Cryptocurrency was first developed about 10 years ago and is now on the rise in terms of popularity and is renown around the globe. In Australia it is still not commonly used but as more and more people develop an awareness and understanding of cryptocurrency it will become important for lawyers and advisors to be aware of the intricacies and fundamentals that cryptocurrency brings.
Broadly speaking, cryptocurrency is a digital asset that uses cryptography to secure financial transactions. Cryptocurrency works through blockchain technology and involves a list of records or transactions which are all linked together using cryptography. A blockchain has the advantage of being very secure as each transaction in the chain is linked to the transaction that came before and after it.
Blockchain technology also does not have any central server and cannot be changed from a single computer and therefore offers a level of security that current computer systems with a central server cannot offer as a central server is more susceptible to hacking.
Despite this advantage, along with others, cryptocurrency is not without its drawbacks. One disadvantage is that cryptocurrency is an exceptionally volatile investment and has been subject to dramatic swings in value since its inception.
An ever increasing number of suppliers of goods and services are accepting common cryptocurrencies (such as bitcoin) in exchange for their products. The fact remains though, that for a transaction to be completed using cryptocurrency, a buyer and seller both willing to accept this form of currency need to be found before a transaction can be contemplated. For small immediate transactions such as the purchase of groceries where the cryptocurrency is provided in exchange for goods the transaction works in a similar fashion to a transaction using normal currency.
Some issues would arise if a longer term settlement was considered. Purchases of land and motor vehicles amongst other things are not instantaneous transactions, additional time is required in order to prepare and finalise the settlement process. Due to the volatile nature of cryptocurrency an agreed purchase price of, for example, $100,000.00 could be worth significantly more units of cryptocurrency when the settlement date arrives than it was when the price was agreed between the parties.
There is also the issue that specialised contracts dealing with the many intricacies and nuances of cryptocurrency would need to be prepared in order to properly document such an agreement. The current standard form contracts used by the various industry sectors for all kinds of transactions do not accommodate payment by cryptocurrency.
Cryptocurrency is a new and exciting area with many potential uses across all industries. We will continue to watch this developing space and provide assistance to all of our clients who may be interested in transacting with cryptocurrency.