Digital currencies – a brief roundup

Tuesday 01 December 2015

By Adam Beighton, Manager - eBusiness, Equiom Group Europe

Earlier this year, Tynwald (the Isle of Man parliament) approved, among others, a Bill amending the Isle of Man Proceeds of Crime Act 2008 to include Virtual Currencies. An Order to that effect is now in place and became operational on 1 April 2015. In addition, a Designated Business Act passed into law on 26 October. This requires companies in the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating convertible virtual currencies, including crypto-currencies to enter onto a register to support AML and CFT operations.

In July, Jersey’s Chief Minister’s Department issued a consultation paper entitled ‘Regulation of Virtual Currency’. This was followed up in October with the issuing of a policy document which in its introductory statement notes that its purpose is to ‘outline Jersey’s commitment to creating an environment that encourages confidence and innovation in the digital sector whilst protecting the Island from the most prominent money laundering and terrorist financing risks’.

In much the same vein, this year also saw the UK Government announce its intention to apply anti-money laundering regulation to Digital Currency exchanges in the UK.

So what does this all mean?

It is likely that over the last 18 months or so you will have heard of Digital Currency, Crypto Currency, Bitcoin or Virtual Currency, the latter being a term that has been coined by Tynwald. You may be aware that the Isle of Man hosted the Crypto Valley Summit last year and you may have heard that you can even purchase a beverage at a local Douglas hostelry using Bitcoin.

While thinking about Digital Currencies, it is worth remembering that ApplePay, Google Wallet and bPay (from Barclaycard) have each brought their own solution to digital payments and perhaps many of us already exist in a world where making payments digitally already happens, albeit without the user really considering it as being such.

Let’s take a step back and imagine a time before credit and debit cards, when you had to have cash, or write a guaranteed cheque to pay for your groceries or petrol. Would you have trusted or accepted a contactless card to do the same thing then?

Probably not...

Digital currency is perhaps similar in that regard, in that it is a brand new technology which may in the future help many businesses and individuals transact instantly and globally, or face to face, in a cost-effective, traceable and virtually risk-free manner. Can you imagine trying to pay for petrol today using a cheque? I bet you wouldn’t get too far…

Ask any Kenyan about mPesa and they will tell you that they use their mobile phones on a daily basis and can pay for pretty much everything they buy using their mPesa mobile wallet. Additionally, they have access to more than 40,000 agents where they can deposit cash or make withdrawals from their mobile wallet in an instant. In that respect, Kenya has definitely stolen a march on the rest of the world.

For most, Crypto Currency understandably remains a mysterious concept, a concept that has suffered from bad press in recent times linking it with criminal activity and money laundering. In addition to the bad press, there are the horror stories of crypto being stolen from apparently secure accounts.

Yes, some of these stories are true and some are not. I am led to believe that the Daily Mail has run one or two Bitcoin-related headlines recently. Accordingly, a quick Google of ‘Daily Mail Bitcoin’ reveals a myriad of headlines, one even claiming that Bitcoin will be used to hide wealth in divorce cases. What the Daily Mail does ask though is whether the Bank of England will be introducing its own Bitcoin equivalent. Possibly a sensible question.

Conversely the Sunday Times has run articles outlining Barclays’ intention to ‘experiment’ with Bitcoin, noting that the bank ‘plans to test the virtual currency, allowing people to make donations to charities in Bitcoin’.

For the Isle of Man at least, Tynwald appears to have led the way. Hopefully Jersey is now not too far behind in finding a suitable solution, and with the UK set to show its hand before too long, we should soon see a new acceptance emerging.

That said, even with legislation in place to provide Virtual Currency with a legal environment in which to exist, it is by no means certain how crypto currencies will evolve and how we may all use them at some point in the future – will it be a Betamax v VHS war? We will have to wait and see. What is clear though is that governments are paying attention to and are, in the main, embracing this new technology.

The humble credit card was never designed with the internet in mind, so perhaps it’s time to move on to something that has been.