The government is launching an inquiry into cryptocurrencies and blockchain technology.

The Treasury Committee announced that the inquiry will look at the role of digital currencies such as Bitcoin in the UK, including the opportunities and risks they may bring to consumers, businesses, and the government.

It will examine the potential impact of distributed ledger technology – such as blockchain – on financial institutions, including the central bank, and financial infrastructure.

It will also scrutinise the regulatory response to digital currencies from the government, the Financial Conduct Authority, and the Bank of England, and how regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation.

"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,” said MP Nicky Morgan, chair of the Treasury Committee.

“The Treasury Committee will look at the potential risks digital currencies could generate for consumers, businesses, and governments, including those relating to volatility, money laundering, and cyber-crime.

“We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment.

“The distributed ledger technology that supports digital currencies is said to have significant transformative potential, not least within the financial services sector.

“Striking the right balance between regulating digital currencies to provide adequate protection for consumers and businesses, whilst not stifling innovation, is crucial."

Bank of England governor Mark Carney labelled Bitcoin's ambition to be a legitimate currency as a "failure" earlier this week.

However everyone from Premier League footballers to American truck drivers are highly invested in the crypto revolution.

MP Alison McGovern, a member of the Treasury Committee, said: "This inquiry comes at the right time, as regulators and governments wrestle with recent events in cryptocurrency markets.

“New technology offers the economy potential gains, but as recently demonstrated, it may also bring substantial risks.

“It is time that Whitehall and Westminster understood cryptocurrency better, and thought more clearly about the policy environment for blockchain technology."