Cryptocurrency and Crypto Payments: The current state of affairs

1. APPG Blockchain Evidence Meeting on Cryptocurrency & Crypto Payments

Purpose

The purpose of the All-Party Parliamentary Group on Blockchain (APPG Blockchain) is to ensure that industry and society benefit from the full potential of Blockchain and other Distributed Ledger Technologies (DLT), making the UK a leader in Blockchain/DLT's innovation and implementation.

This report of the 23rd Evidence Meeting explores Blockchain’s application in the areas of Cryptocurrency and Crypto Payments. It provides a summary of the takeaways from the Evidence Meeting.

Details of the Meeting

Panellists: Evidence Givers, Chair & Secretariat

The evidence meeting was Chaired by the APPG Blockchain Chair Martin Docherty-Hughes, Member of Parliament. Big Innovation Centre acted as the Secretariat for the APPG on Blockchain, led by CEO Professor Birgitte Andersen and Project Manager George Farrer.

The twenty-third APPG on Blockchain Evidence Meeting aimed to inform Members of the House of Commons and House of Lords about the current state of affairs within the Cryptocurrency and Crypto Payments space. Questions were asked about whether Cryptocurrency would become a form of legal tender in the UK, along with what developments in the space would mean for financial stakeholders. Furthermore, whether regulation is required to make the UK an attractive place for Crypto Payments.

2. Background

The meeting's primary goal was to understand the latest developments surrounding Cryptocurrency and Crypto Payments. Additionally if, and what, regulation is required in order to make the UK a global hub for Cryptocurrency and payments, as the former Chancellor Rishi Sunak detailed in April 2022. The APPG on Blockchain has brought together global perspectives from different institutions, academia, and businesses.

The speaker's panel addressed the following questions about the current state of affairs of Cryptocurrency & Crypto Payments:

3. Meeting Takeaways

3.1 The UK has an Opportunity to Become a Global Crypto Hub

Following the announcement by the former Chancellor, Rishi Sunak, there is great consensus amongst the panel that the UK has a great opportunity to become a global hub for Crypto asset technology. Crypto technology is here to stay; therefore, the UK can drive the future of this technology, and become a place where companies and individuals come to invest in Cryptocurrencies and innovate Crypto Payment technologies. This could be achieved through legislation, or as part of the Financial Services and Markets Bill.

I believe that there is a very strong opportunity for the UK to be the driver for digital assets because it’s a technology that is not going to go anywhere. (A. Arras)

There is an idea that the UK has an opportunity to come up with something bespoke in terms of Crypto legislation. Not necessarily a piece of legislation itself, but maybe as a part of something broader in the Financial Services and Markets Bill. (S. Kiernan)

For the UK to become a global Crypto hub, there is a need for a definition of how Crypto should be seen in the UK. Questions exist around whether Crypto should be seen as an investment, or a way to pay for goods and services, as a utility? Flexibility is required in the definition of Crypto, as it is seen differently all over the world, but to fully utilise the benefit of this technology some basis of definition is essential.

Cryptocurrency is not as black and white as we make it up to be. Cryptocurrency in certain countries is more used as a utility, whereas in some others it is used as an investment. (A. Arras)

Additionally, for the ambition of the UK to mature into a global Crypto hub, the expert speakers agree that education is certainly required across all stakeholders: regulators, legislators, investors, and those in education themselves. Pushing education in Blockchain technology and Cryptocurrency at an early age will increase the knowledge levels of a generation who are going to be growing up with this technology at the forefront of their lives. Furthermore, educating those in power is essential, as they are the ones who will be formulating the legislation to enable the UK to become a global Crypto hub.

I do believe that education is key, no matter whether this is a regulator or a younger person. From my part, what I experienced is that before I could understand any Cryptocurrency or Blockchain terms, I had to understand what financial wellness is as a concept. (A. Arras)

The point around education is spot on. We need to work, not just in educating the powers that be, but work with them in a collaborative way. (S. Kiernan)

I think for a certain type of investor, having someone to hold your hand through the journey is beneficial. (M. Sotiriou)

3.2 The Adoption of Cryptocurrency can lead to a Re-Writing of Financial Rules

The increased adoption of Cryptocurrency in the UK means that there are now new ways to send funds and value. Only half a decade ago, people did not really know what Bitcoin was, and now people are fully involved with Cryptocurrency as a form of payment. Brands are starting to accept Cryptocurrencies, as there is now increased awareness about the potential benefits it can bring. Moreover, there was consensus among the expert speakers that the UK embracing Cryptocurrency as a form of payment is something that will happen without doubt.

