Digital currency bitcoin and its underlying blockchain technology is arguably a British invention. It’s based on cryptography developed at GCHQ, and its creator Satoshi Nakamoto is rumoured to be from the UK. The UK is also regarded as one of the most promising places in the world to operate a bitcoin business, due to our financial pedigree, trusted regulatory regime and deep pool of fintech talent.
The culture in the UK bitcoin community is quite different to that in many countries because many of us have previously worked in the financial services sector. For example, Elliptic CEO Dr James Smith was an options trader at two leading market-making firms before co-founding Elliptic. This has created a pragmatic approach to promoting and increasing digital currency adoption. We have formed our own industry body, the UK Digital Currency Association, to promote the sector and provide a single point of contact for policymakers and regulators.
There’s also been growing engagement by a government eager to bolster London’s current fintech boom and maintain the city’s status as a global financial hub. Last year HMRC issued widely-praised guidance on digital currencies’ tax treatment, an approach which has recently been mirrored at the EU level. The Bank of England has produced two detailed reports on the economic implications of digital currency technologies and is working on its own digital currency. Chancellor George Osborne has also embraced digital currencies and, following a government consultation, announced regulations in the March 2015 budget.
However, while huge amounts of venture capital money are flowing into digital currency start-ups in the US and elsewhere, those of us in the UK are largely missing out, hindered by a lack of regulation and the refusal of UK banks to work with us. It remains almost impossible for bitcoin companies to obtain UK bank accounts, particularly if they wish to hold client deposits. Banks cite money laundering risks and the lack of regulator oversight as their reasons, although perceived reputational risk is a major factor. The FCA currently refuses to regulate the sector, and digital currency businesses are not subject to the UK’s anti-money laundering regulations.
If we are not careful, bitcoin will become the latest UK invention to be exploited by others. We believe Government and regulators need to act now to establish the UK as a global hub for digital currencies. In the meantime, those of us in the industry must educate regulators and consumers about the huge opportunities the technology presents and explain how the risks can be overcome.
Dr Tom Robinson is COO of Elliptic, the blockchain security and compliance company.