The Bank of England And The Potential Of Blockchain

Posted on Posted in Blockchain

Regulation Might Come To Cryptocurrencies But Blockchain’s Potential Is Recognized


Mark Carney, the Governor of the Bank of England (BoE) recently spoke about the cryptocurrency market. 


He recognised the potential offered by the technology supporting the cryptocurrencies – the blockchain. However, he also suggested there should be more regulation in the market.


Carney thought this would be in the form of national steps towards greater regulation. Personally, I think if this happens most countries in the West, certainly within the EU will have similar or the same regulations. 


The BoE Governor said that some countries have made trading in cryptocurrencies illegal (for example Bangladesh, India and Thailand).


However, other countries have broadly welcomed cryptocurrencies. A good example would be the UK. China sits very much in the middle. It does not fully welcome cryptocurrencies. However, cryptocurrencies are not banned in China.


The Volatility Is An Indication Of A Bubble


Carney warned about the volatility we’ve seen in the price of cryptocurrencies.   He said that it was clear there was a lot of potential in the technology supporting the cryptocurrencies. Carney was of course, referring to the blockchain. 


He suggested countries had three choices in the way they could approach the cryptocurrency market. Alternatively, they could either isolate the market completely or they could regulate it.


The latter two both involve regulation, to what extent though is unclear. Carney argued that some regulation would be beneficial. It would allow governments to control some of the manipulation that goes on in some of the cryptocurrencies. To some cryptocurrency fans this might be seen as a positive step.


The Advantage Is Being Removed 


However, Mark Carney said that cryptocurrencies should be held to the same standards as other currencies (he’s referring to fiat currencies). He said, “The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system.”


While he was right to highlight the extreme volatility in the cryptocurrency market (he noted that the volatility was 25 times of the US stock market in 2017), the desire to level the playing field will not be welcomed.


My take on what Carney was saying was that to be able to harness blockchain technology, there needs to be greater regulation of cryptocurrencies. Integrating blockchain into our day to day lives will not be possible unless there is public confidence. Confidence in the technology will allow for a greater use.


An Example from the Credit Crisis


Yes, I can see many within the cryptocurrency community complaining and I understand why this might be. However, the growth and wider acceptance of digital currencies and the blockchain will always be capped. This cap is actually the public’s confidence. With regulation will come confidence. I can substantiate that statement by giving an example from the credit crisis of 2008 / 09.


At the time confidence in the banks was at rock bottom. There were queues of people waiting to take money out of the bank. They had no confidence it wouldn’t disappear. This happened in the UK with Northern Rock.


The bank collapsed and there were customers fearful of losing their money. The UK Government stepped in and guaranteed all deposits. This guarantee is still in place and has subsequently been increased to savings of up to £60,000.


Why did they do this? Love them loathe them, the banking system is the like the lifeblood of society. Without this study stream of money circulating, it would collapse. There was real concern that the withdrawals would escalate. Consequently, this would cause further banks to collapse and further withdrawals.


Once the guarantees were put in place, confidence slowly returned. Apply this analogy to the cryptocurrency market and you might be able to see the need from some government interference. With regulation comes confidence and from there there is no limited to the application of the blockchain technology.


A quick update – Walmart has recently filed a patent for technology that digitizes package delivery. By using blockchain technology, the package contents and life cycle of the package will be recorded. I wrote a short post on it here.


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