Sunday, 15 September 2013

Cryptocurrencies Crest Capitol Hill

On Tuesday, I had the pleasure of joining a panel on mobile payments at Liquidity, the summit on new finance. I also caught the earlier sessions, but sadly missed the afternoon. It was definitely worthwhile, and I'll include links to the videos when they're published. Well done to Stan and Edie for pulling the summit together.

One development in particular that caught my attention was James Smith's explanation of the wider uses of Bitcoins, and other cryptographic currencies. I actually struggle with the idea that these are really 'currencies' as opposed to commodities that can be bought and sold. That would also explain the volatility in the 'exchange rate'. But the technology definitely opens up some interesting possibilities.

One of the wider uses of cryptocurrencies involves agreeing that a unique string of numbers with a nominal 'value' (say, a sixteenth of a Bitcoin), represents the record of title to a specific asset. This use-case is reflected in colored Bitcoins, for example, where different coloured 'coins' respresent different types of asset. While we already have asset registers for many types of property, such as land, ships, cars and securities, there are many other types of asset for which a similar approach would be too expensive. Some of the challenges confronted by such a project from a technological standpoint are described here.

The proliferation of cryptocurrencies and their possible uses has generated  significant interest from the venture capital community, as well as amongst central banks, monetary authorities and agencies fighting financial crime.

Far from retreating before the threat of a regulatory onslaught, however, cryptocurrency service providers have been lobbying for some time to gain acceptance, (e.g. via the Bitcoin Foundation). Recently, the leading providers and supporters also formed the Digital Assets Transfer Authority, or DATA to concentrate and focus resources more efficiently and provide a forum for resolving appropriate controls for the shared operational and regulatory risks.

The fact that the future of cryptocurrencies have reached this level of official engagement definitely makes it an area worth keeping an eye on.

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