To provide further transparency between holders of Bitcoin, the blockchain can be used to explore every transaction between any Bitcoin addresses anywhere on the network, at any time. Every new block of transactions is added to the blockchain, creating a detailed archive, which is continuously updated for every participant.
Security
Digital security is provided through hashes: an algorithm-created sequence of letters and numbers, which is stored along with the block and date-stamped at the end of the blockchain.
Each hash is unique containing additional security data linking it to the hash of the previous block in the chain. This confirms that this block – and every subsequent block – is legitimate. If it has been interfered with, everyone knows.
Miners are rewarded with Bitcoins for their efforts in sealing off blocks with a hash. This process is competitive and arduous, but the reward creates an incentive to continue mining, and keep transactions flowing.
So how does the law deal with Bitcoin and other emergent cryptocurrencies? Several countries have taken steps to ban Bitcoin altogether, although in most jurisdictions it is legal. Its use, however, is not yet widely regulated.
The main concern of governments involves its widespread use in criminal acts, ranging from money laundering and drug trafficking to tax evasion and terrorism. Bitcoin exchanges in several countries are subject to their anti-money laundering (AML) laws.
The European Union has committed to tightening its digital currency rules, including Bitcoin, by the end of this year. In the US, various government agencies have been tasked to ensure that Bitcoin transactions are undertaken within the law. Last year, a Florida court ruled that Bitcoin should not be classified as money.
United Kingdom
In the UK, there continues to be a distinct absence of regulation or judgments defining its status.
The collapse of Mt.Gox in 2014, a leading bitcoin exchange, did lead to litigation in the UK. The Tokyo-based exchange, which had handled 70 per cent of all Bitcoin transactions, suspended trading and was liquidated, after $450m (£333m) disappeared. Two smaller UK exchanges, Moolah and MintPal, have also led to disputes.
It is distinctly possible that UK consumers could be adversely affected by fraudulent platforms involving digital currencies: lack of regulation and effective monitoring leaves them wide open to potential fraudsters. Regulators could protect or enhance protection for UK consumers by introducing a system of licensing, reporting and auditing for businesses operating such platforms which could do much to help prevent this – as applies in other areas of financial services.
Nevertheless, domestic law surrounding Bitcoin-related litigation remains ill-defined, especially in relation to civil fraud. This produces inevitable uncertainty for consumers.
