Bitcoin is completely legal in the United Kingdom, as well as the majority of other countries. Much of the confusion surrounding Bitcoin’s legal status has resulted from a misunderstanding of what exactly is Bitcoin.
Bitcoins are not issued by anyone, they come into existence through consensus of the network, therefore there is no “investment security” being offered in exchange for money. When somebody has control of something of value they are generally free to make use of it as they choose (assuming it is not explicitly illegal), including offering it for sale.
E-money regulations are intended to ensure the issuer maintains 100% reserves and follows Anti Money Laundering (AML) laws. No promise is made as to the exchange value of Bitcoin, the only guarantee is that one bitcoin is equal to one bitcoin, therefore reserves are not promised or required. Bitcoin’s peer-to-peer infrastructure means there is no entity available to follow the AML laws; or to maintain reserves, if they were required. This does not mean the AML regulations do not have to be followed by those using Bitcoin.
Bitcoin allows individuals to transfer, in some cases, very large amounts of value to others, in an unrestricted way. Additionally, Bitcoin is an extremely secure way to store value (not withstanding currency fluctuations) without needing to trust a third party, like a bank, for example. The latter issue is something that law enforcement is going to have to learn to deal with. Just because something makes life easier for criminals does not make it wrong. The benefits to society far outweigh the costs. It is no different from somebody keeping a large sum of illegally obtained money in cash, just a lot more secure and efficient. One suspects that the transparency of the blockchain in analysing the “money trail” until it reaches a known entity will more than make up for this addition to the criminal’s toolkit.
The transfer of value is well regulated in the UK. If you routinely do business in high value items then you are required to register under AML regulations, which will compel you to have proper systems in place to identify and report suspicious activity. For example, if you buy an expensive piece of jewellery with cash you will be required to prove your identity. Most people currently do not, they use the traditional banking system, so their identity is easily known, and it is assumed the bank has already completed AML due diligence when the money entered their account.
In this context Bitcoin must be considered cash, for it bears all of cash’s characteristics. This means that high value cash purchases are likely to become more common. The regulations already exist, they simply need to be followed. The same as cash, many will choose to ignore the regulations, but, just as this does not make cash inherently dishonest, neither does it make Bitcoin culpable. In any case, most people do abide by the regulations, for they often find they have no choice. The jeweller who doesn’t ask his customer for proof of identity will soon find he is unable to pay his takings into a bank, or make big purchases with it himself, which is more relevant with Bitcoin.
Bitcoin certainly makes cross border capital controls very difficult to enforce, but it is important in a free society that laws adapt to new technology and not vice versa. It is also important that the presumption of innocence is maintained. The debate about how much of our financial information should be available to the authorities in their fight against crime is certainly a debate we should be having. If Bitcoin brings that debate forward then it should be considered yet another benefit of the cryptocurrency revolution.
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