104 Iowa L. Rev. 927 (2019)

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Abstract

Monitoring the transactions consumers in the United States make when buying and selling virtual currency requires an inventive regulatory system because many types of virtual currency, like Bitcoin, are operated anonymously and independently. In the United States today, the Internal Revenue Service (“IRS”) has little structure in how it monitors cryptocurrencies, merely classifying them as property and having the taxpayer report all losses and gains subject to the rules of personal property. This classification is difficult to apply because the IRS has little control over how the system is regulated. To solve this issue, the United States should either outlaw the use of cryptocurrency altogether or reclassify virtual currency as foreign currency. Making virtual currency use illegal might not be the most practical solution because of its prominence in the market today, but it would provide the federal government a clear way to deal with cryptocurrency. If the United States reclassifies virtual currency as a foreign currency, there would be an established regulatory framework in place that the IRS would be able to follow when attempting to monitor the use of virtual currency. With either solution, the United States will be better equipped to regulate the financial marketplace of virtual currencies.