Bitcoin falls under the category of cryptocurrency that is globally acceptable and does not require any physical banking system for its handling. This digital currency was launched in the year 2009 and has been a hit among the public due to its transparency, P2P exchange system as there is an absence of any superior authority’s approval and one can use it during times of need. The generation of bitcoin is done through the computer-based process, known as mining.
What Makes Bitcoin A Cause Of Concern?
This recently emerging virtual currency has been creating a great influence among the masses. However, there is no central bank that could be held responsible for the production, circulation, or regulation of bitcoin and its usage. All these factors are a major reason that attracts criminals to bitcoin as it may be used for various illicit activities such as trading of weapons, drugs, etc.
As per the reports, the Commercial Court of the UK has declared bitcoin as property. This decision has given rise to a lot of speculations about whether or not bitcoins are even considered legal in the United Kingdom!
The Legality Of Bitcoin Globally
There are several developed countries all around the globe where bitcoin has been declared legally fit for use but it cannot replace the value of a legal tender. The countries, including the US, Canada, Australia, the European Union approve of bitcoin being a legal entity. Also, the countries such as China, Russia, Bolivia, Columbia, Ecuador, Vietnam do not accept bitcoin for legal purposes, and some of them have even banned bitcoin completely.
However, if we look at the ever-evolving markets, bitcoin’s status was always in question as it has not been constant anywhere due to the rising tensions regarding its usage. When it comes to the UK, the legality stature of bitcoin never turned illegal.
As we know that the concept of cryptocurrencies is quite new in the market. Hence, making the necessary adjustments in the rules and regulations, or the monetary protection concerning bitcoin is an ongoing process. This is one of the biggest reasons behind the concerns related to bitcoin, its effectiveness, and most importantly how legally safe it is.
Let us clear this out to our readers that any form of cryptocurrency, including bitcoin, has always been legal in the UK as no law supports it.
Bitcoin And Its Legality In The UK
In the UK, the legal status of bitcoin has always been a confusing aspect as there has always been a lot of discussion about it in the state. After the commercial court case, the uncertainty about bitcoin’s legal stature became a hot topic.
Although, the case filed in the court had nothing to do with the legitimacy of bitcoin. It concerned cryptocurrencies and whether or not they are considered property.
Points That Can Be Drawn From the Court’s Ruling
As per the property laws in the UK, generally, there are two major types that the government approves:
- A possession: It could be anything owned by a person, a tangible item.
- A thing that comprises of action: A right that can be enforceable by the law, which includes, claiming repayment of a debt.
Since bitcoin does not exist in tangible form and it exists in the virtual world only, hence it could not be accepted as a legal property due to such ambiguity.
The laws and statutes cannot be applied to anything that does not stand eligible as property. Thus, taking any legal action against it is out of the question.
When the ruling of the Commercial Court came to light, bitcoin was declared as a property which was a significant action taken by the legislative. This has changed everything about bitcoins in the UK. Bitcoins are now a property, hence it is possible to take legal action against it when there is a need. The official declaration has helped bring confidence in the people who are in favor of using bitcoins or any other type of cryptocurrencies. It gives people the freedom to use bitcoin or other crypto-assets without any fear, which would only make it easy for the public to adopt its usage.
FCA Has A Different Take: The Hurdles Involved
Although bitcoins exist digitally, they are still an asset. The government of the UK does not hold the legal power to completely ban bitcoins or any other form of cryptocurrency.
Despite all this, the Financial Conduct Authority (FCA) in the United Kingdom has the authority to ban the selling, trading of products that depend on bitcoin figures.
The major reason behind FCA jumping in and proposing the new rules and regulations is that it wanted to protect British citizens from any means of unfair trading enactment of cryptocurrencies in the UK. The revelation was done by the Mirror in a report in 2019. FCA was completely supporting the ban on ENTs (exchange-traded notes) and the sale of derivatives regarding specific cryptocurrencies. During that time Christopher Woolard was the executive director of the regulatory body, the FCA. He stated that bitcoins are not regulated, similar to crypto assets. He further explained that due to the volatile nature and the absence of transparency among bitcoins, an average retail customer may not be able to understand how they work.
