CRYPTOCURRENCIES When life is light years ahead of the law - - PowerPoint PPT Presentation

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CRYPTOCURRENCIES When life is light years ahead of the law - - PowerPoint PPT Presentation

Apr 04, 2024 183 likes •567 views

CALLINGTON CHAMBERS CRYPTOCURRENCIES When life is light years ahead of the law Advocate Vicky Milner Rob Dudley 12 June 2018 CALLINGTON Introductions CHAMBERS Advocate Vicky Milner, Callington Chambers Rob Dudley, CTO, Global

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CRYPTOCURRENCIES

When life is light years ahead of the law

Advocate Vicky Milner Rob Dudley 12 June 2018

CALLINGTON CHAMBERS

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Introductions

  • Advocate Vicky Milner, Callington Chambers
  • Rob Dudley, CTO, Global Advisors

CALLINGTON CHAMBERS

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Topics

  • Introductions; disclaimer
  • Basics and background
  • Hashing, mining, transfer and trading
  • Regulation and legislation
  • Questions

CALLINGTON CHAMBERS

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Disclaimer

Nothing in this presentation represents investment advice, regulatory advice and/or legal advice

CALLINGTON CHAMBERS

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Basics and background

CALLINGTON CHAMBERS

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Money; currency

  • What is money?

– A medium of exchange; – A unit of account; and – A store of value

  • What is currency?

– A recognised system of money in common use – especially in a nation

  • What are cryptocurrencies?

– It depends…

CALLINGTON CHAMBERS

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Traditional (centralised) model

CALLINGTON CHAMBERS

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Traditional (centralised) model

CALLINGTON CHAMBERS

Trust

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Trust?

  • Do you trust that a bank that holds your money will pay

you your money on request?

  • Do you trust that the system is properly governed and

regulated?

  • What about the general public?

CALLINGTON CHAMBERS

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Decentralisation

CALLINGTON CHAMBERS

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What are cryptocurrencies?

Investopedia definition: “A cryptocurrency is a digital or virtual currency that uses cryptography for security… [A cryptocurrency] is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.”

CALLINGTON CHAMBERS

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Bitcoin

According to bitcoin.org: “Bitcoin is an innovative payment network and a new kind of money. Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.”

CALLINGTON CHAMBERS

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Bitcoin

2009 Creation of Bitcoin 05.12.13 Bank of America Merrill Lynch’s report: subject to factors inc BTC’s volatility and uncertain legal status: “…the currency has the potential to become a "major means of payment for ecommerce" as well as a "serious competitor to traditional money transfer providers."”

CALLINGTON CHAMBERS

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CALLINGTON CHAMBERS

27.01.14 “Bitcoin Operators Charged In NYC ‘Silk Road’ Drug Bust” 29.05.15 Ross Ulbricht sentenced to life imprisonment for

  • peration and ownership of Silk Road, hidden website used for

buying and selling illegal drugs and other unlawful goods and services 21.03.14 www.jerseylaw.je AG v Redon & Dowinton 28.02.14 “MtGox files for bankruptcy in Japan after collapse of bitcoin exchange” Dec 2015/Jan 2016 Walport report 26.09.16 Jersey’s virtual currency regulation in force

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The Guardian 11.04.18

“Bitcoin is the first, and the biggest, “cryptocurrency” – a

decentralised tradeable digital asset. Whether it is a bad investment is the big question. Bitcoin can only be used as a medium of exchange and in practice has been far more important for the dark economy than it has for most legitimate uses. The lack of any central authority makes bitcoin remarkably resilient to censorship, corruption – or

  • regulation. That means it has attracted a range of

backers, from libertarian monetarists who enjoy the idea

  • f a currency with no inflation and no central bank, to

drug dealers who like the fact that it is hard (but not impossible) to trace a bitcoin transaction back to a physical person.”

CALLINGTON CHAMBERS

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The Tech

CALLINGTON CHAMBERS

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How do cryptocurrencies work?

