Bitcoin Split: Comment from Law Firm Gowling WLG

Christian Kourtis, Senior Associate at Gowling WLG:

“Authorities may argue that technical events, such as forks on the network, mean that greater regulatory supervision is required for cryptocurrencies to protect the public. Today’s Segwit2x and Bitcoin Cash fork poses a risk for users of the cryptocurrency during the transition phase. In the event that only a minority of the network computing power supports one of the branches there is a potential for this weaker branch to become orphaned by the network or, in certain circumstances, for the forks to converge resulting in the “wipe out” of the weaker branch.

Here, there is clearly a risk to the public if they do not fully appreciate the significance of these technical events.

The US Securities and Exchange Commission issued an investigative report last week which concluded that the offer and sale of digital assets are subject to the requirements of federal securities laws.  The question is then whether Bitcoin Cash constitutes a new issue of virtual currency.  If it does, then in the US at least it is likely it may be treated as a security unless a valid exemption applies.  This brings Bitcoin and other crypto currencies nearer to an environment where regulation is the norm.

This is good news for investors who can buy investments which are subject to proper disclosure and regulatory scrutiny.  It’s also good news for issuers as regulation brings greater confidence and credibility.  However, the continuing issue for authorities is that they are unable to enforce regulations on the decentralised network. As has always been the case, the only point of access is vis a vis the virtual currency exchanges which are only a small piece in the overall consensus network.”