Last Thursday Prime Minister Theresa May declared that action on digital currencies is necessary “precisely because of the way they are used, particularly by criminals”.
While I would agree that a touch of sensible regulation is necessary for consumer confidence, the Prime Minister has fallen for the misconception that digital currencies are criminal. Indeed, if you ask the average person about digital currency, you’ll more than likely hear the words “anonymous”, “untraceable”, “criminal”. These labels are wrong – it is a fact that every digital transaction leaves a trail, by the very nature and purpose of the blockchain.
It is understandable that many people fear change, and it is easy to lambast revolutionary paradigm-shifting change as “criminal”. In reality, criminals prefer to use fiat currencies – pounds, dollars, euros. Attributing criminal use to bitcoin and other digital currency solutions is hardly unique, but what is unique is that bitcoin and other digital currencies actually provide some strong advantages.
It is not widely known that digital currencies and the underlying blockchain technology are better for fighting criminals than they are for use by criminals. Unlike cash transactions, which are virtually “anonymous” and “untraceable”, digital currency transactions on the blockchain are recorded permanently, with significant transparency, being forever traceable.
Digital currencies are not anonymous; they are, at the very worst, pseudonymous. What this means is that users have a digital address which is assigned to and stays with them, upon which every transaction is recorded on the blockchain permanently and transparently. That address can be connected to a user and through that you can identify all transactions which the given address has participated in. This is much easier than investigating the transactions of cash-in-hand exchanges. Essentially, a digital currency address, which is a necessity for all transactions, is similar to a bank account number.
Additionally, if the individual uses digital currency exchanges to buy the digital currency in its origin prior to making transfers of value, then the transactions can be traced back to real identities if the exchange is centralised, which all licensed exchanges must be. This is another reason to welcome digital currencies with sensible regulation and to license users.
The real three words I would associate with digital currencies are: transparency, traceability, security.
All digital currency exchanges are visible on a global ledger upon the blockchain, this means that they are publicly accessible and quickly available for law enforcement agencies to investigate. This openness means that law enforcement groups do not require warrants or complicated legal procedures to investigate transactions. This gives them the required data they need to investigate transactions in a way they never could with cash, and would find more difficult with bank transactions – which would again require warrants.
It is important that people learn about digital currency. As people learn more, they will increasingly realise how secure, transparent, traceable and safe it is. It is time that the government wakes up to the opportunities of digital currency and the democratisation of wealth – and unlocks prosperity for the many by doing that.
Fear of the unknown is not a viable excuse for ignorance. This is critical given the context of Brexit and a potential isolation of the UK, while two European nations, Germany and France, are set to lead digital currencies by sending representatives to discuss smart regulation at the G20. It has never been more crucial for the UK to keep pace on digital currency.
The bottom line is this: the UK must lead the impending digital currency revolution, or fall short and be led by it.
Callum Crozier is Policy Director of Policy North.