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Response to the HMT public consultation on digital currencies

Transcript of HMT Response

  • OpenConsultation

    Digitalcurrencies:CallforInformation

    Response

    HMTreasury:https://www.gov.uk/government/consultations/digitalcurrenciescallforinformati

    on/digitalcurrenciescallforinformation

    Ifyouwishtoaddyourname/signaturetothisresponseinsupportofit,thenaddacommentwithyourname&email(noanonymousemails).Seetheendofthe

    documentforthis.

    Contents

    https://www.gov.uk/government/consultations/digital-currencies-call-for-information/digital-currencies-call-for-informationhttps://www.gov.uk/government/consultations/digital-currencies-call-for-information/digital-currencies-call-for-information

  • Contents

    Question11.1.Whatarethebenefitsofdigitalcurrencies?1.2.Howsignificantarethesebenefits?1.3.Howdothesebenefitsfalltodifferentgroupse.g.consumers,businesses,government,thewidereconomy?1.4.Howdothesebenefitsvaryaccordingtodifferentdigitalcurrencies?

    Question2

    2.1.ShouldthegovernmentintervenetosupportthedevelopmentandusageofdigitalcurrenciesandrelatedbusinessesandtechnologiesintheUK,ormaintainthestatusquo?2.2.Ifthegovernmentweretointervene,whatactionshouldittake?

    Question3

    3.1.Ifthegovernmentweretoregulatedigitalcurrencies,whichtypesofdigitalcurrencyshouldbecovered?3.2.Shoulditcreateabespokeregulatoryregime,orregulatethroughanexistingnational,Europeanorinternationalregime?3.3.Foreachoption:whataretheadvantagesanddisadvantages?3.4.Whatarethepossibleunintendedconsequences(forinstance,creatingabarriertoentryduetocompliancecosts)?

    Question4

    4.1.AretherecurrentlybarrierstodigitalcurrencybusinessessettingupintheUK?4.2.Ifso,whatarethey?

    Question5

    5.1.Whatarethepotentialbenefitsofthisdistributedledgertechnology?5.2.Howsignificantarethesebenefits?

    Question6

    6.1.Whatrisksdodigitalcurrenciesposetousers?6.2.Howsignificantaretheserisks?6.3.Howdotheserisksvaryaccordingtodifferentdigitalcurrencies?

    Question7

    7.1.Shouldthegovernmentintervenetoaddresstheserisks,ormaintainthestatusquo?7.2.Whataretheoutcomesoftakingnoaction?7.3.Wouldthemarketbeabletoaddresstheserisksitself?

    Question8

    8.1.Shouldthegovernmentregulatedigitalcurrenciestoprotectusers?8.2.Ifso,shoulditcreateabespokeregime,orregulatethroughanexistingnational,Europeanorinternationalregime?8.3.Foreachoption:whataretheadvantagesanddisadvantages?8.4.Whatarepossibleunintendedconsequences(forinstance,creatingabarriertoentryduetocompliancecosts)?

    Contents

  • 8.5.Whatothermeanscouldthegovernmentusetomitigateuserdetrimentapartfromregulation?

    Question9

    9.1.Whatarethecrimerisksassociatedwithdigitalcurrencies?9.2.Howsignificantaretheserisks?9.3.Howdotheserisksvaryaccordingtodifferentdigitalcurrencies?

    Question10

    10.1.Shouldthegovernmentintervenetoaddresstheserisks,ormaintainthestatusquo?10.2Whataretheoutcomesoftakingnoaction?

    Question11

    11.1.Ifthegovernmentweretotakeactiontoaddresstherisksoffinancialcrime,shoulditintroduceregulation,oruseotherpowers?11.2.Ifthegovernmentweretointroduceregulation,shoulditcreateabespokeregime,orregulatethroughanexistingnational,Europeanorinternationalregime?11.3.Foreachoption:whataretheadvantagesanddisadvantages?Whatarepossibleunintendedconsequences(forinstance,creatingabarriertoentryduetocompliancecosts)?11.4.WhathasbeentheimpactofFinCENsdecisionintheUSAondigitalcurrencies?

    Question12

    12.1.Whatdifficultiescouldoccurwithdigitalcurrenciesandfinancialsanctions?

    Question1313.1.Whatrisksdodigitalcurrenciesposetomonetaryandfinancialstability?13.2.Howsignificantaretheserisks?

    Summary

    SourcesSigned

    Question 1

    1.1. What are the benefits of digital currencies?

    Contents

  • A. Atrustlessmethodfortransferringassetcontrolthatrequiresminimalregulationasitisselfregulatedbyblockchaintechnology,nocentralisedcounterpartyorthirdpartytrustisrequired.

    B. Aprogrammabletypeofmoney,meaningthatitcanbeintegratedtoamuchgreater

    extentthanthetraditionalsystem.Thiscouldresultineconomicgrowthandnewbusinesstypes.

    C. Newtypesofgamesandentertainmentsystemswillbeabletointegratebitcoinora

    specificallydesigneddigitalcurrencyintotheirsystems.

