Move over Bitcoin, here comes Britcoin?

17 Jun 2021, 54 mins ago

As it is with digital currencies, you have just started to understand Bitcoin, and then along comes talk of Britcoin.

To further complicate, this comes just at the time El Salvador becomes the first country to classify Bitcoin as legal tender.[1]

This blog will consider two overlapping issues: primarily, what is Britcoin, how does it differ from Bitcoin and is there any chance it could replace Bitcoin? Secondarily, what effects could the increasing classification of Bitcoin as legal tender have? (spoiler: potentially more crypto regulation!)

What is Britcoin?

Britcoin is the name affectionately given to a potential British Central Bank Digital Currency (“CBDC”).  Gherson have recently written a blog on what is a CBDC and other relevant questions.

Is there a Britcoin?

No, not yet. Although, Bank of England Governor Andrew Bailey at the launch of the Bank for International Settlement fourth innovation Hub in London recently expressed encouragement at the development stating (with regards to CBDCs): “If this comes to pass, it will be one of the most fundamental innovations in the history of central banking, it will move us into a new era”.  However, Bailey also later acknowledge some of the potential risks, noting in a recent speech to TheCityUK’s annual conference that “We cannot ignore the risks that digital money is attractive to money launderers and cyber criminals”.  Arguably, CBDCs will fundamentally change the world of finance. Gherson’s white-collar crime team have previously written about their effect on financial regulation and compliance.

How would Britcoin differ to Bitcoin?

Gherson’s white-collar crime team have in an earlier blog recently detailed the differences between CBDCs (e.g. Britcoin) and crypto-currencies (e.g. Bitcoin).

Despite the charming (but entirely coincidental) similarities in name, Britcoin is not a new version of Bitcoin.   In fact, although Britcoin would have some similarities with Bitcoin, it is the differences between the two that are arguably more significant.

The main similarity between Britcoin and Bitcoin is that they are both digital currencies (i.e. would only exist in a digital form).

However, Britcoin and Bitcoin would differ in relation to characteristics such as issuance (with Bitcoin being issued by software and Britcoin by the Central Bank) and the extent of decentralisation.  Indeed, Britcoin would be a form of Government controlled digital money.  Bitcoin is digital money which some would argue is currently outside government control.  Another way that they would differ is that Britcoin would be legal tender.

But hasn’t El Salvador just introduced Bitcoin as legal tender?

Yes, correct.  Until last week, Bitcoin was not legal tender in any country.  As one can imagine, this has been controversial.

Is Britcoin (or indeed any CBDC) likely to replace Bitcoin?

This is very unlikely.  Given the above differences between CBDCs and crypto-currencies, they still essentially serve different purposes with Britcoin being a replacement to cash, and Bitcoin often seen as being more a decentralised and easily transferrable store of value (think digital gold).   Of course, if Bitcoin is adopted as legal tender by more jurisdictions, then this will increasingly blur some of these differences as it becomes more a legal means of exchange.

What does all this mean?

In relation to the first issue, CBDCs and crypto-currencies are currently sufficiently different, and Bitcoin currently poses a low level of threat[2] so that they will, in all likelihood, co-exist side-by-side.  Therefore, we will probably have a situation where we have CBDCs and crypto-currencies, and Bitcoin and Britcoin (if introduced) will make at least content bed fellows. The impact of the introduction of CBDCs on the regulation of wider cryptocurrencies has recently been discussed in Does the introduction of CBDCs mean increased crypto regulation? blog.

Regarding the second issue, the introduction of Bitcoin as legal tender in one country should not materially affect this introduction of CBDCs.  For, in reality, the vast majority of countries will introduce their own CBDCs rather than make Bitcoin legal tender.   This is for obvious reasons – countries will understandably want to retain some control of their currencies. In addition, issues such as extreme volatility still make Bitcoin adoption as a legal currency difficult. Therefore, the most likely scenario is a situation where the vast majority of countries adopt CBDCs, with Bitcoin still being around and a legal tender in all but a few countries.

However, there is now a small possibility that if Bitcoin does increasingly become legal tender, and especially if more-and-more countries adopt it, it could be seen as competition against other currencies (and indeed CBDCs), and especially those currencies that have always been dominant (think any reserve currency).  This could lead to countries that do not wish to adopt Bitcoin as a currency, or indeed feel pressured by its increasing adoption as legal tender, putting increased pressure on Bitcoin.

Finally, whilst a Bitcoin “ban” is never off the cards, it should be noted that given Bitcoin is arguably impossible to ban (compare with trying to ban the internet), then countries would probably ban access to Bitcoin.  To conclude, as things currently stand, all roads again lead to increased crypto (including Bitcoin) regulation.

Gherson’s white-collar team are able to advise in relation to the regulation of bitcoin, digital currencies and related cryptoassets. Please do not hesitate to contact us for advice on your individual circumstances, send us an e-mail, or alternatively, follow us on Twitter to stay up to date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2021


[1] This means that every business there must accept Bitcoin as legal tender for goods and services (provided that they have the technological capabilities).

[2] Although the Basel Committee on Banking Supervision recently published a public consultation on preliminary proposals on the prudential treatment of bank’s cryptoasset exposure.