The author Peter Adediran is a UK qualified and fully licensed current practising solicitor specialising in assisting businesses at the point at which intellectual property meets digital technology. His breadth of experience over 10 years means that he has been an important influence in supporting SMEs’ transform the intellectual property and information technology aspects of their business that have had a significant financial and reputational impact on those businesses.
 

Introduction
 
The overwhelming reaction when discussing the investment viability of blockchain and Bitcoin is a mixture of interest, confusion and scepticism. Most people think it’s a bubble, others think it’s fascinating, almost all admit to not really knowing enough about it. The excitement surrounding blockchain and cryptocurrency reminds me of the .com era in the 90s and the similar reaction to talking about that digital revolution. Yes, that was a bubble as well peaking in early 2000s. Those of us who rode that roller coaster ride remember the joke “How do you scare a venture capitalist?” “You say Boo.” If you remember the fate of Boo.com you will totally understand the joke even if you do not find it funny. But the Internet as a serious business platform endured, and continues to disrupt and revolutionise the traditional terrestrial business paradigm.
 
Is Cryptocurrency a bubble?
 
Blockchain and its use as a digital currency whether it be Bitcoin or the hundreds of alternatives that are being continually developed aptly known as alt-coins, might also be a bubble in the short term. But blockchain and cryptocurrency will endure. My view is that it will eventually have the same effect as the commercial Internet has had on the global financial and business ecosystem.
 
It is suggested that cryptocurrency and its underlying technology – blockchain have a very serious future as an alternative financial medium of exchange, store of value and for almost as many other business and financial applications that the mind can conceive. It is abundantly clear to me that blockchain is a major disruptive technology that is still in the very early stages of development and is a long way from its full potential.
 
What is with all the jargon?
 
But what is cryptocurrency? What is Bitcoin? Who or what is blockchain? What is digital currency? What is virtual currency? Are all these new technologies and financial technologies the same thing or they all different but somehow related? And more importantly from a lawyer’s perspective, what if any rules control the activity of these new technologies? Understanding the answers to these questions at a very top level is what this article aims to do. The idea is to provide a starting point that might inspire interest to delve a deeper into the subject.
 
The terms virtual currency, digital currency and cryptocurrency are often used as if they mean the same, but they do have different meanings.
 
Virtual Currency
 
In a 2012 report the European Central Bank said the following about virtual currency:
 
“Virtual currency schemes are relevant in several areas of the financial system and are therefore of interest to central banks. … The issuer of the currency and scheme owner is usually a non-financial private company.”
 
A 2015 ECB Report says:
 
“Virtual currency is also not money or currency from a legal perspective. For the purpose of this report, it is defined as a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money.”
 
So, a virtual currency is a digital currency which is usually used within a private virtual community. It is decentralised and usually used to pay for things within the virtual community that created it. A great example is Linden Dollars used in the Second Life a virtual community developed by Linden Lab.
 
Cryptocurrency
 
As the name suggests cryptocurrency is a kind of advanced secure method of storing and transmitting data in the public domain that can be used as digital currency. Cryptocurrency like Bitcoin are a decentralised peer to peer cryptosystem. You’ll never hold cryptocurrency in your hand since they exist only in a virtual filed of mathematics, code and changing balances from private or public keys which correspond to account numbers.
 
The Bank of England describes cryptocurrencies as private digital currencies as follows:
 
“Private digital currencies combine new payments systems with new currencies that are not issued by a central bank. The most well-known privately issued digital currency is Bitcoin, but other examples include LiteCoin, Ethereum and Ripple.”
 
This definition is however a little confusing as cryptocurrencies are not private in that they are part of a private network like Second Life. They are a part of an open source peer to peer network and anyone can make up the network by embracing the cryptocurrency.
 
As the Bank of England definition states, Bitcoin is the most famous of all the cryptocurrencies. It is virtually impossible to discuss any cryptocurrency without explaining Bitcoin which was the first ever major cryptocurrency. As you might expect from an exciting new financial technology (born in 2009) it is the underlying technology behind Bitcoin – Blockchain – that is the source of the excitement.
 
Digital Currencies
 
Both cryptocurrencies and virtual currencies are digital but digital currencies are wider in scope. Any electronic financial payment is digital currency. Cash substitute currencies are regulated by the Payment Services Regulations 2009, SI 2009/209 (replaced by the Payment Services Regulations 2017 on 13 January 2018).
 
