Bitcoin is the most well-known type of cryptographic currency which came into existence in 2009, following the global market crash. Throughout recent years Bitcoin has exploded in its popularity. Despite this, there has been a grey cloud pending over Bitcoin and its validity. Is Bitcoin a new form of currency that is part of the dark online underworld? Or is this simply a combination of currency and technology in an ever-evolving technological world? To help answer these questions, it is important to understand some of the key terminologies and exactly how Bitcoin operates.
What is Bitcoin?
Bitcoin is a digital currency that is held electronically in a ‘decentralised application’ meaning that it is not under the control of a single person, bank or government. In most instances, decentralised applications provide the means to move assets from one individual to another. This process is completed by using ‘blockchain’, which involves blocks of data being sent from one person to another destination.
To proceed with a transaction, the sender puts Bitcoin into a block, which is then encrypted by the individuals, otherwise known as ‘miners’ and sent to the recipients ‘public key’. Essentially, miners are the computers that are told to encrypt the blocks on the blockchain. The miners charge the sender a small fee for this service, which is the incentive to make the decentralised application operate. The recipient can then spend the Bitcoin with their private key, which is similar to a pin code for your bank card. Once spent, the transactions are recorded on the blockchain.
Bitcoin does not necessarily have to be transferred and spent, it can remain within the holder’s wallet as a value.
Bitcoin bitterness and Divorce?
Within divorce matters, cryptocurrencies such as Bitcoin are deemed to be the new assets in town, much to the confusion and controversy they carry with them.
The key issues surrounding Bitcoin on divorce proceedings is that the cryptographic currency has no physical form, it only exists in the network. The currency is held in a decentralised application and therefore does not have a central authority. Transactions and accounts are of an anonymous nature, as they are not connected to any ‘real world’ entities and as such, they are difficult to locate.
As a general starting point during divorce proceedings, matrimonial assets are divided on an equal basis. The Court will deviate away from this if necessary and depending on the divorcing party’s individual circumstances.
Parties have a duty to provide full and frank disclosure of their financial assets, however, this can be highly frustrating for one spouse. Particularly when they find themselves trying to locate the pot of gold that has been hidden by their spouse. Bitcoin has a pseudo-anonymous nature which is a real concern as the holder has additional privacy afforded to them, making it easier to hide assets. The Court does have the power to issue freezing injunctions on assets to ensure they remain secure during divorce proceedings, however as there is no regulator or centralised body enforcing this would be difficult. In addition, Bitcoin has an extremely volatile nature in its economy, this causes further difficulty, as the value can continue to fluctuate throughout divorce proceedings.
What are my next steps?
In the unfortunate event that marriage has broken down irretrievably, we recommend that you take advice early on to establish your options and how to proceed.
As cryptocurrencies are becoming more widely accepted as a legitimate form of currency it is likely that we will see in increase in the consideration and distribution of this common asset between divorcing parties in the future.
If you would like to speak with one of our family law specialists, regarding digital currencies and your concerns on divorce please contact us on 01392 207020.