The Financial Times has published an astonishingly blinkered and short-sighted article, where Bitcoin is mischaracterised as a threat, instead of the greatest business opportunity of the century.
The fact of the matter is, and I have said this before, the country that puts a 150 year moratorium on all Bitcoin regulation and ‘supervision’ will reap all the Bitcoin entrepreneurs in the world, who will run to incorporate in that territory. This event will spark a Hong Kong style boom without precedent in size, and of course, all the businesses located in that territory, should it be the UK, will be paying corporation tax on the profits gleaned by providing services to Bitcoin users world-wide.
It seems however, that the socialists and Keynesians at the FT are squarely ant-British, anti entrepreneur, anti progress and computer illiterate to boot.
Lets take this article to pieces, starting with the sensationalist and irrational title:
Taxmen, police and spies look at bitcoin threat
By Jane Wild
This is an entirely misleading title. Unless you believe that profit and human progress are threats. The advantages Bitcoin will bring to commerce world-wide are easy for even a child to see.
Mobile phones are everywhere. MPESA is absolutely huge in Kenya. It doesn’t take much to understand that Bitcoin is MPESA for the entire world, only orders of magnitude bigger and better because it can never be gamed or corrupted.
The country that ends up being the “Home of Bitcoin” will have trillions of dollars worth of transactions flowing through it, and will skim taxes off of the top of the activity. Anything that hinders this is going to cause the entrepreneurs building these fledgling systems to go to other jurisdictions. The UK must shun the voices that call for regulation and exchanges as the legalized model, because exchanges are not the only possible business model and regulation will drive entrepreneurs away.
Bitcoin has come onto the radar of the UK government, with officials gathering in London on Monday to discuss the security threats and tax concerns posed by the digital currency.
This is a very bad sign. It is a bad sign because no one really knows what Bitcoin is or what its potential is. No one knows the perfect Bitcoin business model; this is still being actively discovered. No one can even define Bitcoin; people are still arguing over its true nature. It is therefore highly unlikely that anyone is able to predict the future of what Bitcoin bushinesses will look like. Its too early to legislate, if legislation is needed at all, and of course, we hold that it is not.
About 50 civil servants from HM Revenue and Customs, the Serious Organised Crime Agency, Home Office and GCHQ – the intelligence listening service – held a one-day conference which examined how bitcoin works and how criminals might seek to exploit the electronic cash system, which is currently unregulated by any financial authority.
Its interesting that the only thing that is being considered is how to disrupt entrepreneurs; that is of course, the implication of these sorts of people gathering to discuss Bitcoin. They were not there to discuss what they are not going to do, after all.
Imagine such a meeting taking place in 1995, before the internet and the web exploded and increased the flow of goods and knowledge beyond anyone’s imagination. Imagine that these same people met and decided that an unregulated internet was “not acceptable” and that legislation needed to be tabled to regulate who could publish on the internet, who could be an email provider, etc etc. It would have killed the internet in the UK, causing an unimaginable amount of permanent damage. This is what will happen to the emerging Bitcoin economy if anything resembling regulation touches Bitcoin. The businesses trying to start here, that can incorporate and operate anywhere in the world, will simply do so in a place other than Britain. The Bitcoin will flow around this damage, and the UK will not profit, as the money and talent flees to a free jurisdiction. This is undesirable.
The meeting, entitled The Future of Money, focused on the implications that widespread adoption of the currency might have. As bitcoin users are anonymous, authorities worry that it could be used for purposes such as money laundering, and that transactions between individuals fall outside boundaries of tax collection.
Rather than focus on the majority use case that is inevitable with Bitcoin, these ill informed and well meaning people are being entirely mislead.
Once Bitcoin is flowing between devices, it will be impossible to track, and moving very quickly. Bitcoin will suck up fiat currency world-wide. The jurisdiction that allows exit and entry points to operate in it will make massive amounts of revenue, and the Bitcoin will simply flow through the countries where it is either impossible or unfavourable to operate.
It is important to understand what Bitcoin is, not in the monetary sense, but in the data sense. Bitcoin is data. It can flow wherever it is pushed and pulled. It cannot be stopped, any more than Bittorrent can be stopped. Its users will be everywhere, all at once, all the time, always on. Will it be used for unethical purposes? Yes of course; but these will be very rare edge cases, as all crime is an edge case. The difference here is that we are talking about pure information, that is very fluid; as fluid as liquid helium near absolute zero. It flows without friction, up the sides of the container it sits in against gravity. It cannot be stopped; but it can be tapped for revenue. Understanding data and how the world has changed will prevent forward thinking countries from being totally sidelined.
No amount of building projects (“Silicon Roundabout”) or talk will convince entrepreneurs to build their companies in the UK. Anyone thinking about incorporating in the UK to start a Bitcoin service now has cold feet.
