The fintech (Financial Technology) industry is one of the fastest-growing in recent memory. It combines the technological advancements of the past few decades with new opportunities and possibilities in the financial sphere, to describe a new range of products and services that provide tech-based financial solutions in many forms.
The average consumer encounters the fruit of fintech several times a day in today’s world; digital banking services are fintech products, as are digital payment processors. More individuals have been able to engage with the stock market, on account of an upwelling of apps and programmes that allow ‘retail investors’ access to the stock market. But one of the crowning achievements over the last few years in fintech has been cryptocurrency and crypto-related products.
Cryptocurrency and Decentralisation
Cryptocurrency is a form of digital asset, being a non-corporeal form of currency ‘minted’ and traded online. It is based on blockchain technology, whereby complex algorithmic calculations form the basis of node-based peer-to-peer filesharing.
The blockchain is a powerful development, on account of enabling rarity in previously-unprotectable forms of digital information. A truly unique piece of data can be created, and cannot be emulated; its movement from person to person can be tracked immutably, and the entire system is decentralised – meaning no central element can affect or override the system.
All aspects of this are useful and even profitable for businesses of all kinds, but they also throw up some unique regulatory challenges – which legal systems and firms alike have been struggling to catch up on.
Indeed, decentralisation is one of the key sticking points when it comes to the regulation of cryptocurrencies and crypto-adjacent assets like NFTs. Items of value can theoretically be passed across borders without due checks and balances – potentially violating the laws of other nations. The blockchain can also play a central role in tax avoidance or other transgressions of financial regulation, while bad actors have been able to use the platform to defraud others.
There are specialists in the crypto sphere that are paving the way to ensuring new businesses remain regulatorily compliant, and that any new products, services or processes involving cryptocurrency are above-board. However, most countries are unable to address outdated financial regulations as quickly as cryptocurrency technologies are developing – creating ambiguity in dangerous levels.
So, what can be done by businesses to adapt around these ambiguities, and what can law firms do to adapt in their own ways? The answer to both is research. Understanding as much as possible about the shape of the industry is key to navigating it in the most effective and compliant way possible. There are law reviews and reports underway that are set to define upcoming legislation relating to decentralised networks, knowledge of which can be crucial to instituting new changes and technologies with longevity in mind.