The rise of Bitcoin and other virtual currencies in the past six months has seen exponential growth for a number of such cryptocurrencies. As well as Bitcoin – Ripple, IOTA and Ethereum have all seen their value shoot up. This is due to a number of reasons: potential partnerships with big tech players such as Microsoft, or, in the case of Ripple, its price was pushed up after the announcement that Japanese and Korean banks planned to test Ripple’s blockchain technology for payments solutions.
Another up and coming cryptocurrency called IOTA is being tipped as the next big thing. Instead of using the blockchain technology that many cryptocurrencies use, many believe IOTA’s Tangle ledger is superior to cryptos relying on blockchain technology. The sharp rise and drop in prices which characterises cryptocurrencies’ values shows how volatile they are and how reliant traders are on news announcements.
These cryptocurrencies are decentralised and not currently regulated, and therefore throw up a number of legal implications. Cryptocurrencies have been used for money laundering and illicit activities due to their anonymity. This has led the government to state that it is “working to address concerns about the use of cryptocurrencies by negotiating to bring virtual currency exchange platforms and some wallet providers within anti-money laundering and counter-terrorist financing regulation.” Under a EU-wide plan, online platforms where Bitcoin is traded will be required to carry out due diligence on customers and report suspicious transactions, in order to end the anonymity which has made the currency attractive to criminals. Cryptocurrencies have increasingly become a common method of value exchange in a number of types of criminal activity; notably in May 2017 the NHS was crippled by a global cyber-attack whereby Ransomware was utilized to demand payment for the decryption of encrypted files in bitcoin.
HMRC has not issued any guidance on how Bitcoin should be treated for SDRT or SDLT purposes. SDRT is charged on the amount or value of the consideration in question, which may be in money or money’s worth. The question is whether Bitcoin is regarded as money for these purposes. If it is not, its value for SDRT purposes would be the price it might reasonably be expected to fetch on a sale in the open market at the time of the agreement (to transfer chargeable securities) in question.
These legal and regulatory challenges must be kept in mind by commercial lawyers who are involved in litigation or transactions involving crypto currencies and their platforms. Frequent hacking and investment scams are common need to have up to date knowledge of the developments of crypto currencies in both the UK and on an international level.
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