In the beginning, there was Bitcoin.
First proposed by the anonymous Satoshi Nakamoto in 2008, the first Bitcoin was created, or mined, in January 2009, before 4K TV, before Snapchat, before so much of the web we know today.
10 years later, cryptocurrencies only have a total value of $177 billion (£138bn). ‘Only’ might be the wrong word but that’s approximately 500 times smaller than the total value of all money globally yet the media, governments and central banks are all standing up and taking notice.
It’s again scheduled for discussion at the forthcoming G20 meeting in Japan this June and big companies like Facebook, Amazon, Tesco, Microsoft and others rumoured to be looking into how they might get involved.
Why all the fuss?
A cryptocurrency means an individual can become their own bank.
People can perform transactions anonymously, with near nil fees, in real-time and cross-border while storing their wealth independently without being able to be tracked. It’s a scary thing for governments to deal with.
Dr Richard Whittle, chief economist at The Future Economies Research Centre at Manchester Metropolitan University suggests that the real question is ‘how can government handle this if they can’t even control the banks?’
The simple answer is that governments cannot fully control a cryptocurrency by virtue of their fundamental design.
They are stateless, meaning that no nation has jurisdiction over it entirely.
Banks are often prohibited from overseeing cryptocurrency transactions on behalf of their clients for regulatory reasons because senders of cryptocurrency are required to pay a small fee that is paid to an anonymous miner who verifies the transaction.
Not knowing the geographic location of this person means that the bank cannot be certain that this small payment has not been made to a person in a…