If the government decides to act with its Luddite hat on, there will be little point in starting anything here, and those that have, will simply run a shell script to move their businesses to servers in free countries. It will take less than an hour to move operations to any jurisdiction anywhere in the world, and we need only look to The Pirate Bay to see how quickly a high traffic website can move from one place to another. The Pirate bay is an operation under extraordinarily heavy attack; its operators are scattered, its servers constantly being shut down. They do not make a profit and pay no corporation tax; a website that is not doing any infringing or harm, and that is making a profit and paying corporation tax in large amounts, like MTGOX, will be very welcome in many jurisdictions, who will make special rules to accommodate them. Britain must not go down the road of the Luddite and the anti-technology fanatic. There is nothing to gain from doing it. The business will go elsewhere and the British will still be using Bitcoin by the millions.
The Revenue said that its attendance at the conference had been to further its understanding of “current tax-related issues” and that it was monitoring the development of the bitcoin market. “The tax system already deals with transactions in currencies other than sterling,” the department said. “Any such transaction will be potentially taxable.”
Any company incorporated in the UK is subject to tax on its profits. A Bitcoin company operating in the UK will be making a profit and submitting returns every year. This is not an issue different to the operation of any business that currently operates in the UK, and Bitcoin should not be the focus of any kind, since it is just another kind of business, like selling soft ice cream.
Also under consideration was the idea of creating a regulated exchange, which would be the world’s first. Such an entity would go some way to addressing concerns about criminality by requiring users to provide proof of identity. An unregulated exchange was set up in London in 2011 but closed a year later after its bank account was shut down.
This just demonstrates the near horizon thinking of the people who attended this conference. Bitcoin exchanges are not the only business model that can be built on this new technology.
For example, there is a new business, Bitspend (not operating from the UK) that allows you to buy anything in the world with Bitcoin. You select what goods you want, inform the website of your choice, pay them Bitcoin to the amount of the purchase, plus their fee, and they purchase the goods for you and have them dispatched to you directly from the seller. They don’t even have to handle the goods, all they are doing is making purchases on other people’s behalf.
This business has nothing to do with Bitcoin Exchanges. It is a pure service that uses Bitcoin as a money transport. A business like Bitspend could operate in any jurisdiction, since it is buying goods over the internet. They are based in the USA, and as they grow, their software will become more robust and reliable, and their customer base will grow. New business ideas and opportunities will come to them first. People in the UK can use this service transparently; it is a perfect example of Bitcoin flowing through the UK without ever touching a UK incorporated entity. The question then is obvious; why should this business leave the USA and incorporate in the UK? What advantage is there for them to do so? What inducements can be put on the table to cause Bitspend to move to the UK so that its profits are taxable in the UK?
These are the correct questions that should be asked; Bitcoin should not be mischaracterised as a threat, but as an unprecedented opportunity, and something that should be used to attract entrepreneurs and visionaries to London.
Many more Bitcoin companies are being planned and developed right now in a myriad number of different models and forms. Conferences are being held in Romania and California. Britain is going to be left out of this important revolution if the wrong noises are made and disseminated.
The web was born in the UK, and the centre of the web’s entrepreneurial activity is all in California.
Why is it that the British invent all the great things and other people in other countries capitalize on them? Why is Facebook everywhere in the world, and Bebo, early star in social networking, filing for bankruptcy protection?
Britain has the brains, it has the talent. Its young people have the entrepreneurial spark. Bitcoin is going to be the biggest thing since the internet itself. If Britain drives entrepreneurs in this sector away, it will not get a second chance.
The Future of Money conference, which included presentations on how the cryptocurrency works, was organised by the government’s Foresight Horizon Scanning Centre, an arm of the Department for Business, Innovation and Skills which develops innovative, long-term policy. Although unofficial meetings have been held previously, this was the first official meeting of civil servants held to discuss bitcoin. No government ministers were present.
Bitcoin and its growing ecosystem was created by developers. It did not need the State to help it, design it or get it going. Like the internet, it will grow at its own amazing pace if left to do so. Anything that touches it will distort its natural geometric growth.
What must be understood here is that the threats presented by Bitcoin are absolutely minuscule, molecular even, when compared to the planetary scale big picture; it is exactly the same as the internet itself. The vast majority of internet usage is absolutely harmless, ethical, beneficial and normal, and the same will be true of Bitcoin.
Policy, if any is to be made at all, and it should not, must be driven only by the facts and economics. If not, Bitcoin will see it as damage and will route around it. The Bitcoin will flow through and out of the UK, rather than coming in and terminating here; and that is what, surely, the government must want – for Bitcoin to begin and end in the UK, so that the businesses that provide the services can aid the economic recovery.
