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August 7, 2014

Will banks scupper George Osborne’s plans for Bitcoin?

Or will a “balancing act” between innovation and security work?

By Joe Curtis

A Bitcoin expert has warned that banks may stonewall the Treasury if it decides to foster the cryptocurrency’s role in the economy.

Chancellor George Osborne announced a Treasury review into the pros and cons of Bitcoin yesterday as he explores its potential in turning the UK into a centre of financial innovation.

The UK Digital Currency Association (UKDCA) was positive about the announcement, tweeting: "UKDCA welcomes The Chancellor’s @hmtreasury commission to explore the potential role of Digital Currencies in Britain’s economy."

However, a Bitcoin expert has warned that traditional banks may ruin Britain’s chances of success.

Johnathan Turrall, CTO at currency cryptography startup MetaLair, told CBR: "Without exception, every startup who’s mentioned Bitcoin to a bank has received a big ‘no’ about getting a business account.

"Government needs to get involved, it’s stifling innovation. If British [Bitcoin] innovation doesn’t match Europe and the US then their companies will enter the UK market share."

Bitcoin is not governed by any central bank, and is famous for its use by online drug marketplace Silk Road to make transactions via the dark web.

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Hundreds of thousands of bitcoins were also lost in February by the then-world’s largest cryptocurrency exchange, Mt. Gox.

However, its cheap and fast payments transfers has seen the financial sector scrambling to keep up.

Claire Cockerton, chief executive and director of Innovate Finance, said: "The time has come for radical transformation of the financial services industry. Whether you are a consumer, banker or young entrepreneur – we all see enormous potential for innovation and growth in the financial services sector.

"While London and the UK provide the right talent, expertise, and market conditions, we believe our collective entrepreneurial spirit will lead us to compete and prosper on a global stage."

Meanwhile, New York State has proposed a licensing scheme for trading the virtual currency recently, keeping tabs on their customers’ names and addresses, while the US has relaxed tax laws to charge Bitcoin users only on any profit made while holding bitcoins (i.e. if they go up in value).

In contrast, the UK’s Financial Conduct Authority (FCA) has been reluctant to issue any guidance on how cryptocurrencies might be regulated – though HMRC scrapped VAT tax on the currency in March.

Turrall said Britain would have to walk a line between protecting users and ensuring innovation.

"At the moment the Bitcoin economy is running quite well, there’s better tools for [calculating] tax and I would be careful about how much legislation they put in there.

"It’s a balancing act of protecting the consumer while not stifling innovation."

The Treasury’s review is expected to be released this autumn.

 

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