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Regulation and Compliance Flashcards

7 cards from real Cryptocurrency practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. What is the Howey Test used to determine in the context of cryptocurrency?

    Answer: Whether a crypto asset qualifies as an investment contract (security)

    The Howey Test, derived from a 1946 Supreme Court case, is the SEC's primary tool for determining whether a crypto token constitutes a security.

  2. Under FINCEN guidance, which of the following is generally classified as a Money Services Business?

    Answer: A centralized crypto exchange accepting fiat deposits

    Centralized exchanges that accept fiat and allow customers to buy/sell crypto are classified as MSBs and must register with FinCEN.

  3. What is a Virtual Asset Service Provider (VASP) according to FATF?

    Answer: Any business that exchanges, transfers, or safeguards virtual assets for others

    FATF defines VASPs broadly to include exchanges, wallet providers, and any entity conducting financial activities involving virtual assets on behalf of others.

  4. Which Wyoming law was groundbreaking because it recognized DAOs as legal entities?

    Answer: The Wyoming Decentralized Autonomous Organization Supplement

    Wyoming's DAO Supplement, passed in 2021, was the first US law to grant DAOs legal entity status as a type of LLC.

  5. If a US person receives cryptocurrency as payment for services, how should it be reported to the IRS?

    Answer: As ordinary income at the fair market value on the date received

    The IRS treats crypto received as payment for services as ordinary income valued at the fair market value on the date of receipt.

  6. What does 'KYC' stand for and why is it required for crypto exchanges?

    Answer: Know Your Customer; to verify identity and prevent money laundering

    KYC (Know Your Customer) requires exchanges to verify user identities to comply with AML regulations and prevent illicit use of their platforms.

  7. The Tornado Cash sanctions imposed by OFAC in 2022 were notable because they targeted:

    Answer: Open-source smart contract code deployed on Ethereum

    OFAC sanctioned Tornado Cash's smart contract addresses directly, raising unprecedented legal questions about sanctioning immutable open-source code.