And what an aid that will be. Trillions of dollars and Pounds in Bitcoin on a weekly basis, flowing through UK based nodes that are all as trusted as eBay and built to the highest standards, just like Facebook, but without any regulation, just like Facebook.
This is the ideal situation; The Facebook of Bitcoin incorporated in Britain showing the world that London is the centre of the emergent Bitcoin economy. “If you want to be where the Bitcoin action is, London is your Go To destination”. This is what we want to read!
Michael Parsons, a banking management consultant and chartered accountant who presented at the event, said: “There were a lot of questions. Everyone was very receptive and keen to learn more.”
GCHQ confirmed that it had sent staff to the conference in the interests of its role in helping to deliver cyber security.
Bitcoin is not a “cyber security issue.”
Its very important to characterise these technologies correctly. At the beginning of the Internet, I am sure that there are people alive now, who would characterise ISPs as “cyber security threats”. Of course, acting on any such mischaracterization would have fatally crippled the nascent ISP and web industry, and caused Britain to be an also ran in the internet stakes. As it happened, despite the telephone monopoly of BT, the ISP business in the UK thrived and produced many wonderful spin-offs in terms of new businesses and skilled developers, many being of world importance. This should be the aim with Bitcoin also. Britain should seek to nurture, by keeping an arms length from it, all Bitcoin related entrepreneurial activity.
As we have seen with Hong Kong, once all the work is done, there will be a glistening jewel of activity to collect at the end of the exercise. Only a hands off policy can create such jewels, and in the case of software businesses, the jewel is quicksilver, that can flow very rapidly to the place where regulation is lowest. Business is mercury that always seeks its most efficient level.
And let us remember; Bitcoin is hardly being used for anything at all at the moment. What everybody thinks it is and what it could be used for is pure speculation. A cautious, future centric position is the best one to be taken, because either way, the Bitcoin is going to flow, and that flow cannot be stopped without stopping entire internet.
Some people might say that websites can be blocked, which will stop people in the UK from getting Bitcoin from other jurisdictions They will cite the blocks on The Pirate Bay and Kickass Torrents as successful examples. This view is entirely incorrect.
A small browser extension called Stealthy makes all ISP blocks moot. It is currently installed by 277,794 users, and it is sure to grow in its user base. This is but one very easy ways to completely circumvent ISP blocks on websites, and of course, once you get your Bitcoin on your mobile phone or laptop, it is a pure peer-to-peer system, that cannot be blocked at the ISP level.
With the Stealthy plugin, all ISP blocks are completely defeated. That means it will be impossible to block any website in any jurisdiction selling Bitcoin.
The normal reaction process of problem, reaction solution will not work in the twenty-first century. A new model must be designed and implemented that utilizes these new tools so that everyone benefits.
Bitcoin and the internet itself are entirely beneficial and should not be regulated, but should instead, be harnessed and their utility leveraged.
Rather than having a meeting to discuss fallacious ideas and imaginary threats, meetings should be held to see how Bitcoin can reduce the cost of government.
Imagine the following applications for Bitcoin.
- Paying parking fees and fines.
- Collecting taxes. In micro amounts.
- Paying usage fees for all government services. In micro amounts.
- Reducing all money related fees on flows into and out of government, saving billions.
- Disbursing benefits at a fraction of the current cost.
These are just some the sorts of things that should be discussed at the government level, not how this baby should be killed before it is born.
This is an opportunity for increased efficiency, transparency, speed and effectiveness in the way government collects and disburses money. This is the sort of thinking that should be on the table, not Luddite dreams of wrecking the internet.
Civil servants will now prepare two reports for ministers on their conclusions: one public and one private.
These reports, both the public and the private, cannot possibly present a complete picture. The Bitcoin business models are still being developed and iterated through. No one knows what the final, profitable and viral shape of Bitcoin businesses will be; the only thing that can be predicted is that there will be a final shape, and that the company that hits on it will be incorporated in some jurisdiction, and that it is in that jurisdiction that the money will flow.
The question here is whether or not that country will be Britain. Articles like this, and any move by Her Majesty’s Government to control Bitcoin will cause Bitcoin to bloom elsewhere.
No amount of Silicon Roundabout development, ribbon cutting and pleas to come to Britain will make the UK attractive. Only a guaranteed, decades long moratorium on any interference in Bitcoin activity will attract entrepreneurs and investment in this once in a lifetime event.
The FSA letter on Bitcoin sent to Intersango was an encouraging sign that Bitcoin was to be left to flourish. I will leave it to you to imagine the next MTGOX starting in the UK (or for that matter, the next MEGA that has grown to dominate New Zealand internet traffic and will be an economic powerhouse there with its soon to be announced new services); there is simply no reason why such a company should not start in the UK and grow to a size greater than MTGOX, as second and third generation successful Bitcoin business models begin to emerge.
The question is will the correct business conditions exist to facilitate this emergence, or not?