Digital currencies and bitcoin in particular have faced a bit of a hammering in recent weeks.
Headlines in respectable papers such as the Financial Times and The Guardian have shed negative headlines on the validity of the cryptocurrency phenomenon.
The Guardian ran a story headlined: ‘Bitcoin is the worst investment of 2014. But can it recover?’
The FT ran a warning from Gavin Andresen, the man considered to be theleading custodian of the bitcoin code, in which he said bitcoin is dangerous and people should steer away from using it.
Bitcoin is the biggest name in the world of digital currencies and fears have been expressed in some quarters that it is popular for instance with drug dealers and criminals as a way of conducting sinister underhand dealings.
early days
Russell Kelly, director of KPMG in the island reacted to the ‘negative’ publicity. He said: ‘It’s still being treated as a speculative investment by some people because it is in such early days. You just have to look at what happens to other investment type commodities. The oil prices collapsed in the last two or three weeks; oil is on track to be the worst investment of January 2015.
‘It’s just the way things move when there is an element of speculation around them. I think you have got to look forward to when cryptocurrency becomes more of a steady state and a day to day used medium of exchange.
‘And in terms of safety you have to take your own precautions on how to look after your assets.
‘Cash can be equally as unsafe if you wish it to be if you don’t look after it properly. I think you have to go into any new technology or any new idea with your eyes open and be aware of the risks and as its use expands and becomes more prevalent across society then protocals change and security/safety systems develop.’
Paul Davis, managing director of Counting House (I0M) Ltd said: ‘Bad news sells newspapers, good news doesn’t. When did you last see a headline that said yesterday there were 19,900 successful commercial flights on which no one was hurt, killed or injured?
‘We never see an article in the Manx press saying that 50,000 people drove to work yesterday safely. If one car with a kid in the back crashes on a roundabout then it is headline news.
‘The same applies in the bitcoin world. All the good stuff gets minimal press but the bad things get maximum press.’
Mr Davis believes that ‘pundits are now heavily on the bandwagon because they smell blood.’
But he believes the technology is not under threat. He claims it is highly successful.
technology
He talked about the so-called ‘block chain’ technology that is involved in the underlying development of bitcoin.
He said: ‘The technology is not under threat at all, it is extraordinary, it is highly successful. Savvy people in Silicon Valley are seeing the future of the block chain as a way of dealing with many things and not just payments. Payments are just one application of block chain technology. Block chain is massively successful, it is widely adopted and it’s being widely considered for all sorts of other applications beside payments.’
He added: ‘That’s the good news story, it’s an amazing piece of technology. Distributed approval of transactions could revolutionise land registries, aircraft registration, flight plan approvals, shipping, anything where there is a need for some sort of authority to confirm that a transaction is valid is susceptible to block chain technology. And we are only just seeing the start of that.
‘If you’re wondering why cryptocurrency is attracting more venture capital than any other product in the world at the moment that’s the reason; these guys are sharp, they work on technology and they can see the future.
‘The money is not going into bitcoin as an investment it is going into the technology as something that will drive the future of the world.’
Mr Davis said there was a massive bubble at the start of the century when the ‘world and his dog’ climbed aboard and bought internet stocks because prices were going up.
He said much of what we do is now dependent on the internet.
But now the ‘bubble has burst but the technology has continued.’
Mr Davis said in his opinion it was a good thing that the bitcoin speculative bubble has also burst. ‘It has driven money out of the market that should never have been there in the first place and has focused attention back on bitcoin as a way of paying for things.’
‘It was never intended to be an instrument of investment , it is supposed to be a technical way of paying for things.’
blindingly good
Mr Davis contended: ‘If you use bitcoin as a way of paying for things in your daily life, it is blindingly good.’
In fact Mr Davis went to say bluntly: ‘It is blindingly better than credit cards, debit cards cheques in the mail, bank transfers, almost anything you can think of.’
Mr Kelly said the notion of bitcoin was that it was designed as a medium of exchange.
‘The fact the speculative bubble is coming to an end is a positive thing. Having a more stable price and a more realistic price is positive.’
On the association with crime Mr Davis claimed that if anything new is adopted then ‘bad people will find a way to use it badly.
‘Think of the automobile: There would be no ram raiders, no high speed police chases and no drunk drivers if we hadn’t invented the car. Are those reasons for not inventing the car? No, because you think of all the good things the car does.
‘The single most dangerous facilitator of crime in the world is cash. There are far more illegal transactions for cash every day than there are for bitcoin. Any government bleating that we have to stop this bitcoin thing because it will be used by criminals to buy drugs and guns, whatever, had better think sharply about getting rid of cash first.
‘Bitcoin is much more traceable than cash.’
He explained there is always a permanent electronic record of bitcoin transactions.
‘If I go and knock over an old lady in the street and steal her cash from her wallet and give it to various people there is no trail of those transactions.’
Isle of Man
Mr Kelly said that in the Isle of Man it is something ‘that is obviously new, quite exciting and something that should have an economic impact.’
Mr Kelly said they could draw comparisons with the early days of the eGaming industry.
‘We have to be fully aware of the risks of adopting new technology and we have to maintain a position within the industry and undoubtedly our thought leadership position.
‘We have put ourselves out there as an economy and thus far the government have been supportive of that and we have to think where we go next.
‘There has been some tremendous activity in the Isle of Man over the last six to nine months in the bitcoin space and we now have to think of the next step and moving it forward.
‘I think the next step is to get some sort of enhanced legal and regulatory framework in place.
‘We have the registration regime in place but we need to move that forward a step.’
Mr Davis said he liked Mr Kelly’s notion of thought leadership.
He said cryptocurrency was likely to have an increasingly important role in the proposed new ICT ‘university’ in the island .
The Manx Digital Currency Association was formed last year ‘to create and promote a jurisdiction of excellence for digital currency.’
journey
Laurence Skelly, Economic Development Minister with the Isle of Man Government told Business News: ‘This industry is all about technology rather than currency for us.
‘What we are doing and have already started on that road . . . is to regulate it.
‘There are many jurisdictions operating in this space but without regulation.
‘I think the industry still has a journey to travel and evolve before it finds its true feet and where it is actually going.
‘What we want to do is to ensure we have got the right environment to have consumer protection, which is why we want to regulate it, but also the right environment for innovation and the technology to flourish.
‘I would liken it to being quite similar to the eGaming industry.
‘If we think back to where that was 12 plus years ago in the Isle of Man. It came in with a bang; it fell off, then it came back stronger than ever once we had the appropriate legislation in place.
‘So consumer protection is of vital importance to us. We are not pursuing an industry without that in place. However we do need to balance that with the promotion and the environment for innovation and that technology to flourish.
‘We have quite a lot of businesses operating in this space at different levels and we are hoping we can use our experience and expertise in the ICT field to encourage that to grow and evolve and be stable and successful for the future.’
Asked about the publicity of criminal involvement in bitcoin Mr Skelly said: ‘We are working very closely with the regulatory bodies in the Isle of Man and our law enforcement [agencies] to ensure that we have got the approporiate anti money laundering laws in place.’