The Emergence and Spread of Cryptocurrencies and Possible Legal Responses to the Phenomenon

Abstract

One of the most important characteristics of money – as an official medium of exchange – is that the state is responsible for its issuance and, through the determination of the quantity of the emission, also the determination of its value. The right to issue money in Hungary is exercised by the state through the Hungarian National Bank. Cryptocurrencies, on the other hand, are reminiscent of the early phase of the development of money, they function as a free medium of exchange in a transaction that can be evaluated under civil law. The state has no influence either on their emission or on their inclusion, nor on inflating or deflating their value through the determination of the quantity. It is important to note that the exemption of cryptocurrencies from monetary regulation often means that they can serve as an exchange value for prohibited legal transactions that would otherwise be prohibited by law, e.g. financing of terrorism, distribution of drugs or other illegal substances. Cryptocurrency includes all digitally created funds that have been created through cryptographic encryption, “hashing”. And hashing is a digital process that can compress an arbitrary data stream to the specified size using an irreversible mathematical operation. The aim of the study is to show what kind of challenge cryptocurrencies pose to legal practitioners due to the fact that they are not subject to cash flow regulation, what kind of legal regulation is possible in the face of this new phenomenon, and in which areas of law it would be necessary to implement a further legislative process.