Thoughts on Bitcoin : Part 4

Bitcoin usage is currently split into the following sectors.

  • End Users using it to pay for goods direct with merchants in person (via a smartphone based POS system).
  • Users sending bitcoin direct to other users (as an online payment)
  • Exchanges that operate a system to buy and sell bitcoin in and out of FIAT (there are many of these exchanges, the biggest being in US, Japan, Russia & China – no major UK one yet).
  • Users buying bitcoin as a security or investment

With the current focus from Digital Jersey to push new technologies and mechanism forward, something like Bitcoin ticks a lot of boxes;

  • we already have a good standing in the Finance global industry
  • a lot of experience in KYC & AML procedures
  • several robust data centres
  • we are looking for a growth area in Digital services/businesses

Part of a big issue Bitcoin faces is that people believe it is anonymous. It is in fact, the opposite. Every transaction, going back to the start of the network, is publicly visible. It’s the owner of the transaction address that is anonymous. Pair this with KYC/AML procedures and there’d be a system for providing a whitelist for the entire network. On top of something system-wide like that, there is always the potential of a Jersey business accepting bitcoin online for products/services, from anyone in the world. Some local businesses already do, allowing them to tap into growing untapped marketplace.

From talking to a number of businesses in this space, it has become clear that certain jurisdictions are taking a progressive approach to these ideas. No one would sensibly expect anywhere to suddenly adopt bitcoin as a currency, but due to its approach, it tends to form legal questions. Do you class it as a currency/e-voucher/etc? Many countries are currently taking different approaches, Canada & Germany tend to be the most proactive; classing it as an asset and ‘units of account’ respectively. Last week, HMRC stated they are rethinking classing them as vouchers (as they did back in earlier this year) meaning that VAT wouldn’t be charged. Yesterday the Swiss parliament lodged a postulate to eliminate ambiguities and increase legal certainty related to bitcoin.

A week or so ago, Alderney made international headlines by announcing that they’d like to release a collectors coin that was half gold/half bitcoin. Seen as a PR stunt by most (including myself), it did get a lot of discussion going about how the Channel Islands could be positioned in this space. Guernsey’s immediate response was negative about the idea but also mentioned “In turn we may enhance our image as an innovative place to do business and may even be recognised as a leading jurisdiction in the field but any move in this direction may need to carry the label ‘proceed with caution”.

Links

Swiss parliament postulate Bitcoin
Taxing bitcoin
UK’s approach compared to other areas
US FinCEN’s guidance on virtual currencies
European Central Bank guidance on virtual currency schemes
David Woo’s comment on Bitcoin
FT article on Alderney