As lawyers, we have advised clients, both companies and individuals, who have set up cryptocurrency related businesses or wanted guidance about cryptocurrency related matters. As an increasingly popular area of business, the legal and regulatory framework is still being developed. We aim to help our clients make informed decisions and guide them to achieve their objectives.
What is cryptocurrency?
Cryptocurrency is commonly understood as digital currency, the most well-known being ‘Bitcoin’. Cryptocurrency is not created by a central bank or authority, so, whilst it is a medium of exchange (like any other currency) it is not currently regarded as legal tender in any country.
Cryptocurrencies exist because of ‘blockchain’ and encryption methods that are used to safeguard and validate transfers, independently of any central bank.
Bitcoin is one of the most popular and widely used cryptocurrencies, with both online and offline merchants accepting payment in Bitcoin. Other virtual currencies include Ethereum, Litecoin and Ripple.
Why is it unique?
- It requires no third-party involvement or central controlling authority and runs as a ‘decentralised network’;
- ‘miners’ verify transactions by solving a code that spreads throughout the network – this ensures a very high level of security and it is considered ‘unforgeable’; and,
- As a currency it is malleable – it can be mined (created); used as a medium of exchange; used as a payment method or as an investment.
So…is it legal?
The answer to this differs from country to country and is likely to change with time. A majority of countries have not declared it illegal; some have explicitly permitted it and others have banned it (including Russia, Japan, China and Colombia). In any case, its status and regulation varies widely.
Malta is considered a key player and the leader in cryptocurrency trading volume, ahead of the US, Belize and Korea. Gibraltar is also planning to open the market for exchange platforms and businesses to set up shop.
In the UK, it currently remains unregulated and many have sought to exploit this, as strict regulation is likely in the near future. Cryptocurrency is recognised in the UK for taxation purposes under existing legislation. For example, HM Revenue & Customs issued guidance in 2014 indicating it falls under existing UK tax and VAT treatment.
As to the ancillary legal rights, obligations and jurisdiction matters, these are all yet to be determined by the courts.