People are now much more willing to accept Cryptocurrency as a form of payment and invest into it. (A. Arras)

It’s clear that mainstream adoption for Crypto payment is not an if, but when and how. (M. Sotiriou)

The UK’s financial infrastructure, to a large extent, is not completely developed therefore Blockchain and subsequently Cryptocurrencies can provide opportunities for efficiency. Sean Kiernan describes this as the “digitalisation of the back-end”. Cryptocurrency has the capacity to re-write financial rules and certainly change the game, in terms of how we spend, pay, and invest.

However, Cryptocurrency will not takeover completely, the experts on the panel contend that Cryptocurrencies and existing fiat currencies will work together in any new financial infrastructure that would be created – it would not simply be a choice between the two.

Cryptocurrency is a rewriting of financial rules and it’s not the existing status quo. Cryptocurrency gives people the ability to transcend the banking system and do something different, which can be very financially inclusive. (R. Ells)

I think that fiat currencies and Cryptocurrencies will coexist. Private currencies don’t need to replace incumbent fiat currencies to change the world for the better. (M. Sotiriou)

There has been an impressive response from incumbents who are now very much keen to explore, within the remit of their duty of care, how they can responsibly start to offer Cryptocurrency investments to their customers in the UK. (A. Arras)

3.3 Blockchain and Distributed Ledger Technology (DLT) is Perfect to Increase Cryptocurrency Adoption

The technology behind Cryptocurrency and Crypto Payments, Blockchain and DLT opens opportunities to change the focus of an economy, and in turn make it more efficient. The speed that Blockchain works at is a massive benefit, compared to credit card transactions, which sometimes have to go through 5 or 6 intermediaries before the money arrives at the merchant. Therefore, the efficient nature of some Cryptocurrencies can lead to quicker and faster payments, in turn attracting more people to use Crypto as a form of paying for goods and services. However, it was noted that Bitcoin has been a very slow form of payment, compared to other cryptocurrencies.

If you haven’t got instant payment, you haven’t really got the facility to make use of Cryptocurrency as an everyday way to pay for goods. (R. Ells)

Crypto networks can process payments in a matter of a few minutes. Despite bitcoin perhaps being a bit slow, there are other potential options such as layer- two networks, and these can have processing times of just a few seconds in some cases. (M. Sotiriou)

Additionally, because of the transparent nature of a Blockchain, with a record of all transactions being available in one place, the expert panellists argue that Cryptocurrency is not so appealing to cybercriminals as it may seem from the outside. This makes Cryptocurrency a great way of sending payment around the world, as it will be clear who the money is coming from and who it is going to. Therefore, Blockchain’s characteristic of trust makes Cryptocurrency adoption appear more likely in the UK as an attractive way of safely transferring funds and managing investments. Cybercriminals may be deterred from seeking to interfere with Cryptocurrencies, as all information about who is viewing the Blockchain is traceable.

Cryptocurrency has a common element of trust, whereby when a company issues a payment, the person can directly see the payment being send and are able to track that payment. (A. Arras)

There’s a lot of development in tracking tools; Blockchain forensics are also advancing quickly, which makes Cryptocurrency not so appealing to a cybercriminal, because everything is traceable. (A. Arras)

3.4 Regulation is Required to Ensure the Benefits of Crypto are Realised

The overwhelming takeaway from the expert panel was that some form of regulation is required in order to help the UK realise its ambition of becoming a global Crypto hub. There was consensus over the fact that a firm regulatory framework is required for brands to accept Cryptocurrency as a form of payment; additionally, for major financial firms to understand and utilise the benefits of Cryptocurrency. On the other side, consumers need to ensure that they are being looked after and protected by this regulatory framework.

I think it’s still that appetite, that legislation and regulation that will help shape, in turn, the risk appetites for financial firms to go into the Crypto world. (S. Kiernan)

Regulatory clarity is needed to provide confidence to users and the required safety that is needed. (M. Sotiriou)

Any regulatory framework that is put in place, has got to be dynamic and must continuously evolve as time moves on, as Crypto has done itself, and how the financial services industry has done over decades. Regulation will help to preserve the utility of Cryptocurrency as a form of payment. The downsides of Cryptocurrency, for example the safety and stability of the Cryptocurrency ecosystem, can be eradicated with clear regulation in place.

We need to make sure the framework is not static or rigid, it needs to be dynamic. It is not just Crypto that is evolving, the whole financial services industry is evolving. (G. Swan)

Whatever regulatory framework you put in, needs to maintain, or preserve the utility of Crypto. You can introduce any rules you like, but if you make the usefulness of Crypto zero, nobody’s going to use it. (G. Swan)

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Disclaimer: The opinions or descriptions shared within this report are not necessarily the opinions or descriptions shared by Richard Ells, Electroneum, or the ETN-Network.