The University of Notre Dame Australia ResearchOnline@ND Theses 2017 Future digital money: The legal status and regulation of bitcoin in Australia Chinelle van der Westhuizen Follow this and additional works at: https://researchonline.nd.edu.au/theses Part of the Law Commons COMMONWEALTH OF AUSTRALIA Copyright Regulations 1969 WARNING The material in this communication may be subject to copyright under the Act. Any further copying or communication of this material by you may be the subject of copyright protection under the Act. Do not remove this notice. Publication Details van der Westhuizen, C. (2017). Future digital money: The legal status and regulation of bitcoin in Australia (Master of Laws (Thesis)). University of Notre Dame Australia. https://researchonline.nd.edu.au/theses/160 This dissertation/thesis is brought to you by ResearchOnline@ND. It has been accepted for inclusion in Theses by an authorized administrator of ResearchOnline@ND. For more information, please contact [email protected]. The University of Notre Dame Australia School of Law FUTURE DIGITAL MONEY: THE LEGAL STATUS AND REGULATION OF BITCOIN IN AUSTRALIA Chinelle van der Westhuizen LLB, LLM (University of Pretoria) This thesis is submitted in fulfilment of the requirements of the Degree of Master of Laws by Research 2017 DECLARATION This thesis does not, to the best of my knowledge, contain previously published or written material by another person except where due reference is made in the text, or any material previously submitted for a degree in any higher degree institution. _________________________________ Chinelle van der Westhuizen _________________________________ Date i ACKNOWLDEGEMENTS First and foremost, I thank God for his abundant love and goodness throughout this research period and for Blessing me with the talents to endure such a challenging research project. I owe my deepest gratitude to The University of Notre Dame Australia for creating the opportunity to undertake this research degree by funding my studies through this period. Receiving the scholarship from The University of Notre Dame Australia motivated me to complete my degree and give back to the University. Most importantly, this thesis would not have been possible without the continuous support and guidance from my supervisor, Professor Joan Squelch. She has provided me with useful and constructive suggestions in writing and presenting this thesis, even though it presented some tough times. I am truly grateful to her endless mentoring and support. I am also grateful to my partner Jacques Duvenhage and family members for their support, love and encouragement throughout this research degree. Josephine Smith – Wordsmith WA provided copyediting services in accordance with the Guidelines for Editing Research Theses produced by the Institute of Professional Editors Ltd. The editorial intervention has been restricted to copyediting and proofreading, as covered in Standards D and E of the Australian Standards for Editing Practice. Any and all errors remain my responsibility. ii TABLE OF CONTENTS Page DECLARATION ......................................................................................................... i ACKNOWLDEGEMENTS ....................................................................................... ii TABLE OF FIGURES .............................................................................................. vi LIST OF DEFINED TERMS ................................................................................... vi LIST OF ABBREVIATED TERMS ...................................................................... vii ABSTRACT ......................................................................................................... viii INTRODUCTION AND STATEMENT OF THE RESEARCH PROBLEM ............................................................................................................ 1 1.1 Introduction ...................................................................................................... 1 1.2 Statement of the Problem ................................................................................. 2 1.3 Background Discussion and Scope of Research .............................................. 4 1.4 Research Questions .......................................................................................... 9 1.5 Research Aims ................................................................................................ 10 1.6 Research Framework ...................................................................................... 10 1.7 Research Methodology ................................................................................... 11 1.7.1 The Use of Internet-Based Materials ...................................................... 12 1.8 Structure of the Thesis .................................................................................... 13 1.9 Conclusion ...................................................................................................... 14 DEVELOPMENT OF MONEY AND BITCOIN AS CURRENCY .......................................................................................................... 16 2.1 Introduction .................................................................................................... 16 2.2 Nature and Concept of Money ....................................................................... 17 2.2.1 Classification of ‘Money’........................................................................ 18 2.2.2 Concluding Remarks ............................................................................... 27 2.3 Types of Money ............................................................................................. 27 2.3.1 Barter/Commodity Transactions ............................................................. 28 2.3.2 Emergence of Coins and Banknotes........................................................ 31 2.3.3 Electronic Payments ................................................................................ 35 2.3.4 Electronic Payments and the Functions of Money .................................. 42 2.4 Virtual and Digital Currencies ....................................................................... 44 2.4.1 The Development and Use of Bitcoin ..................................................... 47 2.4.2 Characteristics of Bitcoin ........................................................................ 53 iii 2.4.3 Advantages and Disadvantages of Bitcoin .............................................. 55 2.4.4 Bitcoin and the Functions of Money ....................................................... 62 2.5 Bitcoin as Legal Tender ................................................................................. 66 2.6 Conclusion ...................................................................................................... 68 LEGAL CHALLENGES AND RISKS OF BITCOIN TRANSACTIONS .................................................................................................... 71 3.1 Introduction .................................................................................................... 71 3.2 Legal Issues Formed within Bitcoin Transactions ......................................... 72 3.2.1 The Bank–Customer Relationship .......................................................... 73 3.2.2 Authorised Deposit-Taking Institutions and Bitcoin Transactions ......... 77 3.2.3 Money as a ‘Financial Product’ within Traditional and Bitcoin Transactions ........................................................................................................ 85 3.3 Money Laundering ......................................................................................... 92 3.3.1 Defining Money Laundering ................................................................... 92 3.3.2 Process of Money Laundering................................................................. 95 3.3.3 Bitcoin and Money Laundering Activities .............................................. 97 3.3.4 Operation of Money Laundering Activities and Bitcoin Transactions . 105 3.3.5 Concluding Remarks ............................................................................. 112 3.4 Tax Challenges within Bitcoin Transactions ............................................... 113 3.4.1 Overview of Tax and Bitcoin Transactions........................................... 115 3.4.2 Bitcoin as ‘Money’ for GST Purposes .................................................. 115 3.4.3 Bitcoin as ‘Property’ for Income Tax and other Benefits ..................... 118 3.4.4 Tax Evasion within Bitcoin Transactions ............................................. 119 3.5 Conclusion .................................................................................................... 122 A REGULATORY FRAMEWORK FOR BITCOIN IN AUSTRALIA ........................................................................................................ 125 4.1 Introduction .................................................................................................. 125 4.2 Approaches to the Regulation of Bitcoin ..................................................... 127 4.2.1 Stringent and Legal Banning of the Use of Bitcoin .............................. 127 4.2.2 Observing other Countries (‘Wait-and-See’) ........................................ 130 4.2.3 The Implementation of Specific Bitcoin Regulation............................. 132 4.2.4 Concluding Remarks ............................................................................