The Irish Department of Finance recently published a discussion paper (the Paper) on virtual currencies and blockchain technology. The Paper highlights the key concerns and policy issues generated by these issues and proposes the establishment of a Working Group within the Department of Finance to monitor further cryptocurrency developments and address relevant considerations.
The Paper provides an overview of the key elements of virtual currencies and the blockchain technology supporting them, noting that the new technology has the potential to become highly disruptive. The Paper considers how virtual currencies impact consumers and companies in the fields of taxation, data protection and EU financial services regulation and sets out the key risks and opportunities that these technologies present.
The Paper notes the exponential growth of the market for virtual currencies, which was roughly €20 billion at February 2018, larger than Ireland’s 2016 GDP, or nearly four times the combined market capitalisation of the ISE’s 20 largest companies.
The Paper notes the international adoption of virtual currencies and also notes that there is no globally accepted approach to their regulation. The Paper sets out examples of several jurisdictions’ attitudes toward virtual currencies and the fact that these countries have not adopted the same pattern of approval. The Paper also describes the approach of the opponents to the technology, including nations that have prohibited virtual currencies.
Several benefits of virtual currencies are detailed in the Paper, and the technology’s power to transform industries by enhancing the speed, accuracy and reliability of information processing is noted. This recognition of these benefits is to be welcomed.
Risks of the use of virtual currencies to consumers, businesses and economies are highlighted. The primary stated risk is a lack of consumer protection. Criminality is also identified as a major issue for regulators, including the potential ability to avoid anti-money laundering protocols typically required by traditional financial institutions.
The Paper addresses the impact of virtual currencies on data protection. By the very nature of blockchain all information surrounding a transaction is recorded, permanent and immutable. The details of a transaction are disclosed to all parties on the network, thereby limiting the data controller’s ability to adequately manage the information in line with European data protection laws.
The Paper concludes that no one policy measure or state agency has the ability to address all the risks and opportunities that virtual currencies present to Ireland. It notes that holistic policy measures are required to encourage the innovation while addressing the risks to consumers, investors and businesses. The Department of Finance has therefore instructed the creation of an intra-departmental working group to monitor developments at a European and a global level and to consider whether suitable policy recommendations are required.
Accordingly, further policy statements are to be expected from the Irish Government and the Cryptocurrency and Blockchain Working Group and Dechert will continue to monitor and report upon related developments.