A cryptocurrency is a line of code with a monetary value. From a legal or regulatory perspective, the development of these processes causes concern as there is currently no control over the design or management of the currencies, the most popular being Bitcoin, Ethereum, Litecoin and Ripple.
Cryptocurrency law varies between countries, and so we recommend consulting a cryptocurrency lawyer should you seek legal counsel in the area of cryptocurrency regulation.
In the USA, the IRS ruled that Bitcoin is to be treated as personal property for tax purposes, therefore liable to capital gains tax. Still, the issue of cryptocurrency regulation of exchanges and investments has become highly contentious concerning virtual currency law.
On 3rd March 2014, in the UK, the HMRC published a document regarding the tax treatment of any income received from Bitcoin and other cryptocurrencies with provisional guidance. This brief excluded Bitcoin from VAT, with corporation tax, inheritance tax and CGT depending on activities on a case-by-case basis.
There have been many warnings from regulators around the world concerning the use of cryptocurrencies as potential investments, as well as being a store of value or a unit of exchange. On 12th September 2017, the FCA issued a warning that these can represent ‘high-risk speculative investments,’ only for experienced investors who should be prepared to risk losing their entire stake.
The SEC has also taken steps to define whether or not a proposed ICO represents security (or investment in UK terms), which requires a robust regulatory regime including a prospectus, rigid financial controls, and marketing on regulated exchanges to investors who have passed money laundering and other restrictions. Other countries have followed suit.
Some jurisdictions, however, are encouraging the use of this form of fundraising. This is because it is becoming recognised as an alternative method by which start-up businesses using blockchain technology can fund their new projects, without having to rely upon Venture Capital, which can be challenging to attract. Gibraltar is leading the way with a new licence issued by the Gibraltar Financial Services Commission (GFSC). The new DLT (Distributed Ledger Technology) is highly regarded and likely to be followed by the FCA in the UK.
Virtual currency law varies from country to country. Cryptocurrency is legal in most countries. In the UK, cryptocurrency is legal, and Bitcoin is regarded as private money.
According to the FCA, cryptocurrencies are only regulated in the UK for money laundering purposes. As of January 2020, the FCA has new cryptocurrency regulation powers; they can supervise how cryptoasset businesses manage risks of money laundering and counter-terrorist financing. However, they are not responsible for ensuring such businesses protect client assets.
Jeremy Barnett is a leading UK cryptocurrency lawyer in the area of cryptocurrency regulation and ICOs. Together with James Ross, he authored a paper on the Future Regulation of the Future Internet, which dealt in detail with cryptocurrency regulation.
Jeremy Barnett has joined with several other academics and practitioners who have signed the London Token Fundraising Manifesto. This proposed an ethical framework for ICOs, in the absence of specific guidance from the FSA. This is a complex subject that includes an academic analysis of what is a token. For further reading, consider this excellent online book called ‘The Token Handbook’ by David Siegal, which sets the background for this exciting topic.
Contact our clerking team today to discuss instructing a cryptocurrency barrister with St Pauls Chambers.
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