Opinion: Will you go to Jail for selling Cryptocurrencies OTC? All Signs Point to No.

The following is just a personal opinion and in no way, creates an attorney-client relationship.

Sorry for the requisite disclaimer but some people have to write that when discussing legal matters.

The law is one of those areas of society that is extremely slow to change. If you've ever read a legal pleading that starts with "Now comes Defendant by and through his attorney...", then you know that even in everyday practice, archaic language is still being used-even though United States law schools have been trying to teach Plain English for a couple of decades.

You will not have a definitive answer as to the legal ramifications of OTC trading of cryptocurrencies until a case makes it to the appellate level of the US Federal Court System. Some people have been charged under various laws for trading BTC but the cases have been in front of state judges and Federal District Court judges. Those are not the folks that set the law.

The folks that have been charged with trading OTC were running a de facto business with one of them having sold at least $2.4 million (https://www.coindesk.com/localbitcoins-trader-pleads-guilty-money-transmitter-charge/). When a judge who doesn’t know much about virtual currency sees someone making millions of dollars, of course, he or she is going to find that they are money transmitters.

That all being said, it is my personal opinion that non-business trading of cryptocurrencies is perfectly legal-to an extent. As long as you report all gains on your taxes and don’t make it your business, you will not be running afoul of any laws or, more importantly, the current opinion of the legal community.

I strongly believe that since the boom of trading virtual currency in the fall of 2017, state legislatures will soon act so as to clarify this area of the law. There will be hearings and discussions but one of the strongest indicators of what the legislatures will rely on in making new laws is The Uniform Law Commissions draft act of 2017.

The Uniform Law Commission (UCL) sought to assist the States and their citizens in the area of virtual currencies and drafted THE UNIFORM REGULATION OF VIRTUAL CURRENCY BUSINESSES ACT* in 2017. (http://www.uniformlaws.org/Act.aspx?title=Regulation%20of%20Virtual-Currency%20Businesses%20Act)

Before I get into what that act says, you might be wondering, what is the Uniform Law Commission? According to its FAQ’s,

“For more than a century, the Uniform Law Commission (ULC) has served the states and their citizens by drafting state >laws on subjects on which uniformity across the states is desirable and practicable. It is a nonprofit unincorporated >association comprised of state commissioners from each state, the District of Columbia, the Commonwealth of Puerto >Rico, and the U.S. Virgin Islands.”

SEE: http://www.uniformlaws.org/Narrative.aspx?title=Frequently%20Asked%20Questions

The Uniform Commercial Code (UCC) has been the blueprint for business practices for decades and the Uniform Law Commission has maintained it, so this is not some fly by night group. The Commission is made up of well-respected attorneys who care about clarity in the law.

According to the UCL, regulation of virtual currency does not apply to activities by:

• a person that only:

contributes connectivity software or computing power to a decentralized virtual currency, or to a protocol governing >transfer of the digital representation of value;

Miners, this is you. The UCL is stating that you should not need a license to mine currencies.

provides data storage or security services for a virtual currency business and is not otherwise engaged in virtual >currency business activity on behalf of other persons;

Service Providers, this is you. Example: Your VPN provider should not need a license.

provides to persons otherwise exempt from this [act] virtual currencies as one or more enterprise solutions used solely >among each other and has no agreement or relationship with a resident who is an end-user of virtual currency;

This is the big one. The UCL is seeking to distinguish everyday people trading crypto and businesses or exchanges that

“assume control of virtual currency from or on behalf of a resident, at least momentarily, to sell, trade, or convert”

The Uniform Law Commission’s comments on their own proposed act clarify the situation even more.

“The URVCBA only regulates companies that assume “control” of a client’s virtual currency. The term “control” is >defined precisely so businesses that do not have the requisite power over virtual currency are not required to obtain a >license under the Act.”

You can’t take my opinion as gospel here. People have been charged with a crime already. But all the indicators are, at least to me, clearly pointing at a future law that states clearly, Exchanges need to be licensed, people selling some Monero for cash do not.

Ask yourself this, when you send cash to someone via Western Union, who needs the license there, you or Western Union?