The UK Treasury select committee is launching an inquiry into cryptocurrencies like bitcoin, and its underlying technology blockchain, it announced yesterday.

The probe will look at the benefits and risks associated with cryptocurrencies, as well as considering how the new technology should be regulated.

Nicky Morgan, chair of the Treasury Committee, said: “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 there is no protection for individual investors.”

The UK bitcoin inquiry has been a long time coming

It’s unsurprising that the UK legislators are investigating bitcoin and everything it encompasses. Earlier this year, Morgan said that the committee would be seeking evidence from experts on the issue, saying there is clearly “a concern” over digital currencies.

She told the Standard: “You don’t want people who can’t afford to get their fingers badly burnt to run into problems.”

This week, the Bank of England’s governor Mark Carney said bitcoin has failed as a currency.

Speaking at a private event at London’s Regent’s University Carney said: “It has pretty much failed thus far on … the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange.”

The concerns over bitcoin relate to its unregulated nature. Prices go up and down rapidly meaning it is easy to lose thousands of savings in a day. As well, the public understanding of the digital currencies is fairly limited, meaning scams are inevitable.

In addition, there are concerns that cryptocurrencies are being used for money laundering as well as financing illegal activities.

Speaking about the new inquiry, Lorraine Johnston, regulation counsel at law firm Ashurst, said: "The Treasury Committee's decision to launch an inquiry into cryptocurrencies signals yet another step towards the what-seems-like inevitable regulation of digital currencies.

"Yet again the conflicting interests of supporting innovation vs consumer protection are being put under scrutiny, this time by the Treasury. 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."

The regulation of bitcoin

With an inquiry like this, the question is will the UK parliament be able to regulate bitcoin? In South Korea, the regulators have certainly been trying.

In January, the price of bitcoin fell almost 11.85 percent on the news that South Korea would ban cryptocurrency trading. The regulators later backtracked on this; however, they still banned anonymous crypto trading in order to curb the influence of digital currencies in the country.

The Treasury Committee may look to South Korea as an example of how to approach regulating bitcoin.

CryptoUK, the first self-regulatory trade association for the UK cryptocurrency industry, thinks an inquiry will be a good thing.

A spokesperson for the association said:

“We welcome the decision by the Treasury Select Committee to launch this inquiry and look forward to contributing. As some of the leading businesses in the cryptocurrency industry we believe that 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”.