We have narrowed our focus on blockchain’s legal issues to cryptocurrencies. Tokenizing is a recent capital innovation and its legal landscape is hazy and nuanced at this time. This week, we will hone our focus further to shed light on this new technology, its economic and social benefits, and its legal implications so that its use may be optimized. There is no legal constant for virtual currencies. Instead, legal characterizations vary with the currency’s implementation.
In general, virtual currencies can be acquired and used in numerous ways. Simple purchases with real money, to gambling, to sweepstakes, allow users to exchange it for other real-world products and services. Furthermore, there are “dual currency” models which limit the conditions regarding how the currencies may be spent and earned.
As we discussed in the previous post, jurisdiction often becomes a key issue. Sometimes, simply offering a virtual currency to someone within a given jurisdiction is enough to trigger the application of that jurisdiction’s laws. There are a number of areas of law that can be triggered jurisdictionally.
One area that is applicable to virtual currency is the unclaimed property law. For example, when a virtual currency has been purchased, but not earned by the owner, the only cognizable legal resort is to exercise your rights under the applicable unclaimed property laws. Many states have legislation requiring that any property abandoned or left unused by the owner must be turned over to either the owner’s or holder’s estate. This is particularly important for established companies, which must file reports of such property annually, and funnel it where necessary to grant notice to owners. Often, compounded penalties can be greater than the amount in question. So, if you have a virtual currency (or any property), make sure to use it and not to forget about it.
If someone finds him or herself with ownership of a virtual currency by way of a gift, then gift card and gift certificate statutes will apply. These laws can still apply in the absence of a proper “gift card.” Depending on the state, expiration dates and service fees may or may not be permitted. Federally, expiration dates on “gift cards” must be no shorter than five years and most types of fees are prohibited until thirteen months after the gift is made. This federal law only preempts less strict state laws and those who fail to comply with the standards are vulnerable to class action lawsuits. Currently, this is the status of gift card laws but it is rapidly evolving in the direction of more consumer protection.
Virtual currencies, like regular currencies, are subject to community moral standards as well. Gambling laws and virtual currencies have inadvertently confronted one another, and legislation has expanded their regulatory ambit. The same is true for currencies involved in sweepstakes and contests. These laws are not only for the morally dubious corners of society. Many companies use forms of gambling and specifically with virtual currencies to engage customers and sell more products. So naturally, they can run afoul of gambling statutes on state and federal levels.
At our law firm, our internet lawyers stay abreast of advanced technology, internet innovations, and their ever-increasingly role in our economy and society. Our clients come from all over the country and world for our expertise in these areas. We would be delighted to serve you in related matters that may be posing an obstacle.