After an extensive inquiry into digital currencies in the UK, the results of questioning an informed cross-section of the British sector have born surprisingly encouraging results. Banks, academics and government agencies weighed in on the issue, alongside Bitcoin companies, and the decision so far appears to be one that could set Britain apart from its US counterparts, in the way it chooses to deal with the expanding issue of Bitcoin economics.
The good news is that the report – which was influenced by around 120 submissions – is forward thinking, and suggests that the UK wishes to attempt both to impose regulation that curtails criminal activities, while simultaneously keeping the door open to innovation and growth.
The primary fashion in which the next Parliament will seek to inject policy into the field is with the introduction of anti-money laundering regulation, and although the scope of that regulation will not become clear until after May’s elections, it is likely that the government will be forcing Bitcoin exchanges to look more closely at where the digital currency that passes through their books originates.
Furthermore, it is likely that it will become much tougher for consumers to purchase Bitcoins from these exchanges anonymously, meaning that customers who wish to use Bitcoins to purchase illegal items from deep web marketplaces will have to either purchase their currency from individuals, or will have to use Bitcoin mixers such as bitcoin shuffle prior to making any illegal purchases.
The reaction so far from fledgling British based Bitcoin companies has been one of happy surprise, with nearly across-the-board praise for what is being referred to as a ‘light touch’ approach – an approach which the Bitcoin world will be hoping may allow for the birth of legitimate banking relationships that have so far proved elusive in the US. QuickBitcoin co-founder Hugh Halford-Thompson said,
‘It’s good that they see our industry as a nascent one where heavy handed regulation could be detrimental. The government has a real chance here to legitimise the sector. I hope that with this banks will change their tack and stop blacklisting the word ‘bitcoin’.’
London based trading platform Crypto Facilities also weighed-in in favor of the report, saying that it already has strict know your customer (KYC) and anti-money laundering (AML) procedures in place – that would make it easy for them to comply with the reports suggested regulations.
Not everyone was content with the results. London based Bitcoin voucher store Azteco feels that the regulations hinted at in the report will amount to ‘artificial restrictions’ that it feels will actually drive some Bitcoin start-ups abroad, escaping to jurisdictions where there is no need to cooperate with the treasuries regulations, and at detriment to the UK as an emerging Bitcoin start-up destination.
On the whole though, the consensus is that the report is encouraging of innovation rather than stifling of it, specifically because it does not conclude that there should be a licensing regime for digital currencies, nor does it point to future policies that would give large institutions an advantage over start ups. In fact, the British government appears to have decided to develop a set of best practices that would seek to eliminate criminal corruption while leaving the door open for sector growth, in a digital economic area which the treasury concedes has solid future projections.
This is actually in line with the majority of submissions, which all spoke in favor of crime prevention, while at times disagreeing on whether regulation should also effect consumer protection – policies that some felt may overburden companies with undue bureaucratic process.
Consumer protection, however, has become a highlighted issue for the British government after the robbery earlier this year of 19 thousand Bitcoins ($5.2 million worth) from ‘operational wallets’ owned by Bitstamp – one of bitcoin’s largest exchanges – and which affected a large number of British Bitcoin consumers.
For those people at least, policies that seek to protect consumers from future losses will be welcomed, though for the moment it appears that consumer protection will be an encouraged but self regulated process – leaving it up to the consumer to use the company that they feel offers them the greatest level of protection/least risk for their investment.
The report, then, is evidence of the complexity surrounding the regulation of digital currencies . With so many differing factors needing to be taken into account it is still early days, and this report is only a suggestion of what is to come. The good news, however, is that the British government appears to be attempting to be fair and well rounded in its approach to future regulation, and is being open and transparent as it looks to do so – a fact that most feel is encouraging for Britain’s position in the ever expanding Bitcoin marketplace.
One thing is for sure, when it comes to regulating Bitcoins the UK has the distinct advantage of having lagged behind the US, and by doing so has been able to watch the US make distinct failures. This at least is making it clear to the British government that it needs to think carefully, and act with great care if it doesn’t want to scare off both existing and future Bitcoin companies from choosing the UK as their hub, because as Azteco said,
‘We can incorporate in any jurisdiction, and will choose the one that is best suited to our business model.’