Another reason why bitcoins are seen as a potential threat for retailers is that they are highly susceptible to cybercrimes, and illegal trading as their value system has always been quite an ambiguous procedure. When it comes to the trading of bitcoins in the market the retail consumers fall prey to its incomprehensible valuation and incur a huge loss of £75 million to £ 234.3 million, annually.
Hence, these concerns lead to one after another decision. Finally, as per the FCA, it was declared that the selling of products based on bitcoin value by the firms that work as per the UK laws, shall be prohibited.
What Are The Present FCA Regulations On Cryptocurrencies? Bitcoin Status As Per The FCA
As per the FCA, in case the conditions turn bad in the bitcoin trading there is a very low possibility of accessing the Financial Services Compensation Scheme (FSCS), and Financial Ombudsman Service. The Security tokens fall within the regulatory limits of the FCA. This is because, security tokens are considered under the “specified investment” category devised by the Financial Services and Markets Act, 2020. Within this act, the Regulated Activities Order section is applicable for all types of crypto assets, including bitcoins.
What Are Security Tokens?
Security tokens work as a password or a key to unlock the electronically locked resources. They generally include:
- The crypto assets, including bitcoins that grant the right to an ownership position.
- The right to any part of share in the future profits.
- The right for repayment of a particular amount of money.
The FCA took a big step towards alleviating the possible risk of money laundering by utilizing its authority for monitoring the dealers of bitcoins dating January 2020. This power granted to the FCA helps it in administer the methods used by the crypto asset traders for controlling the financing of illegal activities, including terrorism.
Yet, the FCA cannot be held responsible for protecting client assets when it comes to the bitcoin trading market. Also, the rest of the categories within crypto assets cannot be controlled by the FCA.
The UK Government’s Ongoing Efforts For Minimizing The Issue
The government of the UK is always actively working on the issue of bitcoin trading and constantly developing new policies for minimizing the malicious uses of bitcoin illicit activities.
In accordance with the final report released by the Crypto assets Task Force as well as the facts stated by the Commercial Court in its ruling, there has been clarity on this topic. Let us discuss the features that have been approved of, legally.
The Subcategorization Of The Crypto Assets
Three major subcategories of crypto assets have been defined by the Crypto assets Task Force. One of the is Security tokens, and the rest of the two are Utility tokens and Exchange tokens.
The task force has termed bitcoins as Exchange tokens and similar types of cryptocurrencies. One of the major highlights of this type of currency is that they are used for exchange purposes which can be done by the distributed ledger technology, popularly termed as blockchain.
When it comes to cryptocurrencies, no legal body, such as the central bank or the Bank of England has the authority over its movement in the market. Despite this fact, bitcoins are considered a legally approved medium of exchange.
In the case of Utility tokens, they can easily be redeemed from any blockchain platform for purchase or sales of a product or service. After the enactment of the laws, the Utility tokens are also administered by the regulatory power.
The Status Of Crypto Assets In Terms Of Money: Is Bitcoin Equivalent To Money
In the UK, bitcoins or any other form of crypto assets do not qualify as money or fiat currency. Even the Bank of England is not in the favor of developing a centralized digital currency system in the UK.
As per the fiat currency, it is basically the common currency that can be used globally. They are monitored by the government due to which their exchange value depends on governmental approval, and not because these are backed by tangible items such as silver or gold.
One needs to understand the fact that bitcoins or other crypto assets are not categorized as money. Therefore, the rules and regulations regarding money laundering cannot be applied to them completely.
But, now the UK government’s economic and finance ministry, Her Majesty’s Treasury is reviewing the implementation of the Fifth EU Money Laundering Directive (5MLD). This could turn things around and create a more reliable ecosystem in the world of bitcoin trading as they will then come under the purview of existing money laundering laws of the UK. Also, whether or not to add bitcoins and other crypto assets within the sphere of current financial regulations is under review.
A lot of people feel unsure about the legality of bitcoins in the UK. This is one of the biggest reasons that make the public refrain from investing in digital currency. In the UK, bitcoins are not considered illegal. But, since the governmental authority is absent in the matters of bitcoins and other crypto assets, one has to be quite careful while working with them as there are plenty of risk factors. A great way to start investing and trading in crypto assets is by thoroughly studying and making yourself aware of its pros and cons. This would benefit people in making an informed decision before jumping into the market.