bolivia, Vietnam, and Saudi Arabia.‌ There are some “undecided” countries as well such as Argentina, Columbia, Peru, Nigeria, and the United Arab Emirates. These countries do not ban Bitcoin or cryptocurrencies, but they do not have any clear laws or regulations.

Usage

A lot of Nigerians (32%) have used or owned cryptocurrency. The reason for this was mainly due to the high cost of transferring money to different countries. Recently, companies have released crypto plugins for phones so that people can use cryptocurrency to complete transactions with/on their phones.

People in Vietnam and the Philippines also have a lot of experience with cryptocurrency. In the Philippines, even the government encouraged it by setting up a blockchain app, bonds.ph, with Unionbank for government bonds allocation. Furthermore, the Unionbank installed a Bitcoin ATM in Makati (Metro Manila) which shows that Bitcoin is used widely.

Regions and countries that use cryptocurrency widely are Africa, Southeast Asia, Latin America, the United States, and Japan. In fact, the Japanese national currency held over 60% of the total bitcoin in circulation in 2020. The United States followed Japan with a market share greater than 25% in 2020.

Regulation Problems

However, cryptocurrencies have a big problem; they are not regulated. This is also one of the reasons why countries are hesitant to allow them. Countries have to make their own laws and regulations when making Bitcoin and other cryptocurrencies legal. For example, in the United States, cryptocurrency transactions fall under the scope of the Bank Secrecy Act (BSA). This implies that cryptocurrency exchange service providers must have the appropriate license approved by Financial Crimes Enforcement Network (FinCEN), implement an Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and Sanctions program, maintain appropriate records, and submit reports to authorities. The US Securities and Exchange Commission (SEC) views cryptocurrencies as securities which is why they apply securities laws to digital wallets. Furthermore, FinCEN expects crypto exchanges to comply with record-keeping requirements and the “Travel Rule” in response to Financial Action Task Force (FATF)’s guidelines published in June 2019.

There are some countries that have developed their own cryptocurrency. For example, Venezuela launched Petro in February 2018. According to their December 2017 announcement, it was supposed to be backed up by the country's oil and mineral reserves and was intended to supplement Venezuela’s bolívar fuerte currency. As of August 2018, Petro appears to not be a currency, although Venezuela’s government said that their new currency, soberano, has connections with it.

Russia has also developed its own crypto, CryptoRubble, in October 2017. This cryptocurrency was issued by Russia’s Central Bank. The unique aspect of this cryptocurrency is that it is managed by the Russian government. One of the reasons they are doing this is to circumvent financial sanctions that have been placed on them.

Ethical Issues

The ethical consequences of blockchain technology can be diverse and wide-ranging, and have a huge impact on one’s social life. Blockchain can be an invaluable tool of democracy on the other hand it can also be used by governments or other private entities to exert and consolidate power over people and information. Cryptocurrency as crypto-economic plays a critical role in increasing financial inclusion and creating innovative microeconomies, and these structures can also create exploitative systems or undermine existing payment and financial systems. In recent years the effective anonymity of cryptocurrencies has also been used for criminal activity at large. Whereas blockchain has the ability to restore personal control over data, it could also have the effect of consolidating and codifying the control of certain entities over information and personal data due to the immutability nature of this technology.

The following examples represent some of the many potential consequences of the trade-offs made in blockchain design. These examples are meant to be representative, not comprehensive; they illustrate the breadth of the challenges and potential consequences that arise from the practical applications of blockchain design and implementation. At one end of the impact spectrum, blockchain technologies could create or exacerbate severe power inequities in communities, or they could consolidate power over individuals and information by entities that design and implement the technology to their own advantage. At the other end of the impact spectrum, particular technical design issues such as private key systems and encryption algorithms are presented to show that even these seemingly innocuous design details can significantly affect people.

Some of the ethical issues with Blockchain are:

Digital Identity

One of the most important things that blockchain can do is create digital identity. The attributes of blockchain like immutability and verifiability enable the establishment of permanent and portable digital identities. Is it ethically fair to allow people a digital identity without having an official recognized identity?

Anonymity

Crypto economics systems can increase financial inclusion and create innovative micro economies, these structures could also create exploitative systems with bypassing existing payment and monetary systems. The effective anonymity of cryptocurrencies has also been used for criminal activity. Is anonymity required for any financial transaction, if so under what circumstances? Does it imply bribery? And illegal activity?

Dependency on Passwords

In blockchain security and control over a digital asset are established with encryption algorithms, the public key is known as the address and the private key is either a key or in some cases its a password for the encryption algorithm. What if the key is lost or the password is forgotten, countless have lost money in bitcoin after losing passwords and thus access to their funds. Is this justifiable to accept the technology knowing this is a concerning factor.

Blockchain as a tool for democracy

This technology can be very useful when Governments use it as an instrument of Democracy because of the transparency attribute. But as the same time groups and governments can use this as a tool to bypass the existing laws and regulation to pass secret agreements.

Immutability

Immutability attribute for this technology makes its almost impossible to delete the data once its entered in the system. Usage of this technology for government applications can cause concerns with existing laws. For example under witness protection act, ones identity should be protected and in many cases a new identify is provided to the witness. Imagine if this information have ever entered into a system which is part of blockchain, it violates the existing law in protecting witness protection.