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The writer is the founder and CEO of Digital Self-Lover on Financial Technology and Visiting Scholar at Georgetown University Law School.
In 1758, the English mail coach carrying bills was taken away. The robber used one of the stolen banknotes to pay for the inn room. The original owner of the bill asked the Bank of England to stop paying for the memo. The Miller v Race case rose to England’s highest court judge.
Judge Mansfield Lord said that he could not use a memo to oil the commercial wheels if the merchant had to constantly question whether the bills may have upstream property benefits. Therefore, bills created in Bearer and paid on demand must be treated as currency, a medium of exchange.
Fast forward to today and the popular form of cryptocurrency known as Stablecoins faces similar challenges to what 18th century English banknotes face.
Stablecoins are designed to maintain the value of sovereign currencies such as the US dollar and are supported by currency reference assets. They have been shown to have major characteristics of currency. They are account units, value stores, and exchange media. The total amount of stable coins in circulation reached $240 billion.
However, the claims of potential property of previous owners could prevent the use of Stablecoins as digital money.
The law is extremely necessary. The US Congress is considering two bills regulating Stablecoins: Senate Genius Act and House stable conduct. However, neither clearly defines stablecoins as money under private commercial law, tax law or accounting rules.
However, only 27 US states have adopted Section 12 so far. For the rest, stubcoins can be treated as “general intangible assets.” This means that previous property claims remain attached and become a poor medium of exchange.
It is also important to note how stubcoins are treated according to tax rules. If Stablecoins continue to be categorized into “properties” such as digital assets such as Bitcoin and Ethereum, you will need to report profits and losses to the Internal Revenue Services. As Stablecoin payments become more widely used, this could result in millions of reports of individual and business payments submitted to the government.
Additionally, buying something using Stablecoins can be considered a “disposal event” subject to capital gains tax.
Another option is for Congress to reduce tax reporting requirements. There is a priority – personal profits of less than $200 from foreign currency transactions will be exempt. However, for Stablecoins to be an effective payment instrument, companies must also benefit from the reporting exemptions adopted, and must raise a large reporting threshold.
Accounting rules are also important as stubcoins become increasingly common in traditional commercial transactions. It remains unclear whether a stubcoin should be reported as a cash equivalent or as a financial instrument under accounting rules. How they are categorized has a major impact on the way companies report Stablecoin Holdings and Usage.
Ultimately, if a stubcoin is not clearly defined as a form of gold, as a negotiable instrument, or as a form of money, it can become unrealistic as a medium of exchange, and can defeat potentially important legal objectives.
Federal Reserve Chairman Jay Powell said in June 2023 that he “sees stable payments as a form of money.”
Digital money should be more widely recognized as a major leap in the evolution of currency.
