Jay Nanavati and Jacob Paikin co-wrote an article for CPA Journal titled “Ownership Without Intermediaries: Comparing Cryptocurrency to Bearer Instruments.”
In the article, Jay and Jacob provide a deep dive into how cryptocurrency ownership works compared bearer instruments, assets that were once prominent among U.S. investors.
Proof of cryptocurrency ownership lies in a private key. This key gives the owner complete control over it regardless of how they obtained it. Unlike an asset that requires proof of ownership before you can sell it, such as the deed to a house, cryptocurrency transfers do not require this. This makes cryptocurrency easy to transfer rapidly and repeatedly, which makes cryptocurrency attractive to travelers and users in parts of the world underserved by the global financial system.
On the other hand, cryptocurrency has also been used as a tool for tax evasion, money laundering, and other financial crimes. Since ownership of cryptocurrency is not controlled by a centralized authority, rogue states and criminal organizations can easily use it to fund their operations. Policymakers have subsequently eyed cryptocurrency skeptically since its rise in the 2010s. However, cryptocurrency can also be used to track bad actors, and it shares many similarities with bearer instruments of the past.
Bearer instruments are almost extinct among U.S. investors today, since it became illegal to issue them in U.S. municipal and corporate markets in 1982. The only legal bearer instruments in the U.S. secondary market are long-dated maturity assets issued prior to 1982, and they are incredibly rare. Most modern securities today are registered instruments, where the issuing firm records the ownership information digitally or physically. Investment income from recorded instruments can only be mailed or digitally deposited to the registered owner of that asset. Conversely, bearer instruments have no records of who owns them at any point in time. Popular in the early 20th century prior to tighter regulations on securities, the only proof of ownership was the bearer certificate. The anonymous ownership and simple transferability also made bearer instruments popular in crimes like tax evasion and money laundering. Like cryptocurrency, the ownership was determined exclusively by possession.
Jay and Jacob draw upon this comparison to address the concerns of cryptocurrency ownership and its uses and contextualize it in 21st-century litigation brought against cryptocurrency traders: unlike bearer instruments of the past, courts view ownership of cryptocurrency similarly to any other financial asset. Regardless of blockchain entries and possession of a private key, courts treat digital assets like any other income-producing investment for legal purposes.
Contrary to historical uses of bearer instruments, though, blockchain enables other parties to have a clear view of whether the cryptocurrency was illegally acquired. It may be easy to transfer to another party without the additional steps of proving ownership, but blockchain transparency makes it easier for governments to to track down criminals and return assetsto their rightful owners.
You can learn more about cryptocurrency ownership dynamics and how blockchain transparency can resolve crimes by reading the complete article here.
About Jay
Jay is a criminal tax defense attorney and a fellow of both the American College of Trial Lawyers and the American College of Tax Counsel. He represents individuals and entities facing investigations and prosecutions by the IRS, the FBI, state investigative agencies, U.S. Attorney’s offices, and the Department of Justice Tax Division. Jay has defended clients against federal investigations and charges throughout the country, and he has substantial experience representing clients accused of promoting or participating in so-called tax shelters, including captive insurance programs, conservation easements, and Puerto Rico’s Act 20/Act 22 program. In many instances, Jay represents tax professionals facing such accusations.
About Jacob
Jacob graduated with honors from Johns Hopkins University in May 2024 with a double major in Political Science and Economics and a minor in Psychology. He began his legal career as an intern at the Maryland Public Defender’s office in Baltimore City, where he assisted with 16 felony and misdemeanor cases. Jacob was accepted into the Harvard Law School Class of 2029 through their Junior Deferral Program. Additionally, Jacob worked as an intern for Senator Tim Kaine (D-VA), where he engaged with constituents and crafted reports on legislative issues relating to the Russo-Ukrainian war and Supreme Court ethics reform.
