Is it legal and is it safe to use digital assets for payments?

‍In this video we’re going to give a legal perspective on distributed ledger technology and digital assets.  
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In recent months, we’ve seen policymakers and regulators around the world clarifying their approach towards digital assets like stablecoins and we’re starting to see greater harmonisation of the rules globally.

But a lack of clarity today has left many businesses uncertain about how to move forward.

I’ve invited Charles Kerrigan from law firm CMS to share some insights. So, Charles, over to you:  is it legal to make payments using digital assets, and is it safe?

Thanks Juliana. Is it legal?  A big question!

The first question in any analysis here is: are crypto and digital assets property? This is fundamental to whether a market can develop and operate – uncertainty about legal recognition of assets means there just won’t be a market.

In the UK we have good news – the Law Commission’s report not only says they are but also says why they are in most jurisdictions, we’re getting to the same place then, why use DLT in practice?

For money there is an easy answer. A blockchain is in effect an information security system – it verifies messages, and senders, and receivers – money sent digitally is just a kind of secure messaging – so a better system of secure messaging is a clear improvement – and from this we can see why blockchains help with compliance with obligations to manage and monitor transactions

And, digital is now mainstream in money – a majority of central banks are now running digital currency projects and stablecoin projects - governments are joining the movement

Why? digital = personal = better customer-service

‍Next question: is it safe?

‍This is in 2 parts –1. do criminals use it?  2. Is it too volatile to use?

1. criminals don’t like crypto because law enforcement does – they can trace it
2. It is volatile but you don’t have to have exposure, few businesses that accept crypto actually hold on to it
   

And - it is composable – that means it’s like lego – you can build with it – so, firms with low risk tolerance can manage their risk by being compliance-first

That brings us to compliance. The first rule of crypto is: don’t facilitate financial crime

How do we think about that?  The best way to look at is through the lens of the Financial Action Task Force recommendations – they apply to everything, not just crypto – they set a global standard and then countries set local standards

The top 3 points:

• International cooperation
• Prevention focused
• Sharing of intelligence‍

Let’s look at that again through crypto:

- international cooperation – that is a perfect match – crypto is borderless

- prevent issues before they happen – again, spot on – customers have visible transaction histories in crypto

- sharing information – another hit – blockchains are sharable digital databases

So – what do we know?

These are real assets, governments are using them, a compliance-first strategy is a well-trodden path. But more than that – customers want them – life is online and crypto and digital assets are part of the currencies there – you don’t have to be first but you don’t want to be last – that time is now.

Related resources:

CMS Expert Guide to Crypto Regulation: A Summary of Law by Country‍

Blockchain & Cryptocurrency Laws and Regulations | UK | GLIWarranties in corporate transactions involving tokens or blockchains
‍Data Assets: Tokenization and Valuation paper
‍UK Finance & CMS: Non-fungible tokens in financial services