What is Cryptocurrency and Where Does it Fit in Legal Frameworks?
What is Cryptocurrency?
Like any currency, cryptocurrencies can be exchanged online to buy goods and services, but the majority of interest in cryptocurrencies is to trade it for profit. Users need a ‘wallet’, an online set up that can hold the cryptocurrency. Generally, to obtain a wallet requires creating an account on an exchange, allowing transfer of real money (or ‘Fiat’) to buy cryptocurrencies such as Bitcoin or Ethereum.
Cryptocurrency uses ‘blockchain’ technology to move it around. Blockchain is a decentralised technology spread across many networks that manage and record transactions. This means that transactions are not controlled by any central authority. Cryptocurrency is therefore currently immune to government control and interference.
Cryptocurrency is popular as many people believe that it will become the currency of the future and are seeking to purchase cryptocurrency now before it becomes more valuable. A current issue is price volatility, with the price surging and dipping in unpredictable measures.
There are over 2,200 different cryptocurrencies traded, the main ones being Bitcoin, Litecoin, Ripple, and Ethereum. There are many online merchants that accept Bitcoin as a form of payment, whilst other smaller currencies are not as widely accepted. An example of a popular brand using cryptocurrencies is Apple who has authorised at least 10 different cryptocurrencies as a form of payment on the App Store.
Where does it fit in legal frameworks?
A lot of concerns have been raised regarding cryptocurrencies’ decentralised nature and their ability to be used anonymously and it’s status as an asset. The latter being important because if it is an asset (or property), it can be seized legally. This is an issue especially as it is used in money laundering, terrorist financing, tax evasion schemes, or as commonly seen, used in frauds to convert stolen funds. The recent case of AA v Persons Unknown  EWHC 3556 (Comm) in the UK Commercial Court granted an interim proprietary injunction over Bitcoin, thereby confirming its status as property.
Although the case outlined above helps, the status and perception of cryptocurrency remains ambiguous to some and so digital currencies remain illegal in a few countries. At the date of writing, Bitcoin and digital currencies are outlawed In China, Russia, Vietnam, Bolivia, Columbia, and Ecuador.
On Oct 22. 2015, the European Court of Justice (ECJ) ruled that buying and selling digital currencies is considered a supply of services and that this is exempt from VAT in all EU states. Other individual EU countries have also developed their own Bitcoin stances.
In the UK, the Financial Conduct Authority (FCA) has a pro-Bitcoin approach and so digital currencies can fall under certain tax regulations in the UK.
Recently, the FCA released a detailed statement urging local crypto business operators to register with the government watchdog. This registration guidelines come with a number of specific compliance quotas in relation to crypto-related activities such as anti-money laundering and counter-terrorism financing.
The UK does not yet have a regulatory regime for cryptocurrency. Expect its use, especially in the current COVID-19 climate where cash use is diminishing rapidly, to only increase which means regulation is likely to follow.
If you have an issue with cryptocurrency, Proelium Law is able to investigate and locate cryptocurrency and if identified as being used in a fraud, potentially seize it through the UK courts. You can read more about our capability here, or speak anytime to Adrian Powell on email@example.com or +44 7725 329437.