CryptoUK, a self-regulatory body for the cryptocurrency industry which recently implored the British government for regulation of the industry, gave evidence yesterday to a parliamentary committee regarding cryptocurrency regulation in that country. They were joined by an editor from FT Alphaville, who did not appear to be a fan.
In contrast to the US Senate committee in February which left this writer with the impression that he had just spent two hours watching elderly senators asking their grandchildren to explain how email works (and the grandchildren not knowing themselves), this was a fast-moving, interesting debate between informed people that everyone should watch.
The representatives were speaking to the Treasury Select Committee. This committee examines the policies of HM Treasury, which is the UK government’s department of the economy. It covers entities such as the Bank of England, the Financial Conduct Authority and the Royal Mint. As an example of the type of powers it has, in October 2017 it forced the FCA to publish a report into its handling of the Royal Bank of Scotland mistreating its customers.
Chairing the committee was Nicky Morgan. Facing her were Obi Nwosu, CEO of London-based bitcoin exchange Coinfloor, Iqbal Gandham, Chairman of CryptoUK and Managing Director of eToro UK, Marco Santori, Chief Legal Officer of digital asset software provider Blockchain, and Izabella Kaminska, editor at FT Alphaville.
“Are they really currencies?”
Together they were asked to clarify a number of points concerning the technology, because as the committee chair said: “We are learning all of this at the same time as taking evidence.”
After clarifying what cryptocurrency exchanges are, their role in the system, and the difference between custodial and non-custodial wallet providers, Morgan asked: “Are they really currencies? What are they used for?”
Kaminska answered that in terms of them being used as currency: “We’re still at a very early point but it very much looks like they’re not succeeding at all…in the current they are mostly used for speculation and vehicles for potentially relatively quick gains….where they are used as currencies it does tend to be in the illicit market space.”
Nwosu retorted that cryptocurrency as a field is very much still in its infancy: “You wouldn’t expect your child to perform open heart surgery.” He said that he expects that the potential is there, and “in the fullness of time” we will see cryptocurrencies being used “as originally intended.”
Kaminska pointed out that other technological innovations such as AirBnb and Uber have succeeded despite being much newer than Bitcoin.
Santori took exception to this: “People don’t come to blockchain to speculate… they come to blockchain so that they can live, so that they can escape governments that have been irresponsible with their currencies, so that they can prevent their hard-earned savings from being nationalised…This statement that digital assets have failed at being currencies is demonstrably false, it is unsupported by the evidence.”
Iqbar said that it is easy to compare cryptocurrency with the dawn of the internet – the first email was sent in the late 1960s, but mass adoption only happened in in the 1990s with Hotmail. He said that user-friendly interfaces have already begun springing up only a few years after the advent of Bitcoin.
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Asked if cryptocurrency is just a bubble by a committee member who cited the dramatic price changes typical of cryptocurrency, Gandham again compared the situation with the internet.
“We made this mistake to our cost 25 years ago with the rise of the internet – the UK economy cannot afford to do so again. Regulatory certainty is crucial to promoting innovation for the future,” he said.
Kaminska said: “If I’m ever pushed to say one good thing about this space, it’s that it potentially absorbs a lot of dangerous speculative capital and takes it away from real economy assets such as houses, commodities, etc. real estate and parks it in a little virtual universe where people can lose money from each other.”
She said that she doesn’t think it should be propagated, especially given that less than one percent of the wallets have all the money.
Santori answered that price and money are the least interesting sections of cryptocurrency – people use it to survive, “and that’s just today when we’re at version less than 1.0.”
Nwosu said that lack of regulation is preventing cryptocurrency from getting to a mature stage. He pointed out that one of the issues is the increase in volume and liquidity entering the market. He said that institutions, thus far largely prevented from entering the market because they can only deal with regulated entities, would bring discipline to the market.
Kaminska talked of the irony of trusted third parties gaining popularity in the cryptocurrency market due to people having to remember their wallet numbers, which leaves the money open to hacks.
Nwosu reiterated that cryptocurrency provides a choice that people didn’t have before. Santori agreed that there are risks, and there is a trade-off. He claimed that lost keys happened much less frequently, but was not able to provide evidence on the spot.
In terms of compensation for stolen money, Gandham said that eToro is working with insurance companies to find a solution, but as of now, there is nothing in place. Nwosu said that this is the case for most exchanges, but the hope is that with regulation insurance companies will feel more comfortable working with cryptocurrency exchanges.
Kaminska said: “Regarding financial inclusion, I would simply say that it’s [cryptocurrency] a lovely idea that everyone should be financially included but we shouldn’t confuse financial inclusion for a technical problem – I think it’s very much a socio-economic problem.”
Nwosu replied: “There’s 1.5 million people in the UK than don’t have banking and 2 billion people worldwide that don’t have banking – I don’t think they all don’t have jobs.”