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21 February 2014

The Future For BitCoin

The reality is that virtual currency is the future. What is important is how it will be run, developed and by whom?

Understandably, there are very real and valid concerns that BitCoin and other crypto-currencies are ideal vessels for organised criminal groups as they provide in theory a perfect tool for money laundering and the international transfer of illegal monies from the sale and purchase of illicit goods through various forms of a generic “Dark Market” concept. 

Further, there have been fears expressed by the banking community that the use and development of crypto-currencies will destabilise the global banking and monetary systems that are deployed in order to stabilise financial markets especially in times of upheaval and economic downturns.   Control at present is exercised in part through the regulation of money supply and interest rates and through these devices it is hoped by the central bankers that in theory job stimulation can be created, rates of investment controlled and the risk of rampant inflation diminished.

An unregulated and in some respects untraceable financial system with exponential growth possibilities could be perceived as fundamentally weakening (or attacking) that status quo.

The financial establishment's opposition to the development of virtual currencies could be perceived by some as evidence that they themselves in part see the existing financial structures as being insufficient to cope with the constantly changing and innovative global markets that are constantly being created.  The problem that they face at present is that they have not proposed any meaningful reforms of the existing system or proposed an attractive alternative solution to what many people perceive as a flawed system.

In those circumstances it is perhaps understandable why the development, growth and popularity of BitCoin within certain sections of the world's community does not seem to be diminishing even with heavy handed regulation by some countries, the collapse of the value of the currency on occasions and technological failures resulting from the cyber hacking of some of the main exchanges or hubs of trading.

It must be remembered that whilst BitCoin is perceived by some as a reaction to the increasing globalisation of the world's markets, it is also founded upon the fundamental principles of individualism and laissez-faire economics and critically, the freedom to trade. 

It should not be seen as anti-capitalist but more anti-establishment, it must be remembered also that it does not mean that it equates to illegality as some would like to portray it as.

Thus, BitCoin is not an attack on capitalism per se but a reaction to the traditional trading structures that have been created and which are perceived to be failing.

An acknowledgement of the above perhaps can be seen by one of the behemoths of the financial world actually breaking ranks with their somewhat traditional peers, JP Morgan.
They filed a patent recently in the US for a computerised payment system which would allow for the anonymous transference of payments, in effect a variant on the principles underlying crypto-currencies.

In the immediate future, the challenge ahead for the financial regulators, the banking establishment and the IT innovators behind the crypto-currencies is to ensure first of all that it is legally compliant. Without the stamp of legality on a virtual currency, it will be doomed and if it means that an element of transparency is imposed upon it, that must be a cost worth paying to ensure the development of an innovative financial banking system that can meet the demands of the individual and the market place in the coming years.


Nigel Power QC & Ian Whitehurst
21 February 2014

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