Published: Friday March 27, 2015
The recent 2015 budget was peppered with references to technology, and nods to how the UK as a nation is leading the charge; be it in the Internet of Things or driverless cars. But also on the day the Treasury released its response to the call for information for digital currencies. Though it might have been buried in the budgetary noise, I believe this is a massive move from the UK government to support FinTech related businesses. I also think the move will legitimise the use of digital currencies like bitcoin and will also result in the cleansing of their popular image.
The approach sets out the government’s stance on the future promise of digital currencies, as well as its plans to apply anti-money laundering (AML) regulations to digital exchanges. Simply put this is the most significant step made by any government in the sector; displayed by the fact they sought research from a number of key digital currency respondents including eToro and Circle.
The UK is one of the world’s key financial centres and the government is right to place such focus on emerging digital currencies. Implementing AML guidelines that work for digital currencies will allow new entrepreneurs to create more jobs in the UK and offer disruptive services, challenging more traditional financial services institutions. As Barclays’ CEO Antony Jenkins warned the “banking sector has not yet felt the ‘full disruptive force’ of technology – but it will”. I also envisage more FinTech businesses will begin to pop up around London’s Silicon Roundabout and key Northern tech hubs, cementing the UK as the European home for disruptive, forward-thinking businesses.
The advantages of digital currencies are well documented – by removing intermediaries, such as banks, they allow faster and cheaper transactions; the block chain (the shared public ledger on which the currencies operate) allows for complete financial transparency, as well as how they serve those people who can’t have access to traditional banking services. Future gazing, the technology will allow the transfer of ownership of financial instruments and time stamping digital assets.
On the flip side, the challenges are similarly recognised – currently the lack of guideline regulation clouds the use by businesses and it’s been levelled that the technology is complicated to use, preventing mass consumer adoption. The historical perception of anonymity in the sector has given it a murky past, as did the high profile loss of bitcoins by Mt. Gox last year.
Though the UK government understands that digital currencies may have been used illicitly in the past it does not believe they are used entirely for financial crime. Indeed, there are many parallels to be drawn with digital currency markets and the online gaming industry, which transitioned from a ‘digital wild west’ to a safe and regulated environment. The attention paid by the government to define clear AML guidelines will allow banks to support bitcoin businesses, both now and in the future.
I am confident 2015 will see the rise of the UK as the main ‘hub’ for digital currencies and I wouldn’t be surprised if we see huge retailers in the UK following the trends seen in the USA with Overstock offering to pay their staff with digital currencies and eBay accepting them as payment.
Cash, in its various coin and card incarnations, may once have been king but this reign is coming to an end. Just ask me this time next year, and you’ll see how far we’ve come…