When is Currency not Currency? When it's Cryptocurrency.

May 14, 2021 at 07:00 am by robmtchl

Virtual currencies, including cryptocurrencies like Bitcoin and Dogecoin, have raised questions in relation to money transmission and currency exchange. The Tennessee Money Transmitter Act governs money transfers and the application of its interpretation to various activities involving virtual currencies could be important for folks to consider.

There is a regulatory treatment of virtual currencies under existing statutes. What is Virtual Currency? Virtual currency is an electronic medium of exchange that does not have all the attributes of real currencies. Virtual currencies include cryptocurrencies, such as Bitcoin, Dogecoin and Litecoin, which are not legal tender and are not issued or backed by any central bank or governmental authority.

Virtual currencies have legitimate purposes

They can be purchased, sold, and exchanged with other types of virtual currencies or real currencies like the U.S. dollar. This can happen through various mechanisms such as exchangers, administrators, or merchants that are willing to accept virtual currencies in lieu of real currency. Without the backing of an official government sanctioned central bank; virtual currencies exist outside established financial institution systems. One important characteristic of cryptocurrency is its lack of intrinsic value.

Cryptocurrency does not represent a claim on a commodity

It is not convertible by law. And unlike fiat currencies, there is no governmental authority or central bank establishing its value through law or regulation. Its value is only what a buyer is willing to pay for it.  Because cryptocurrency is not money under the Tennessee Money Transmitter Act, receiving it in exchange for a promise to make it available at a later time or different location is not money transmission.

Consequently, absent the involvement of sovereign currency in a transaction, no money transmission can occur. However, when a cryptocurrency transaction does include sovereign currency, it may be money transmission depending on how the sovereign currency is handled. 

The exchange of cryptocurrency for sovereign currency between two parties is not money transmission. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency in exchange for a promise to make it available at a later time or different location.

Exchange of cryptocurrency for sovereign currency

If exchanged through a third party exchanger; that is generally considered a money transmission. For example, most Bitcoin exchange sites facilitate exchanges by acting as an escrow-like intermediary. The buyer of cryptocurrency sends sovereign currency to the exchanger who holds the funds until it determines that the terms of the sale have been satisfied before remitting the funds to the seller. Irrespective of its handling of the cryptocurrency, the exchanger conducts money transmission by receiving the buyer's sovereign currency in exchange for a promise to make it available to the seller.

Just as with the selling of goods via Amazon or renting rooms through Airbnb type platforms; if you do business in Tennessee you will still be subject to our laws. In order to best serve and protect our citizens we must be ever vigilant to the opportunities emerging technologies bring but also the pitfalls and risks to our citizens.

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