Are you interested in cryptocurrency but wondering if it’s going to be banned or face tighter regulation in the UK? You’re not alone.
There are plenty of reasons to be nervous about a crypto crackdown, although it’s doubtful there’ll be an outright ban on Bitcoin (BTC).
The most likely scenario is much tighter regulation, especially when it comes to money laundering and ransomware attacks.
UK regulators are increasingly turning the spotlight on crypto so here we take a look at how the future of digital currencies may look in the UK.
Can Bitcoin be banned?
First off, it’s important to note that while individual countries can and have effectively banned Bitcoin or made it illegal, it’s not controlled by any one entity or nation.
The decentralised nature of Bitcoin means that as long as the internet and computer networks exist there’ll always be scope for digital currencies to exist.
In the UK, while it’s completely legal to buy and use Bitcoin, the Financial Conduct Authority (FCA), has banned the sale of more complex financial products, such as crypto-related derivatives and exchange traded notes (ETNs).
The FCA states that it considers these products unsuitable for retail investors (the average person in the street) due to what it claims is the “harm they pose.”
The regulator also cites what it says is no reliable way of valuing the assets, and the level of financial crime associated with crypto as further reasons for banning these products.
So, this isn’t a ban on Bitcoin in the UK, but it’s clear the FCA is looking at the activities of crypto firms closely.
What happened with Binance?
Anyone worried about an impending ban on Bitcoin may have been spooked by the FCA’s decision to prevent Binance, one of the world’s largest crypto exchanges, from carrying out regulated activity in the UK.
Additionally, multiple banks have decided to halt transactions to and from the exchange, leaving many customers frustrated.
UK residents are still able to use Binance to buy and sell crypto legally, but not for any regulated activities.
However, you might find that you might need to transfer your crypto to another exchange and sell it there if you want to cash out to your high street bank.
Related link: The top 5 crypto exchanges for UK investors
Countries that have banned Bitcoin
It is possible for a country to ban Bitcoin use and related activities, such as mining, as evidenced by China.
At one point the country was the global centre for Bitcoin mining activities but strict new rules banning this saw a mass exodus of miners to more crypt-friendly nations.
China has also banned crypto exchanges from operating in the country while at the same introducing its own centrally regulated digital currency.
India is another country that’s taking a tough line on crypto. Although it’s current measures don’t quite constitute an outright ban on cryptocurrency, future regulations might.
A ‘Cryptocurrency and Regulation of Official Digital Currency Bill 2021’ aims to effectively prohibit most cryptos in the country, aside from an official Central Bank Digital Currency (CBDC) created by the Reserve Bank of India.
However, there’s a widespread push back against the rules given India’s position has a startup hub and a hotbed of young tech entrepreneurs. It also has the highest number of crypto users in the world.
Other countries where Bitcoin is illegal include Nepal, Vietnam, Ecuador, Bolivia, Algeria and Egypt. North Macedonia is so far the only European country to ban crypto altogether.
In other countries, crypto is a grey area.
Iran, for example, prohibits the trading of cryptos produced by overseas miners. However, it actively encourages licensed Bitcoin mining in the country (while cracking down on illegal operations).
Turkey and Indonesia have banned the use of crypto as a means of payment, while Colombia has called a halt to financial institutions becoming involved in crypto.
Could the UK Government ban Bitcoin?
Bitcoin is currently legal in the UK in a similar fashion to the US, but will the Government try to ban it?
As we’ve already highlighted, the FCA is taking a close look at crypto regulations and the British government is consulting on launching its own CBDC.
In the US, the Securities and Exchange Commission (SEC) is also examining crypto closely, especially in light of a raft of applications for a pure Bitcoin Exchange-Traded Fund (ETF) that have been submitted.
So far, it has only green lit a futures Bitcoin ETF yet remained steadfastly resistant to a pure version of the investment instrument.
Although it would appear unlikely at this point that the UK or the US will issue a blanket ban on crypto, there’s always the possibility that a future administration will take a more hardline stance.
How would a Bitcoin ban be enforced in the UK?
Even if the UK Government were to make Bitcoin and other cryptos illegal, actually enforcing the ban in a democratic country is extremely difficult.
It would require the authorities to effectively take control over the internet and create a firewall preventing access to a whole raft of services.
Even in authoritarian nations, trying to ban Bitcoin completely is pretty much impossible.
Industry commentators point to the fact that there are still many active crypto users in countries that have banned Bitcoin.
There are several ways that those determined to use crypto can get around the rules.
These include using a Virtual Private Network (VPN), or even tapping into the Blockstream satellite which helps run the network.
Blockstream broadcasts real-time Bitcoin transactions form a network of satellites in space and can be accessed from anywhere in the world using relatively inexpensive equipment.
It’s aim is to give everyone in the world free access to the Bitcoin network.
So, it’s clearly that people will find a way to access the blockchain and that a Bitcoin ban is virtually impossible to police completely.
Any ban in the UK would likely involve restricting the use of mainstream crypto exchanges and other financial services.
This would certainly deter a lot of casual retail investors, but there would undoubtedly be a hardcore group who would persist in using crypto, especially as it’s now so prevalent among tech savvy millennials.
Bitcoin proponents argue that if a Government tries to ban Bitcoin it’s likely to be authoritarian in nature and this very fact means a decentralised currency offering financial freedom to the masses is needed more than ever.
You may also like: Can Bitcoin or the blockchain ever be hacked or shut down?
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).