Among financial and techie communities, digital currencies (DC), such as bitcoin, have become the exciting development to watch.
It’s exciting because it could transform the way we transfer money in the UK. Bitcoin payments are approved via a network of other users, who verify them. Payments are instantaneous and completely transparent because a record of every single transaction is stored on users’ computers in something called the “blockchain ledger”. There is no central bank involved, no credit card fees and no lengthy waits for the money to be wired through.
Many people recognise the huge benefits and implications of this technology. Remittances, online payments, contract clearing, multi-person derivatives and crowdfunding could all be made significantly cheaper, more transparent and more efficient using digital currencies. Not to mention the wider applications for the technology such as electronic voting.
And yet, it is not being widely discussed by politicians in the UK. That’s why I was delighted to be invited to participate in a ResPublica debate entitled “Digital Currencies: Will regulation stifle innovation?” along with Steve Baker, Conservative MP for Wycombe.
My main concern is that as it stands, DC businesses can’t set up a bank account. The reason is two-fold: a regulatory environment that puts banks off dealing with these businesses, who they fear could be prone to money-laundering schemes or other crime. The second is that banks see bitcoin as a threat to their existence and, dare I say it, may want to hold up development until the banks themselves can profit from digital currency technology.
A possible solution to this hurdle is allowing bitcoin exchanges, wallets, vaults and other businesses to opt in to existing financial regulations such as those that already cover Money Service Businesses (MSBs). This would give these businesses a sense of legitimacy and recognition, allowing them to operate within a legally viable framework.
The responsibility must then lie with the digital currency industry to develop their own technical and financial standards that build trust in their businesses and help customers to feel that their investments are going to be handled wisely and securely. Banks would soon realise that if they enter this market first, the possible rewards are immense.
Once we get to that point, the remaining criticisms of digital currencies such as price volatility and financial crime will disappear.
And with the take-up of digital currency technology, the UK can position itself as the global centre of fintech innovation, allowing businesses to set up, pay taxes, employ staff, make profits and provide products that those of us who want an alternative to conventional banking can use.
But if we fail to act in the near future countries like Australia, Canada and the USA can steal a march on the UK and benefit from the investment that we should be fighting for.
Thankfully, the Chancellor and the UK Treasury recognise the opportunities. I would urge them to recognise and enable digital currencies sooner rather than later so that our doors are fully open to welcome innovative fintech businesses searching for a home.