A Beginners Guide to Bitcoin, Blockchain & The Body of Laws

Written by: 

Ben Mendelson

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Have you heard about the new kids on the block?

The saying goes you shouldn’t discuss politics, religion or money with friends and family. If it doesn’t already, the reference to money here should perhaps also include cryptocurrencies.

Unless you’ve been living under a rock until fairly recently, then chances are you’ve heard of Bitcoin. With a booming valuation and increasingly mainstream media attention, this cryptocurrency has taken the world by storm. Yet, Bitcoin and its fellow cryptocurrencies remain incredibly polarising. On one hand there are the hardcore proponents, the lucky few who invested years ago (perhaps spurred on by their ever-growing wealth) as well as the tech businesses and start-ups who work tirelessly to grow the industry. On the other hand, many centralised and traditional financial institutions remain sceptical of cryptocurrencies, perhaps still suffering the effects of PTSD from 2008. Then there are the rest of us, falling somewhere in between.

But love them or hate them, cryptocurrencies seem to be here to stay (for now). All bets are off regarding their future, but today you can book a hotel on Expedia and pay for it with Bitcoin. In 2021, the entire cryptocurrency market cap hit a total valuation of over $1 Trillion. So at the very least, it can’t hurt to understand these technologies a bit better, especially from the perspective of your private and corporate legal obligations.

Help – What are cryptocurrencies and Blockchain?

You will often hear of cryptocurrencies being described as type of currency, similar to national fiat currencies you know well like the Dollar and Pound. But no matter how much you might want to physically hold your very own shiny, golden Bitcoin in your hand, unfortunately, cryptocurrencies are virtual. More specifically, they are virtual code, usually secured on that particular cryptocurrencies’ underlying Blockchain (another term we will explore in more detail below). To humour our human senses to “see” and “feel”, virtual wallets, cold storage devises resembling flash drives and trading exchanges have been developed to provide us with platforms to store, buy, sell, trade and accumulate our cryptocurrencies.

In many ways, cryptocurrencies are the next logical step in society’s payment evolution, a new and improved system to complement the technological revolution of the 20th and 21st centuries.

At this point it is worth introducing another term to learn quickly if you haven’t already – Blockchain. A Blockchain is a network of information, similar to an online ledger, stored in no single place to ensure autonomy and security; and used to detail anything from individual cryptocurrency transactions between you and your gran, to recording which person owns the title to the property down the street.

Opening up endless possibilities..

So great, I can pay for a hotel with Bitcoin… is that it? Not exactly the best time for booking a holiday (fingers crossed that joke becomes outdated quickly).

Cryptocurrencies and their underlying Blockchain technology have the potential for far more than functioning simply as a borderless payment method. They provide the possibilities for an autonomous and un-hackable store of value, quick and easy capital-raising through Initial Coin Offerings (ICOs), the tools with which to draft and use self-executing smart-contracts, a means of creating and harnessing decentralised applications and of particular attractiveness to many, a protest against the institutional monopolies of the “traditional” financial system. Cryptocurrencies challenge the dominance of national currencies, offering the possibility for protection against socio-political instability that has long plagued societies.

For business of all sizes, cryptocurrencies and Blockchain provide new and exciting means of accessing, storing and sharing customer information, generating capital to expand their businesses, opening doors to new and previously limited supply chains and developing a previously-undiscovered market of services.

Not so fast – Here are some of the issues

It seems uncontroversial to suggest that cryptocurrencies and Blockchain technologies challenge the status quo. They offer an alternative to the traditional structures so carefully built and maintained, moving away from institutional reliance in favour of decentralisation and self-autonomy. It’s understandable that much of the establishment would at the very least be wary of such a challenge, despite the fact that much effort has already been made by this very establishment to cooperate rather than reject.

Perhaps most confusingly, cryptocurrencies can be difficult to pigeonhole into the traditional financial categories we are accustomed to, such as currencies, assets, commodities or securities, to name a few. Yes, the word “currency” is in their very name. However, things seem to be far less clear cut. The difficulties with classifying cryptocurrencies have in turn lead to delays in regulating them. Questions arise as to whether existing regulations and legislation can be applied “as is”, or whether developments and amendments are required. Regulation on these matters has progressed in leaps and bounds, but still has far to go.

Further questions are raised as to whether GDPR and other privacy-related legislation and regulations apply in the same way to personal information passed over the Blockchain? Furthermore, do the same rules and regulations that apply to Initial Public Offerings also apply to the cryptocurrency equivalent – ICOs?

Add these questions to the often eye-watering price volatility and speculative behaviour of investors when it comes to both the better and lesser-known cryptocurrencies, it’s no wonder that much of the world’s institutional investors are entering the pool of cryptocurrency markets a toe at a time.

The silver-lining (at least in part)

Lawyers are in no way immune to the changes mentioned above. Our somewhat traditional industry has been challenged in much the same way as the world of finance, demanding us to adapt quickly or risk becoming an outdated service. After all, it’s hard to compete with an autonomous, decentralised and intrinsically safe system like the Blockchain, immune to human error.

That being said, us lawyers offer something the Blockchain cannot, human empathy and the ability to build and maintain personal relationships with our clients, based on their individual wants and needs.

Lawyers have and will continue to play a key role in engaging their clients, helping to explain and contributing to the development of regulatory frameworks for understanding and lawfully utilising new areas of Fintech such as cryptocurrencies and Blockchain technology. The law provides us with order and through regulation of these new types of Fintech, we can avoid what is otherwise likely to be a free for all.

Firms such as Chronos Law were founded, among other things, to assist in furthering this objective. When it comes to cryptocurrencies, Blockchain technology and the law, key questions that the right lawyers can answer for both private individuals and businesses of all sizes, include the following –

  1. How to establish, monitor and protect ownership and possession of cryptocurrencies, individually and/or corporately.
  2. Understanding and working within the regulatory confines for these types of Fintech, to ensure compliance.
  3. How to play a role in assisting the efforts of the FCA, other related regulatory authorities and law enforcement agencies.
  4. Guidance on how to best protect your IP when utilising Blockchain technology and all that it has to offer.
  5. Ensuring compliance with GDPR, KYC and AML obligations.
  6. Guidance on the legal requirements for the establishment of ICOs and the building of decentralised applications.

The business possibilities for these new areas Fintech are truly endless and lawyers remain the steady, helping hand to guide you through many of the unknowns.

Disclaimer: Information in this article is provided for informational purposes only. You should not construe any such information as legal, business, tax, investment, trading, financial, or other advice.

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