By Mark Fairlie.
The Treasury Committee has described the marketplace for Bitcoin and other cryptocurrencies as a “Wild West industry” plagued by issues including a lack of consumer protection, vulnerability to hacking, price volatility, and money-laundering, BBC News reports.
Cryptocurrencies are not currently regulated by the City watchdog, the Financial Conduct Authority. This means that it has no power on the trading platforms used to exchange Bitcoin and other digital currencies nor over the individuals or companies which issue them.
Nicky Morgan, chair of the committee, stated that “(t)his unregulated industry leaves investors facing numerous risks” and that authorities currently “bumble along issuing feeble warnings to investors”, according to Phys.org.
Bitcoin and other cryptocurrencies are an electronic form of money which can be exchanged by owners or for goods and services with a very limited range of businesses.
Unlike traditional currencies which are controlled through a central authority (like a Government or a central bank), cryptocurrencies are overseen by their owners and their ownership and transfers of their cryptocurrency is recorded on a blockchain – a form of electronic ledger.
According to the NextWeb, 44% of all bitcoin transactions are “for illegal activities”. Others disagree with this figure with NewsBTC, a cryptocurrency news website, reporting that “1% of bitcoin is used for illegal purposes”.
The Independent reported that the price of bitcoin would fall if criminals stopped using it and that their use of it is the main reason for the price inflation Bitcoin has experienced over the last 18 months.
Since its launch in 2009, the value of each Bitcoin has been rising as have the values of many other types of cryptocurrency.
There are now 1,500 varieties of cryptocurrencies traded across 190 different exchanges, according to BBC News. The price of Bitcoin spiked in December 2017 reaching £15,000 per Bitcoin; however, at the time of writing, the price has fallen back by two thirds for its peak.
There are fears that, because of the pronounced swings in prices, investors could lose a significant amount of their capital by purchasing cryptocurrency at the wrong part of the valuation cycle.
Investors are often tempted into buying newer forms of cryptocurrency through “Initial Coin Offerings”. The risk to investors’ capital is very high and, according to Investopedia, “80% of ICOs are scams”.
Speaking earlier this year, Sajid Javid, the Home Secretary, also described the need to tackle the “Wild West” of the internet with the goal of making the UK the “safest place in the world” to use the internet, according to the Guardian.
At the time Javid expressed his concern about the number of internet users who experience abuse online and who are exposed to “inappropriate content”. He also stated that criminal use of the internet to perpetrate terrorism, terrorism funding and the abuse of children needed further control and that “we need to protect our communities from heinous crimes and vile propaganda”. Bitcoin has been used to get around countries’ capital controls, by the far right to move money around the world, and for the sale and purchase of drugs.
Billy Bamburgh, Forbes columnist and writer on “bitcoin, crypto, and fintech”, is sceptical about the drive by the UK government to control the “Wild West” of the internet.
Bamburgh comments that the internet has been used in its current form for around 30 years and is under the control of “the world’s biggest companies” yet it still remains a “criminal wild west”. He states that
“(t)he internet has proven remarkably astute at evading regulation – and bitcoin…will be no different”.
That being said, there are no hard plans for how Bitcoin and other cryptocurrencies will be regulated.