The UK's influential Treasury Select Committee is to launch an inquiry into digital currencies and distributed ledger technology, scrutinising the regulatory response to the cryptocurrency boom from the Government, the Financial Conduct Authority, and the Bank of England.
The interest in Whitehall and Westminster in the cryptocurrency markets mirrors that of the ordinary man on the street following a year of boom and bust cycles on volatile virtual currency exchanges.
Commenting on the launch of the inquiry, Nicky Morgan MP, chair of the Treasury Committee, says: "People are becoming increasingly aware of cryptocurrencies such as bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors.
"The Treasury Committee will look at the potential risks that digital currencies could generate for consumers, businesses, and Governments, including those relating to volatility, money laundering, and cyber-crime."
Striking the right balance between regulating digital currencies to provide adequate protection for consumers and businesses, whilst not stifling innovation, is crucial, she adds.
The review has been welcomed by industry bodies. Lobby group CryptoUK, says: "Under the right regulatory framework, there is an opportunity for the UK to become a global leader in this exciting technology. Our message to the Treasury Select Committee is that it is entirely possible to deliver a regulatory framework which ensures consumer protection and which enables crypto businesses to thrive."
Nigel Green, the founder and CEO of deVere Group is advocating new rules which force transactions to run across regulated exchanges with the full support of the banking industry.
“Robust regulation that is devised, implemented and enforced by international financial regulators will mean further protection for the growing number of people using cryptocurrencies, the less likely it will be that criminals will use these digital payment methods, the less potential risk there will be for the disruption of global financial stability, and the more potential opportunities there will be for higher economic growth and activity in those countries which introduce it.”
For Lorraine Johnston, regulation counsel at law firm Ashurst, some form of regulation appears inevitable.
"Yet again the conflicting interests of supporting innovation vs consumer protection are being put under scrutiny, this time by the Treasury," she says. "But surely this is a crypto-conundrum that no country has yet solved adequately? I wouldn't, however, bet against some form of quasi regulation of digital currencies coming out of this."
While cryptocurrencies gather all the headlines, others are more interested in the secondary string to the Trasury's inquiry into the underlying blockchain technology.
Marcus Taylor, CEO at trading comparison site BrokerNotes, comments: “Currently, the cryptocurrency market is, quite frankly, a distraction. It's the wild west. Until we move beyond viewing cryptocurrencies purely as a tradable asset, to understanding the different applications of the underlying technology and the potential to make cryptocurrencies a viable alternative to fiat currency, it's going to be difficult to make any meaningful progress.
"The UK has a great opportunity to embrace blockchain technology and lead the way in building innovations that can help the UK economy. This is inevitable with or without government intervention. However, with the right level of regulation, funding, and support the government can certainly make things happen faster."