LONDON: London, centre of the $5-trillion-a-day global currency market, now wants to be home to a controversial upstart — bitcoin. British authorities have come out in support of digital currencies in the name of promoting financial innovation, while proposing that regulations should be drawn up to prevent their use in crime.

But it is technophiles who are leading the drive to make London a real-world hub for trade in web-based “cryptocurrencies”, of which bitcoin is the original and still most popular. Every Tuesday evening in a trendy cafe in London’s Shoreditch neighbourhood, a group of digital currency enthusiasts gathers to discuss ideas, “vape” from e-cigarettes and exchange their pounds for bitcoins in a dedicated “ATM”.

With more than 2,200 members, CoinScrum, run by a former derivatives trader who left the world of traditional finance to work on a digital currency start-up, is the biggest bitcoin networking group in the world. Its meetings draw a mostly young, mostly male crowd — some amateurs, others who have come to Britain to start bitcoin businesses.

Already the capital of traditional currency trading, London is competing with San Francisco’s web expertise and New York’s financial clout as it pushes to be the foremost financial technology — or fintech — centre in the world.

Last month the British government announced plans to regulate digital currency exchanges to prevent their use in money-laundering, and to help to develop a set of standards for cryptocurrencies.

Backers of bitcoin praised this for lending legitimacy to the currency — which unlike traditional money has no printed form and remains outside the control of central banks — without stifling innovation.

Just over 14 million bitcoins are in circulation, worth around $3.1 billion at the current exchange rate of around $220 each.

Detractors worry that digital currencies make it easy for users to buy products anonymously from websites like Silk Road, an underground marketplace for drugs and other illegal goods which was shut down in 2013. But advocates argue that using cash for illicit trades is easier and less traceable, pointing out that most US banknotes are contaminated with cocaine.

Later this month Swiss banking giant UBS will open a technology lab in London to explore the wider application of the technology in the financial services industry.

UK Finance minister George Osborne has said he wants Britain to lead the world in developing fintech, highlighting the potential of digital currencies.

Last year investment in fintech firms in Britain and Ireland more than doubled to $623m from 2013, representing 42pc per cent of such investment in Europe, according to consultancy Accenture.

Alongside the new regulation and standards, the British government promised an additional 10m pounds ($15m) for a research initiative that will look into the blockchain technology behind digital currencies. It is the blockchain — essentially a ledger of every bitcoin transaction that is virtually impossible to tamper with — that the Bank of England has also said could be revolutionary. Central banks, it has said, could eventually issue digital currencies of their own.

Published in Dawn, April 17th, 2015

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