Bitcoin exchange Coinbase has revealed that it’s expanding its services to the UK, including giving users the ability to trade bitcoin on its Coinbase Exchange and to buy or sell bitcoins with GBP using the Coinbase Wallet.
On top of Chancellor George Obsborne’s announcement in the last Budget of a £10m research fund looking into alternative currencies, and big players getting involved, like UBS setting up a bitcoin incubator at Level39, the cryptocurrency world looks to be moving, perhaps perversely, to the mainstream.
But is it all good news?
“The arrival of Coinbase in the UK represents a further predictable step in the Americanisation of bitcoin,” says Brett Scott, author of The Heretic’s Guide to Global Finance: Hacking the Future of Money.
“Like clockwork drones compelled by the force of the market, such agents of US venture capital must seek out and conquer new markets to establish the hegemonic peace of the Californian ideology. Godspeed in their holy mission.”
Scott is clearly on the alternative end of the currency spectrum and this isn’t a view shared by some of his peers. Jon Matonis, former head of the Bitcoin Foundation, says: “This is not a case of American VC-backed companies moving into the EU. Companies in the EU and elsewhere have just as much flexibility to set up operations in the United States if they so desire.
“I believe the trend reflects a greater desire to exploit regulatory differences through jurisdictional arbitrage, because the US regime of requiring federal and 48-state money transmitter licensing retards growth and innovation.”
LSE economic historian Garrick Hileman points to the set of proposals outlined by George Osborne calling it “the first real tangible example of a possible policy structure coming into play”. And, while admitting he may be optimistic, tends to agree with Matonis. “If you’re interested in seeing financial service reform, more efficient, lower costs and faster transactions, whoever is doing it, it shouldn’t matter.
“There is a real concern about some of the issues in the banking sector, ‘too big to fail’ and market rigging, but these institutions still dominate financial service activity.
“Having big players like Barclays, HSBC and Coinbase will accelerate a lot of the possible outcomes in the financial service sector. It’s actually an opportunity for the sector to improve if they embrace technology, which will lead to transparency and efficiency. This is the way to get to a fairer financial services sector.”
“Furthermore”, Matonis adds, “if Coinbase or any other bitcoin wallet and exchange company becomes able to service clients in a multi-jurisdictional fashion, then they have essentially replicated a huge portion of the global remittance market. It’s all up for grabs now.”
Silicon Valley is not without its naysayers about the potential for the current financial system to change, with VC Chris Dixon, also an investor in Coinbase , a strong advocate of starting again, from scratch.
As a solution for the global ‘unbanked’, bitcoin looks like it makes sense, as you don’t need a financial history to get going. But Hileman is not convinced that bitcoin is the final answer. “Over the past 500 years, alternative currencies have risen and fallen quickly and they depend on many people coming together and deciding to use them.
“I’m looking to a ‘post-bitcoin’ landscape, meaning a very different situation to the one we have now. Today, the vast majority of bitcoins are spread among very few people, the bitcoin 1%. There is a barrier to adoption and if they cash out, bitcoin could collapse.” In the shorter-term, he also sees consolidation of the large number of UK-based bitcoin exchanges on the horizon.
While London certainly gets validation as a key location for the future of bitcoin innovation and commerce from the Coinbase announcement, the UK is unlikely to be the place where bitcoin is regularly used by everyday people, given that we have a stable currency that works fairly well.
“You have to remember that bitcoin is not just a currency, it’s also a network,” Hileman concludes. “The attraction here is largely institutional, B2B, using the technology behind it for things like trade settlement.
“The odds of pubs across London adopting it on mass are very small.”