Are Bitcoins the future for UK financial innovation and business growth?
George Osborne has announced measures that aim to make Britain the "global centre of financial innovation”. As part of this drive, a government investigation is underway into the potential for virtual and digital currencies such as Bitcoin to encourage innovation in the UK's financial sector.
What is a Bitcoin?
Bitcoins hit the headlines in 2013, as financial innovators seek new ways to trade and place value on products and services. Bitcoin is often referred to as a new kind of currency and is represented by a unique online registration number. You can obtain bitcoin by trading for them, or alternatively ‘mining’ for them. Mining involves computers solving mathematical problems, for which there is a bitcoin prize. More than 60,000 online retailers now accept virtual currencies worldwide and the growing popularity has seen backers of the currencies push for greater mainstream adoption.
And there is mainstream acceptance of the future of bitcoins. Bosses at Braintree, a paypal subsidiary, are investigating ways to process payments using the Bitcoin virtual currency. The work is due to be completed within "the coming months", said Braintree boss Bill Ready in a conference speech. The result of this investigation could be that tens of thousands of merchants would soon be able to accept bitcoins as payment.
But the market for bitcoins is nothing if not volatile. In November 2013, the value of one bitcoin peaked at £62 but it has since nose-dived and now each one is estimated to be forth in the region of £290. And this volatility needs to be carefully managed before it can become a widespread application. Part of the research announced by George Osbourne is to examine the potential risks. So although Braintree's work could be considered a "first foray" into using bitcoins there is no indication yet that bitcoins will be accepted directly by Paypal and eBay any time soon.
The chancellor believes that "only by harnessing innovations in finance, alongside our existing world class knowledge and skills in financial services, that we'll ensure Britain's financial sector continues to meet the diverse needs of businesses and consumers here and around the globe".
The practicalities of using the Bitcoin for everyday transactions are being overcome , however with its popularity among cybercriminals and the necessary talk of regulation to provide the safety in the market the path to wide spread uptake of the bitcoin remains rocky. But it’s an interesting path to watch.