Cryptocurrencies operate in a way far removed from traditional notions of monetary exchange: protected from outside interference by blockchain technology and complex encryption, cryptocurrencies do not require the third party intermediaries which put the trust in fiat currency systems. Far from making cryptocurrency transactions insecure, such trustless transactions are highly secure from manipulation and misuse. But in order for cryptocurrencies to gain more widespread traction, consumers and businesses must be informed about the benefits and risks of this system – we must learn to trust in a trustless environment.
Academics and the media often talk of cryptocurrencies as a technological innovation, or discuss the economic and regulatory challenges posed by them. Much less attention is given to the possibility that digital currencies may promote and enable social change. But cryptocurrencies may provide opportunities to democratize credit and investment, financial services, enable small-scale international transactions, and provide an alternative store of value to protect savings from less stable national fiat currencies. The result could be opportunities for social mobility and wealth creation for those amongst the poorest in society.
The UK may not seem the most likely candidate for a potential cryptocurrency growth market, but prudent regulation on the part of Britain’s government and regulatory bodies and strong forecasts for economic growth present a serious opportunity for digital currency investors and businesses. But the future is not entirely bright: the threat of an increasingly left-wing opposition, an increasingly fragmented Britain, and a strained relationship between the UK and her EU partners, all provide cause for concern. Nevertheless, in the short-term at least, Britain has been silently increasing her attractiveness to cryptocurrency businesses – and, with indications that the UK’s positive attitude to digital money innovation will become a permanent feature of government policy and regulatory thinking, there is a fair chance that Britain will become, as her finance minister hopes, a hub for the development of digital currency business.
Predicting the actions of Chinese regulators is difficult at the best of times, but guessing how China will react to cryptocurrencies, seen simultaneously as an investment opportunity and a threat to the country’s highly centralised economy, is even tougher. 2013 and 2014 saw a repeated cycle of rumor, denial, and robust regulatory action in China which undermined investor confidence and decimated Chinese cryptocurrency uptake. However, potential co-operation between China, Japan, and the US implies a brighter future for digital currencies in the country.
Finding the ‘Goldilocks’ Zone’: Striking the Balance Between Regulation and Innovation in the Digital Currency Space
Regulating cryptocurrencies is fraught with difficulties, so it is no wonder that regulatory authorities and governments have waited so long to take action. But 2015 is becoming the year of cryptocurrency business regulation: reports have been published in Canada and France, as well as by the European Banking Authority; some US States, along with the UK, have effected regulations this year; and all portents point to further regulation globally in the year future. But it is becoming increasingly clear that there is a balance to strike between regulating cryptocurrency business sufficiently to provide the certainty which will increase digital currency uptake, and avoiding over-regulation which might stifle innovation in the digital currency space.