Cryptocurrency expert Adam S Tracy details the legal implications of cryptocurrency and bitcoin mining and gives guidance on operating a compliant bitcoin mining operation.
TRANSCRIBED FROM: http://adamtracy.io/video/cryptocurrency-mining-legal/
So I was asked today in regards to the Bitcoin mining operation, what are the legal applications and legal concerns that you need, if you wanted to start a mining application. So just thinking about what a mining operation really is is that you’re solving these complex algorithms. It’s all dependent on your computing power. And effectively all that’s happening from a technical standpoint is you are adding records to the blockchain, and it’s quite a big [inaudible 00:00:43] to get yourself into a cryptocurrency.
From that perspective, there’s inherently nothing wrong with it. Cryptocurrency is property in some places. And some places it’s commodity. Bitcoin’s commodity here in the United States. So it’s not inherently the process by itself. There really isn’t many legal implications. I would say if there are issues, such like as places like Iceland where it’s illegal to convert the local currency to Bitcoin. Or places like Russia where it’s just banned.
TRANSCRIBED FROM: http://adamtracy.io/video/cryptocurrency-mining-legal/
Obviously if cryptocurrency is banned, or there’s decided regulation of cryptocurrency then your ability to buy cryptocurrency is also going to be an issue. So, that’s something to consider.
Now, if you’re going to start a mining operation for purposes of raising money, and then developing that operation, obviously Securities Laws could be applied. Even maybe Commodities Laws, depending on what you’re mining. Obviously you’re going to set that up much like you would a hedge fund, where you have the mining operation and the specific investments and offers a kind of return. And in those cases you’re most likely going to have to follow Regulation D and issue some sort of partnership interest and go through the whole [inaudible 00:02:01] of fund 504, 505, or 506 of Reg D, which relates to the amount of money that you can raise, how you can raise that money. And the whole accredited, non accredited investment.
Because if you’re going to do a 505, you’re stuck at $5 million max raised, and you can sell to only 35 unaccredited investors, whereas if you do a 506 which is any amount of money, you can’t sell to non accredited. So you have to consider that if you’re doing a mining operation, it’s not like an ICO where the ICO, we can define that token being sold as not meeting security, being outside the ambient of Securities Laws.
This is decided when you’re talking about mining. It’s decidedly it’s own enterprise. It’s the entity that is controlling the mining is also the one that’s soliciting the investment. The investment would undoubtedly have to be some kind of common stock partnership interest. And vice versa. So, that’s definitely something to consider.
Another thing to consider, and there’s really a whole law about this, is that the CFTC, the Commodity Future Trade Commissions come out and declared, and did it some years ago now, that Bit coin is a commodity. So if you are in fact doing your Bit Coin mining operation, the question becomes are you structuring a hedge fund of sorts, or entity of sorts? Or is that more of a commodity? And do you need licensure as a commodity trading device? I think where this falls apart is the CFTC has never defined Bit Coin to be a Futures Contract, or a swap, or some sort of currency option.
So, while sort of in a long term scale said Bit coin is a cryptocurrency, it hasn’t actually defined what type of … I’m sorry, Bit coin as a commodity, the CFTC hasn’t defined what type of commodity it really is. So there’s this vast, vast hole that it really needs to be addressed. It’s not necessarily going to be addressed in the context of a mining operation. Likely to look at it as sort of the Bit coin ETF, or Bit coin child hedge fund. But it’s something they need to consider, because you may have some securities obligations, but there may be an implication regarding the Commodities Act. If you’re going to be operating [inaudible 00:04:40] which is a commodity.
So, I’ll post this up on my website, AdamTracy.io, and I’ll talk to you later.
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A former professional rugby player, Adam S. Tracy brings over twenty years’ experience as an attorney, consultant and dealmaker with a particular focus on cryptocurrency, digital products, payments and immersive corporate structures. As an accomplished executive and advisor to high risk merchants and stakeholders, Adam has proven himself as a results oriented, decisive leader with proven success advising early market entrants, technology adapters, as well as established participants across a wide range of verticals. Adam Tracy’s attack-first personality allows him to excel in dynamic, demanding environments including complex corporate negotiations, distressed environments and regulatory investigations.
In addition, Adam S. Tracy also has a successful track record co-founding high risk industry ventures, building & leading cross-functional teams, and spearheading diverse corporate transactions. A serial entrepreneur, Adam has successfully started and created exits across a wide swath of markets, including various mobile SaaS ventures, nutraceuticals, peer-to-peer payment systems, and several telemarketing-based ventures. Moreover, as a recognized expert in the payments field, Adam Tracy has been a blockchain and digital currency evangelist and influencer since the early days of Bitcoin.
Utilizing his proprietary “Pre-Event Driven™” strategy for decision making, Adam S. Tracy further leverages his over twenty years’ experience to create cost-effective, value-add solutions for each client. A data-driven acolyte, Adam continually refines his strategies based on field studies and data collection. Moreover, Adam Tracy further augments his range of solutions by actively networking with regulators, liquidity providers, legal and compliance experts, deal-flow brokers, investors and management of leading high risk industry ventures.
Adam S. Tracy earned his Bachelor of Science in Computer Applications and Bachelor of Science in Finance from the University of Notre Dame. He subsequently earned his Masters in Business Administration from the DePaul Kellstadt Graduate School of Business, while concurrently earning his Juris Doctorate from the DePaul College of Law. Adam lives outside Chicago with his with his wife, four dogs, and two cats.
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