At the beginning of June, the U.K.’s Financial Conduct Authority (FCA) announced the formation of Project Innovate, an initiative aimed at getting to grips with disruptions in payment from new technologies.

The FCA hopes to develop the rules around disruptive payment technologies, so that financial institutions who are disrupting, and those that are being disrupted, can operate within the same legal framework. The FCA also wants to establish London as a center of financial technology innovation.

While other payment innovations like mobile and peer-to-peer payments were mentioned in the FCA initiative, a driving motivator is to have some sort of legal guidance for bitcoin.

But while the FCA deliberates, a young London lawyer is already advising about a dozen bitcoin businesses in the U.K. and Europe in a field where rules and regulations are still being drawn up, and where most governments, banks, and institutional investors are still trying to get their heads around what bitcoin is – and what it means for their businesses.

Meet Eitan Jankelewitz, Britain’s Bitcoin Barrister.

The 33 year old Jankelewitz, a lawyer in the Technology Practice at London-based Sheridan’s, a law firm specializing in media and entertainment, is considered by some in the U.K. bitcoin community to be an authority on the rapidly shifting cryptocurrency market.

As part of a London bitcoin delegation, he met this year with HMRC to advise the tax collector on the properties of bitcoin.

His firm is one of only a small handful of law firms in the U.K. that represent bitcoin businesses and accept payment in bitcoin. It was the first to do so, and it was Mr. Jankelewitz that first brought bitcoin business into the firm.

Mr. Jankelewitz recently spoke with The Wall Street Journal about bitcoin regulation and his bitcoin customers.

Edited excerpts:

1. WSJ: Isn’t it risky for your law firm to represent bitcoin clients and accept payment in bitcoin? That market is notoriously volatile.
2. Mr. Jankelewtiz: At the moment it’s just jobs here and there. Most of them are startups. By definition, how long can you have been in business if you’re in the bitcoin business? But it’s good for the law firm because it opens a new stream of clients and doesn’t leave it too exposed to the volatility of the bitcoin market.
3. WSJ: What kinds of bitcoin businesses does your firm represent?
4. Mr. Jankelewtiz: We have clients who are pure bitcoin businesses and don’t even have a bank account. We have people making the bitcoin mining hardware, people offering the mining hardware as a service [what’s known as cloud mining], we have people making the wallets, insured wallet storage, and super cold storage [offline, printed bitcoin data kept behind lock and key]; we’ve got exchanges, a traditional bitcoin exchange, an alt-coin [alternative cryptocurrencies] exchange doing 100 different alts, a peer-to-peer exchange; we’ve got video game companies selling video game bundles for bitcoin, and pureplay ecommerce platforms selling stuff for bitcoin. We have the full range.
5. WSJ: What kinds of services do bitcoin businesses need?
6. Mr. Jankelewtiz: If someone’s got a bitcoin wallet app, they need terms and conditions to get onto the app stores. Customers need to know the terms, and businesses need to be protected in case someone sues them because a customer has deleted their wallet.  If it’s an exchange then they need to have terms to regulate how bitcoin or any cryptocurrency is traded.
7. WSJ: What are the major hurdles for bitcoin now?
8. Mr. Jankelewitz: Access to banking. Crypto-anarchists may tell you that this is going to destroy 400 years of banking, I don’t agree at all. I don’t think that banks are reluctant to provide services to bitcoin businesses because they feel like it’s a threat, that they’re empowering a potential competitor. The reason banks don’t want to provide bank accounts to bitcoin businesses is because it’s an unknown quantity, and the regulatory situation is not settled. They don’t know if they’re going to get fined – which has been happening recently – for non-compliance of money-laundering regulation. The banks don’t know what’s going on all of the time because the regulators aren’t doing anything a lot of the time.  You got a situation where a bitcoin business goes to a bank to open a bank account, and the bank tells the business to go to the regulator. The bitcoin business then goes to the regulator and asks it to create some regulation for bitcoin. The regulator says to the bitcoin company: when you have a business then we’ll regulate you, otherwise we could be regulating nothing. It’s a horrible circle where they can’t get a bank account because they don’t have a business, the bank won’t give it to them because there’s no regulation, and the regulator won’t regulate because there’s no business to regulate.
9. WSJ: What’s the tax situation for bitcoin?
10. Mr. Jankelewitz: HMRC last year said bitcoin would be subject to VAT like a single-purpose voucher, which meant that when you buy a bitcoin there’s VAT attached to it. So if you buy a bitcoin for ten pounds, it will actually cost you 12. But then when you spend bitcoin on a product, there’s VAT on the product. So you’re paying VAT twice. If I want to buy euros I don’t have to pay VAT on the exchange. I also don’t pay VAT on the exchange services. HMRC’s statement was just factually wrong because bitcoin is not a single-purpose voucher, it has no issuer, and it has more than one purpose. HMRC agreed to unsay that statement, which was an improvement. And then in February-March of this year HMRC presented us with a full tax treatment for bitcoin. It’s a really good and sensible approach. Now in the UK the law is you know exactly how to pay your taxes in bitcoin, and if you are a bitcoin-only business you have to file your accounts in bitcoin because that’s your functional currency. You can’t pay your taxes in bitcoin. You have to work out how much you owe in bitcoin and then convert it to Sterling at whatever time.
11. WSJ: Where do you see things going for bitcoin?
12. Mr. Jankelewitz: What I’d love to see is bitcoin become mainstream, not something whacky and unusual. Allow it to interface with the existing financial systems and let it do its thing. People can use it as they use any other currency. Just because it’s not legal tender of a particular nation state doesn’t mean it’s not money.

http://on.wsj.com/1m5p1FC