Cryptocurrencies and digital assets have soared in popularity in recent years. With more people investing in virtual money such as bitcoin, it’s important to be aware of the legalities around dabbling in crypto.
What are the legal implications of investing in cryptocurrencies? And what about the legalities around digital assets? Read on to find out.
What are cryptocurrencies and digital assets?
Digital currencies have been around for a while – decades, in fact. The first cryptocurrency was created in 1983 by David Chaum, an American cryptographer. It was known as ecash and this was updated with newer tech in 1995.
But it was the introduction of bitcoin in 2008 that propelled virtual money into the mainstream. This was the first decentralised cryptocurrency to be launched. In 2010, it was the first cryptocurrency to be used to make a transaction when a man from Florida paid 10,000 BTC for two pizzas – which is $275,150,000 in 2023.
Although cryptocurrencies aren’t new, they are in their infancy when compared with traditional fiat money. As such, there has been a wave of lawyers rushing to specialise in crypto law in order to ensure these currencies are being used safely and within the law.
It’s worth noting here that all cryptocurrencies are digital assets, but not all digital assets are cryptocurrencies. Digital assets refers to anything that is stored digitally, from photographs and videos to music and documents.
However, ‘digital assets’ has recently become much more than these traditional items. Bitcoin goes hand in hand with blockchain, a digital ledger that stores the cryptocurrency’s data. The blockchain tech meant that data had also become a valuable digital asset.
So, lawyers specialising in crypto will often also offer legal services surrounding digital assets.
The legalities of crypto and digital assets
Although crypto is virtual, crypto tokens are classed as objects of property. Therefore, property rights apply.
However, this is unchartered waters, and this has recently led to the Law Commission creating a consultation paper that argues: “While the law of England and Wales is flexible enough to accommodate digital assets, certain aspects of the law now need reform. This will ensure that digital assets benefit from consistent legal recognition and protection, in a way that acknowledges the nuanced features of those digital assets.”
As well as there being a call for legal reform to help clarify how we move forward in a world with crypto and digital assets, there are other legal concerns. These include:
- The legal classification of crypto assets – while the Law Commission is working on the principle that cryptocurrencies are property, this is not a global consensus. There is uncertainty about whether it’s property, currency, security, or something different.
- Keeping track can be difficult – recovering crypto assets that fall into the wrong hands can be difficult. This is due to the nature of these digital assets.
- Crypto is volatile – the value of cryptocurrencies like bitcoin vary. This means that payouts can be fractious and difficult, due to wild swings in how the market moves.
In order to navigate crypto, it can be worthwhile looking into the risks and legalities before proceeding.