Virtual Currencies – Time to Regulate the Self-Regulating?

cryptocurrencies. The legal concept of currency is inherently tied to the idea of a legal framework for the KATHRYN CULHANE-TIPPER purposes of issuing banknotes and coins. Secondly, JS LAW the State’s power to regulate the monetary system is seen as a key feature of legal currency. The nature of Bitcoin contradicts this traditional understanding of Virtual currencies, also known as cryptocurrencies, currency. have grown in prominence in recent years. Ireland Criticism of Bitcoin has centred on it being acquired its first Bitcoin ATM in Dublin on March considered as a financial instrument, rather than a 13th 2014, and its first native cryptocurrency, the sui generis currency, and its unique nature wherein it “Gaelcoin”. These measures reflect the emergence of can be viewed as both a commodity and a currency. what is known as a “bitcoin bubble”. Bitcoin currencies Arguably, since fiat currency derives its value from are digital representations of value that are not government regulation rather than the backing of a recognised as legal tender and remain unregulated tangible commodity, it is devoid of an intrinsic value in Ireland. However, such self-regulating currencies just like cryptocurrencies. However, until virtual have proved popular with investors and as of 2018, currencies are protected under Irish legislation there are 1,623 currencies available online. and international instrument, Irish consumers are This popularity has not gone unnoticed; two recent left without a legal safety net. Concerns have also publications on cryptocurrencies indicate a desire been voiced regarding the absolutely devastating by the Government and Central Bank to adopt a effect it has on the environment, with ‘mining’ constructive approach to this area. The Department cryptocurrency having more than twice the energy of Finance, in its discussion paper “Virtual cost of mining copper or gold. Currencies and Blockchain Technology”, noted the This immense vulnerability associated with virtual opportunity to equip Ireland with a competitive currencies is demonstrated by the fact that Irish advantage in securing Foreign Direct Investment consumers who use them to pay for goods and in distributed ledger technology companies, which services are not currently protected by many EU is aligned with Ireland’s IFS 2020 strategy to foster laws. Specifically, virtual currencies do not fall opportunities in international financial services. within the ambit of protection guaranteed by current Furthermore, the Central Bank’s Director of Policy provisions, namely; the Consumer Protection Act and Risk argued that despite the risks, it is important 2007, the European Communities (Unfair Terms to consider regulation so the potential benefits can in Consumer Contracts) Regulations 1995, and the be assessed. Sales of Goods and Supply of Services Act 1980. Virtual currencies, such as Bitcoin, currently exist This opens up the possibility for virtual retailers and in a legally grey area. Virtual currencies are not hackers to take advantage of this vulnerability with compatible with statutory definitions of currency, little legal consequence. The Irish Government has nor has the Oireachtas legislated for practical made it clear that the introduction of regulation of controls to be implemented to regulate the purchase cryptocurrencies in Ireland will be driven by the and use of Bitcoins. Regulators such as the European Irish Central Bank and developments at EU level. Parliament and the International Monetary Fund In this regard, Ireland will be required to amend [IMF] have raised concerns about Bitcoin ever existing anti-money laundering regulations by since its initial growth. The lack of protection for January 2020, in light of the Fifth EU Anti-Money cryptocurrency users renders this a risky venture for Laundering Directive. potential customers. Arguably, if we view virtual currencies through the The aims of the regulatory bodies to bring Bitcoin lens of sui generis currencies, they could potentially be within the prerogative of oversight applied to regulated under Irish foreign currencies regulation. traditional financial bodies presents several This approach could provide a happy medium functional and political challenges. First, the insofar as it would be regulated, but not subject difficulties encountered in regulating and enforcing to the regulatory burden of a domestic currency. Bitcoin are reflective of the way society views However, if virtual currencies were viewed as a