Blockchain
 

There are literally thousands of different cryptocurrencies, the vast majority of which fail within the first few weeks or months of launch.

 
At the top level, I would describe blockchain as an open source platform on which cryptocurrency is exchanged. A little bit more technical, and I would describe blockchain as a cryptographic decentralised ledger that maintains the 4 fundamental characteristics of cryptography 1. Platform confidentiality; 2. Platform integrity; 3. Non-repudiation; and 4. Authentication of information stored, or transactions exchanged via the platform.
 
In the case of cryptocurrency, it records all the transactions ever made in a virtual currency, which is distributed to all participants in the cryptocurrency network upon a block being updated. Records of transactions, information and data make up each block with a header including metadata such as the time, reference number and cryptographic hash identifying the previous block in the chain – hence the phrase blockchain.
 
Blockchain technology offers enormous technological advantages which far exceeds currency alone. Smart contracts, for example, are a major part of the value of the blockchain platform Ethereum. Ethereum sprung out of the blockchain platform. The currency known as Ether is exchanged on the Ethereum platform. Other technologies including Litecoin, Ripple and many more alt-coins have all sprung from the blockchain platform. The reason why coins like Ether, Litecoins etc are known as alt-coins is because they are all in one way or another an attempt to improve on Bitcoin which is still the most credible cryptocurrency, with the largest market capitalisation valuation. There are literally thousands of different cryptocurrencies, the vast majority of which fail within the first few weeks or months of launch.
 
Public and Private Blockchain Platforms
 
Although the blockchain is open so that anyone can design programmable functions for executing transactions and trades, private blockchain platforms exist. So, whilst it is possible to have public blockchain platforms like Bitcoin, it is also possible to have private blockchain platforms allowing only pre-authorised access. It is also possible to have a blockchain platform that is both public and private. You can expect that the financial sector particularly will be switching over to blockchain platforms gradually over the next decade as they move away from less secure outdated legacy IT systems. In October 2017 Mastercard following others in the financial services sector, Mastercard launched its own blockchain payments network to enable partner banks, and merchants to make cross-border payments. In the same month, IBM and Stellar launched blockchain banking across multiple countries .
 
Regulation of Blockchain
 
The regulation of blockchain is still in its infancy. All indications are that regulators see the potential of cryptocurrency and are not rushing to impose hard regulation that will stifle or totally kill its development.
 
Last year in a keynote speech Mary Jo White of the US SEC stated:
 
“Blockchain technology has the potential to modernize, simplify, or even potentially replace, current trading and clearing and settlement operations. …we are closely monitoring the proliferation of this technology and already addressing it in certain contexts..One key regulatory issue is whether blockchain applications require registration under existing Commission regulatory regimes, such as those for transfer agents or clearing agencies. We are actively exploring these issues and their implications.”
 
In June 2016 the Bank of England launched its Fintech accelerator programme, the Governor of the bank of England Mr Mark Craney stated that the BofE “will work with new technology firms to help us harness FinTech innovations for central banking.”
 
The European Parliament in its draft report on regulating virtual currencies has stated that it intends to take a proportionate regulatory approach so as not to stifle innovation.
 
Conclusion
 
The cautious tone of the regulators in applying hard regulation to blockchain and cryptocurrency supports the universal appeal of blockchain and the distributed ledger innovation as a potential technology to modernise the current flawed financial system and as a driver of economic growth. At this time these cryptocurrencies are insignificant when compared with the size of the fiat currency, stock market and storage of value commodities like gold – which in October 2017 was reported to be USD7.8 trillion according to the World Gold Council. For the reasons of their potential, and relative insignificance in the global financial markets, cryptocurrencies are mostly softly regulated. However, as the technologies grow in acceptance and wide use, hard regulation that seeks to promote trust and stimulate the use of cryptocurrency might have the alternative outcome of stifling the growth or totally killing cryptocurrency which is a major investment concern. To delve deeper into the existing complex framework of regulation governing cryptocurrency and blockchain around the world in taxation, licences and soft rules will require consultation with a specialist regarding the particular technologies and circumstances.
 
We are delighted to be part of the digital technology industry which is the leading edge of business today that is transforming more peoples’ lives than any other industry. We would really enjoy using our expertise and resources to help you succeed. If you wish to contact us for specific advice about the complex framework of regulation relating to cryptocurrency and blockchain email to support@pailsolicitors.co.uk.