It’s been nine years since the release of the world’s first ever ‘Cryptocurrency’, Bitcoin, so how will law adapt towards the new and ever-developing virtual financial system in times to come? Experts at Hudson McKenzie give Lawyer Monthly the run down on the potential for crypto regulation.
At present, the ‘legal status’ of cryptocurrencies varies between countries, especially with the continual progression of the technology associated with it. However, In the opposite direction, some countries have even gone to the extent of banning the use of cryptocurrencies altogether, as is seen in UAE.
Therefore, can cryptocurrency ever be a plausible means of financial transactions on a worldwide scale and if so, how will law fit into this, given its ‘unregulated’ nature?
What exactly is ‘Cryptocurrency’?
‘Cryptocurrency’ was designed predominantly as a virtual means of financial exchange, in which ‘cryptography’ is used so to secure all financial transactions made via digital cryptocurrency.
Cryptography is important for securing digital financial transactions, especially as a defence against ‘cryptanalysis’, in which is a method of analysing information systems so to reveal what may be hidden within them. For example, a cryptanalysis’s main objective is to know as much about data before it is encrypted.
However, one of the key aspects that makes cryptocurrency stand out from other forms of currencies, especially digital, is that it uses a ‘decentralised control’ via ‘blockchains’, in which acts as a public financial transaction database, rather than the more common ‘centralised’ digital currency or central banking systems.
So, what are the legal concerns?
The possibility of a digitalized global economy with an unregulated decentralized financial system brings with it many concerns, especially for the legal sector.
For instance, Law on a national level faces challenges alone with the regulation and compliance with other laws in other countries – therefore, a globalized unregulated economy can bring with it many misnomers, in which could lead to mass economic and financial chaos on a global scale – with one of the key threats being tax evasion and lack of financial transactional transparency.
Can global cryptocurrency ever work?
If cryptocurrency was to be regulated to a greater extent (beyond the blockchain) on a global scale – could it alternatively become a positive means to enhancing unity and global international relations to a greater degree, rather than an unregulated threat to national societies?
For instance, law can positively prompt the use of cryptocurrencies by ensuring the key role of the legal sector in the regulation of financial transactions, bringing national law into a new cosmopolitan limelight.
As nations compete to be new world leaders in the ‘FinTech Market’, perhaps the alternative means to global leadership is a unification of nations under a global regulated digitalized financial system such as cryptocurrencies. However, it appears that at present, the world is far from this idealist technological dream.