The UK government’s Digital Currencies Inquiry is currently open, and is assessing whether they should regulate digital currencies.
The inquiry will cover the topic of whether to regulate digital currencies in the UK, based on the opportunities and risks that the digital currencies pose for consumers, businesses, and the government.
The key question for the inquiry is: is it possible for the government to regulate digital currencies without stifling innovation? And is regulation a necessary step to protect consumers?
What are digital currencies?
Digital currencies, otherwise known as cryptocurrencies, are an alternative to fiat currency (the money which is common currency, established by the government as money). One example of digital currency is Bitcoin, a decentralised digital currency which is not mediated by a bank. Bitcoin is a controversial, but technologically sophisticated alternative which is prompting the government to assess in depth the potential risks and benefits of digital currencies.
Digital currencies work by verifying online payments through distributed ledger technology, such as blockchain, rather than through a bank.
The use of digital currencies in the UK
The government’s inquiry will assess the role of digital currencies in the UK for consumers, business, and the government. There are many answers which need to be established before they can decide whether it is desirable, and feasible, to regulate digital currencies.
Some of the topics which they will assess include:
- Could digital currencies feasibly replace fiat currency entirely?
- Will digital currencies substantially disrupt the economy and public sector?
- What are the benefits of using distributed ledger technology in the financial services sector?
- Should the government regulate digital currencies to assist start-ups by improving consumer trust?
- Do other countries regulate digital currencies, and what is their approach?
The government will receive evidence to answer these questions and more, which will ultimately inform their decision on whether they should regulate digital currencies.