In the year of the bailouts, 2008,
The bankers were printing more debt for the state
The dollar grew weaker, the big picture clear
As they fed the hangover more Keynesian beer […]
Who’s to blame, is this caused by desire for wealth?
When perhaps the real problem is money itself!
The idea isn’t new, maybe everything’s tanking
‘Cause society is built on fractional reserve banking
And so called ‘‘investment’’ and attempted control
May soon spiral fiat into a death roll […].
– an Ode to Satoshi Nakamoto, “coretechs”.
In 2008, in a paper published in an online cryptography forum under the name “Satoshi Nakamoto”, a writer presented the blueprint for a decentralised digital monetary system. Through that system, Nakamoto attempted to eliminate the risk of double spending without reliance upon trusted third parties, such as banks and credit-card providers. Bitcoin was introduced shortly afterwards as open-source software. Its popularity increased rapidly when in 2011 Wikileaks announced that it would accept donations in Bitcoin. That decision resulted in one of the first significant spikes in value, and at the start of 2015 the value of one bitcoin stood at a little over $300.00.
The Bitcoin system adheres closely to Nakamoto’s model. “Miners” solve complex computational problems by which transactions are verified and recorded in a public ledger (the “Blockchain”), in return for bitcoins. Users hold a private and public “key”, and release only the latter to make a payment. In this way, the system is entirely pseudonymous, and can be maintained and developed without the need for a central authority.
The current legal status of crypto-currencies varies by jurisdiction. China has banned the use of virtual currencies for trading in real-world goods. In the US, Bitcoin businesses must comply with anti-money laundering regulations at both the Federal and State levels. By contrast, Europe has yet to make its position clear.
Thus far, the number of Bitcoin transactions carried out each day across the globe has never exceeded 110,000, in comparison with approximately 295 million conventional payment transactions in Europe alone. Nonetheless, the EBA, the US Treasury Financial Crimes Enforcement Network (“FinCen”), the UK Financial Conduct Authority (“FCA”), and HMRC, amongst others, have accepted that the risks of crypto-currency are too many and too great to ignore. Further, the pressure from the Bitcoin community to develop clear rules is growing: service-providers want the consumer confidence associated with state approval, and need the support of traditional financial organisations in order to continue to grow. In many cases Bitcoin business are already engaged in anticipatory self-regulation.
The EBA published an opinion in July 2014 in which it identified no fewer than 70 risks to users and market participants, to financial integrity, to existing payment systems in conventional fiat currencies and to regulatory authorities. It explicitly based that assessment upon “a tentative and preliminary assessment of factors such as the probability of a risk to materialise, the severity of the impact should the risk materialise, and an assessment of the anecdotal evidence available.” It considered that an appropriate solution would be to develop a long-term bespoke regulatory regime, but that such an approach would take time and resources. In the short-term, it discouraged payment and credit institutions from buying, holding or selling virtual currencies.
In the UK, the FCA has launched a new fast-track initiative called “Project Innovate”. As yet, however, it has remained silent on the subject of regulation. On 4th November, the UK Treasury issued a public call seeking both data regarding the risks and benefits associated with crypto-currencies, and suggestions for appropriate regulatory solutions.
The conference will provide a platform for discussion and debate between economists and computer security experts, regulators, stake-holders, legal practitioners and academics, in order to meet precisely this need.