  • Hashing & Merkle Trees – aka a Chain of Blocks
  • Hashing for profit – aka Mining
  • Transfer & Trading

CALLINGTON CHAMBERS

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Hashing

  • Taking an input string of any length and giving
  • ut an output of a fixed length
  • The same input will ALWAYS generate the same
  • utput
  • The odds of two different inputs producing the

same output are very, very low

  • Hashing is one way

CALLINGTON CHAMBERS

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Merkle Tree

A tree of hashed data where each non-leaf node is the hash of the values of their child nodes

CALLINGTON CHAMBERS

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Chain of Blocks

The blockchain is a linked list which contains data and a hash pointer which points to its previous block, hence creating the chain

CALLINGTON CHAMBERS

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Blockchain

  • Cryptographically secure
  • Irreversible / Immutable*
  • Decentralised / Distributed

*Except for hard forks

CALLINGTON CHAMBERS

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Mining

  • The network specifies difficulty – a target

number

  • Miners try to guess a hash that is less than that

target by brute force

  • If successful the miner is rewarded with coins &

a new block is created

  • The whole network will verify the block -

consensus

CALLINGTON CHAMBERS

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Mining

CALLINGTON CHAMBERS

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Transfer

CALLINGTON CHAMBERS

  • Transactions sent from address to address
  • Signed with a wallet’s private key
  • Signature can be verified by the network and so

TX can be verified

  • Balance checked against existing ledger to

prevent over / double spending

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Transfer

CALLINGTON CHAMBERS

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Trading

  • 198 crypto exchanges for a total 24h volume of

~$4B over 6,847 trading pairs

  • Centralised & decentralised exchanges exist
  • The usual rules of an exchange apply

CALLINGTON CHAMBERS

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CoinDesk BTC values Jul 2011-Jul 2016

CALLINGTON CHAMBERS Early 14 Jul 16 $1000

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CoinDesk BTC values Jun 2015-Jun 2018

CALLINGTON CHAMBERS End 2017 Jun 18 $20,000 $700 $7,000

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Legislation & regulation

CALLINGTON CHAMBERS

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Legislation & regulation

  • What is a government trying to achieve?

– Protect the public (consumers) through laws + regulation (enforcement systems & processes) – Taxation of business profits – Transparency and certainty

  • What are you dealing with?

CALLINGTON CHAMBERS

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Legislation & regulation

CALLINGTON CHAMBERS

“Is it a bird? Is it a plane?”

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Legislation & regulation

  • What are you dealing with?

– Is it money, currency or a commodity? – Depends on the jurisdiction/political will

  • How do you regulate?

– Identify where risk, profit, action or opportunity arises – Regulate at relevant interface

CALLINGTON CHAMBERS

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Jersey’s regime

CALLINGTON CHAMBERS

  • 2014 Income Tax policy published
  • 2014 Trading Standards policy published
  • 2016 changes to Proceeds of Crime Law to

apply Money Laundering Order

– NB Exemptions for low value exchanges (turnover under €150,000) and transactions (under €15,000)

  • 2017-2018 JFSC warnings on Initial Coin

Offerings (ICOs)

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Other jurisdictions:

CALLINGTON CHAMBERS

Countries welcoming crypto/blockchain opportunities inc:

  • Japan, Malta, Spain, Switzerland (FINMA)

Countries against or unclear inc:

  • China, Russia
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Challenges

CALLINGTON CHAMBERS

  • Pace of change/future proofing
  • Scalability
  • Environmental concerns
  • Insolvency, insurance, death
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Blockchain

CALLINGTON CHAMBERS

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Questions

CALLINGTON CHAMBERS

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Contact

Advocate Vicky Milner Callington Chambers E: vicky.milner@callingtonchambers.com T: (01534) 510250 Rob Dudley Global Advisors E: rdudley@globaladvisors.co.uk T: +44 7555 355 405

CALLINGTON CHAMBERS