By Julie Houth
Brief Timeline of Bitcoin
It has been a decade since Bitcoin, the first cryptocurrency, emerged into the public eye on Oct. 31, 2008. On that day, an unknown person using the alias, Satoshi Nakamoto, sent the first email in a series of messages that said, “I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” Cryptocurrencies, like Bitcoin, use the blockchain technology, which pioneered the vision of virtual assets using decentralized control. Bitcoin’s use was intended to be a type of currency that removed the support of third parties, like banks. Since Bitcoin’s 10th birthday, different types of cryptocurrencies have emerged, vanished or evolved. During this time, many well-known companies accepted Bitcoin as a form of currency to purchase services or goods including WordPress in 2012; The D Las Vegas Casino Hotel, NewEgg and Dell in 2014; and Steam in 2016. Even though some companies have accepted Bitcoin as a form of currency, it did not seem to be fully embraced by society. Furthermore, government entities had yet to accept Bitcoin or any other cryptocurrencies as payment, so it wasn’t taken seriously.
Bitcoin Accepted as Payment for Business Taxes with the state of Ohio
In late November 2018, the State of Ohio’s businesses were able to pay taxes with Bitcoin. Ohio is the first state to accept Bitcoin as payment for tax bills. According to The Wall Street Journal, Ohio’s State Treasurer, Josh Mandel, has an interest in Bitcoin and stated the he does “see [Bitcoin] as a legitimate form of currency.” The State of Ohio’s acceptance of Bitcoin does not necessarily make Bitcoin a legitimate form of currency, but it does provide some kind of government approval, which is something Bitcoin and other cryptocurrencies have lacked in the past. Other states like Arizona, Georgia and Illinois have considered Bitcoin as a form of payment for taxes, but have yet to move forward with this consideration. For now, Ohio is the only state to accept Bitcoins for tax payments of businesses. Those who file in Ohio will send their tax payments to BitPay, an Atlanta-based payment processor. BitPay will then convert the Bitcoins into U.S. dollars.
Securities Regulation Commission Moves to Regulate Cryptocurrencies and Initial Coin Offerings
Cryptocurrencies have come a long way since 10 years ago, but it is still a very new area of investment. Prospective investors and current investors worry about the unpredictable value, lack of regulations and consumer protections that surround the cryptocurrency market unlike investments in stocks that are regulated by the Securities Exchange Commission (SEC) and therefore provide consumer protections.
Unfortunately, the cryptocurrency market has not been doing well in terms of price. Bitcoin has taken a deep dive from its peak around mid-December 2017, which was around $19,783. It is currently valued at around $3,400 as of Jan. 31, 2019.
In addition, the room for potential fraud is vast, but some investors believe that the risks are outweighed by the possible financial rewards. The SEC has worked toward implementation of laws for the investment of cryptocurrencies including Initial Coin Offerings (ICOs). ICOs allow smaller businesses to reel in investors in contrast to Initial Public Offerings (IPOs), which typically involve larger companies and transitions the companies into a publicly traded and owned entity. ICOs essentially allow accredited investors to fund the creation of a blockchain that will compensate them in coins. These coins can then be used on the network or traded for other cryptocurrencies. A big difference between an IPO and an ICO is that an ICO does not provide equity in the company.ICOs were a lot riskier because several incidences of fraud emerged from ICOs and there were no protections offered by the SEC until a recent court ruling in New York.
In September 2018, Federal Judge Raymond Dearie ruled that a Brooklyn businessman would need to stand trial on fraud charges related to ICOs, and thus, ICOs are subject to U.S. securities fraud laws. Shortly after this ruling, on Nov. 29, 2018, the SEC announced that it settled charges against professional boxing champ Floyd Mayweather Jr. and music producer DJ Khaled for failing to disclose payments they received for promoting investments in ICOs. They became the first celebrities to face punishment over their roles in touting cryptocurrency. The SEC has set a stricter precedent in terms of the enforcement of U.S. securities fraud laws and ICOs.
Cryptocurrency’s Next Chapter
There is no denying the extreme up and down changes in Bitcoin and most cryptocurrencies in the market. If an individual is interested in investing in this industry, it might be wise to consult a professional in the cryptocurrency field before making the final jump to invest. The future of cryptocurrencies as a form of currency is unclear, but what is clear is that the blockchain technology that is used has already proved to be useful to many businesses including the legal field. This area is still very novel even at the 10-year mark, but many fans of Bitcoin and what it can provide are rooting for it to succeed.
Julie Houth is a staff attorney at Robbins Geller Rudman & Dowd LLP and co-editor of San Diego Lawyer.