As a form of digital currency, bitcoins have a history of fluctuating value; unpegged to an exchange rate, their perceived value is sensitive to speculation. But, should your unregistered bitcoin exchange go bust, do you have any legal rights to compensation?
In short: no. Bitcoins, despite their burgeoning appeal as an alternative medium of exchange, are unregulated in the UK. Crucially, the Financial Conduct Authority (FCA) has yet to incorporate bitcoins within the ambit of the financial services regulatory framework, arguing that they can neither be considered currency nor money as Economists may be aware. There are also variations on the status of bitcoins, county by county.
Equally, under the terms stipulated by the Electronic Money Regulations 2011, bitcoins fail to satisfy the definitional requirements of ‘e-money’, since they are not issued by an issuing authority on the receipt of funds. Even the Money Laundering Regulations 2007, by requiring the verification of a customer’s identity, dismisses bitcoins as an illegitimate currency. It only serves to follow that, as bitcoins continue to grow, the risk of consumer loss increases exponentially. Lawyers should consider whether our legal framework will ever adapt to draw them into scope – in short, can we add value to the inherently volatile?
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