Date of Award

2017

Degree Name

Master of Laws (Thesis)

Schools and Centres

Law

First Supervisor

Professor Joan Squelch

Second Supervisor

Brent Scafidas

Abstract

Virtual and digital crypto-currencies, specifically Bitcoin, were developed by an anonymous pseudonym ‘Satoshi Nakamoto’ in 2009 and have become a developing form of payment system used by businesses and consumers. Unlike traditional payment systems, Bitcoin is a peer-to-peer network with unique characteristics. Bitcoin is a private, anonymous and decentralised network that is intended to work independently from a government or banking authority. Bitcoin is therefore a network dependent upon mathematical algorithms between two users and managed through a process called ‘mining’, which is then stored within a user’s private ‘wallet’. This innovative technology offers numerous opportunities as a payment system; however, the legal challenges and risks it creates can be detrimental to consumers and businesses that use Bitcoin as an alternative payment system.

The legal challenges of Bitcoin cause uncertainty for governments, businesses and consumers on the treatment of Bitcoin as an acceptable means of payment in Australia. Therefore, the purpose of this thesis is to determine whether Bitcoin is a form of ‘money’ and as such ought to be accepted as legal tender by the Australian Government under specific legislative instruments. Furthermore, this thesis will examine how Bitcoin is used to facilitate money laundering activities. Moreover, this thesis considers the treatment of tax within Bitcoin transactions and how unregulated Bitcoin transactions can be used to avoid tax.

In addressing these legal issues and concerns, consideration is given to the possible regulation of virtual and digital currencies like Bitcoin in Australia. This thesis considers Australian banking, money laundering and taxation legislation and examines whether these regulatory frameworks are suitable to include Bitcoin as a payment system in order to limit money laundering and tax evasion activities within Bitcoin payment systems. Additionally, this thesis examines regulatory approaches to virtual and digital currencies in foreign jurisdictions, namely the United States, Canada and the European Union in order to gain some insight into how other countries are regulating Bitcoin as a payment system.

This thesis arrives at a number of conclusions relevant to the possible regulation of Bitcoin in Australia. Firstly, it identifies Bitcoin as money and a form of payment system, but not legal tender and therefore not an accepted legal currency in Australia, which considers self-regulation of Bitcoin as a payment system a possibility. Secondly, it recognises that existing money laundering legislation can be amended to include Bitcoin as a payment system through which money laundering can take place and where Bitcoin exchange platforms are required to implement a ‘know-your-customer’ policy or ‘know-your-user’ policy. Thirdly, this thesis identifies that Bitcoin is recognised as a commodity for tax purposes and that suitable guidelines can be introduced on how to deal with tax activities and tax evasion within Bitcoin payments. Lastly, it is also recommended that international organisations such the Financial Action Task Force and International Monetary Fund could provide clarity on the treatment of virtual and digital currencies, specifically Bitcoin, as a payment system and legal currency, given that Bitcoin in global and borderless. Therefore, this research contributes towards how the Bitcoin network operates, its legal challenges and regulation in order to further research in this area of law.

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