    D. Governmentfacilitiesandpublicserviceswillbeabletointegratethetechnologydirectlyintotheirsystems,enablingafaster,moresecure,moretransparentandreliablewaytotransact.

    E. Apermanent,viewable,cryptographicrecord,forall,Alltransactionsarerecorded

    publicallyforeverinthedistributedledger.

    F. Nondiscriminatoryaccountissuance,whereallbusinesses/individualshavethesamerightsregardlessofsize,nation,race,gender,religion,etc.

    G. Apushpaymentsystem.Unliketraditionaldebit/credit/directdebitpayment

    mechanisms,thecustomerpushesthepaymenttothebusiness.ThiseliminatespotentialforfraudandIDtheft.

    H. Amethodofwealthcreationthatcannotbeabusedbyarbitrarilychangingthegoal

    posts,duetothedecentralisedmajorityagreementnature.

    I. Awayforgovernments(orthirdparties)tonotbesubservienttoissuersandcreatorsofwealth.

    J. Amethodtocreatewealth(throughanationalizedcoin)thatcanbeusedtoinvigorate

    theeconomyandpushitbacktowardsrecovery.

    K. DigitalcurrenciescanbeimplementedonMultisignatureplatforms.

    L. Usingalternativecoins(e.g.anationalcoin),identificationtagsonemail,phoneorgovernmentcardonthecoinaddresswillhelpidentifytheusenationallyandinternationallywithregardstocorporations.

    1.2. How significant are these benefits?

    Contents

  • A. Fewercostsforregulatorygovernanceduetolackofneedtocreateextensiveregulationssincethesystemregulatesitself.

    B. Enablesnewtypesofbusinesses.Miners*,games,automatedtaxis,DACs,

    C. Newdigitalcurrencyintegratedentertainmentsystemswillprovidearichercultureand

    economicgrowthinjobsandindustry.

    D. Emergingbusinessesarefundingthemselvesusingthesystem,notbythepublicorprivatesector,injectingwealthandgrowthintothelocalsystem.

    E. Optimizationofexistingbusinesseswherechargeback/transactionfeesequatetolarge

    percentagesoftheoverallcost,suchasgambling,software,smallonlinemerchants.

    F. Thepotentialdifferentusageisuncharted.Forexample,Facebookwasnotrealiseduntilafter1995.Someoftheearlypotentialsarebeingrealisedintheformofmultisignatureplatforms,(colouredcoins?)

    G. ThisremovestheburdenofPCIsecurity,anditisimpossibleforacarddataleak

    whichputsthefinance,creditscoreandqualityoflifeofbothindividualsandbusinessesatrisk.

    H. Bitcoin,oraspecificallycreatednationalcoin,is(orcanbe)mintedtocertain

    specification.Hence,withapredictablemonetarybase,businessescanknowwithgreatercertaintysomefutureconditionsofthemarket.Thisenablesthemtobettereconomiseandefficientlyallocateresourcestheycontrol.

    I. Noentityisresponsibleforissuance,thisallowsforfarlessregulatoryoversight,

    meaningfarlessexpenditureforgovernmentstoworkinsuchanenvironment.

    J. Governmentscanbackanationalcoinbyprovidingastronginfrastructureintocreatingaminingnetworkfortheirspecifiedcoin.Thiswouldalsoprovidesaidgovernmentwithtwoformsofincome.Theautomatedgeneratedwealthfromthesystem,andthepotentialtoallowotherstoinvestintothenationalminingnetwork.Thosecontributingtotheirnationalnetworkwouldalsoberewardedwiththiswealthgenerationwhichcanbeusedforeconomicgrowthandwouldgivethemacommitmenttotheirnationstate(seeHullcoin).

    K. Multisignatureallowsusers,individualsandbusinesses,todoawaywithalotofextra

    traditionalsecurityrequirements.Italsoallowsforfarlessregulatoryrequirements(andexpenditure)duetotheselfregulatingnatureofthetechnology.

    Contents

    http://www.bbc.co.uk/news/uk-england-humber-26841238

  • L. Governmentsmaybeabletocollecttaxesandduesdirectlyfromthetransactionindecentralisedsystemswithatransparentledger,evenapplyspecificrulesonanationallycreatedcoin.Bitcoinisapseudonymoussystem,requiringtheusertoputinextratechnicalefforttobecomeanonymouswhilstusingit.However,asuseofsuchsystemsincrease,andpermeatetheprimaryeconomicsystems(thatis,thelargelyunregulated,orSystemDeconomies),theefficiencyoflegaleffortstoforcecompliancewithrespecttotaxationsystems(orsystemsofidentity)maydecline.Suchdevelopmentsareactuallyapositiveforcesocialandeconomicdevelopment.

    Inlikemanner,traditionalgovernmentalsystems(baseduponthecorporationstatemodel)willfindmoretransparentandcosteffectiveusethatwillincreasepublictrustandinvolvementduetotheirinclusivity,availability,andopennature(concurrentwithdevelopingabilitiesofuserstoexchangecurrencyunitswithouttheinvolvementofathirdparty). Competitionbetweendecentralisedsystemswhichfunctionbothasamethodofspeechandforthepurposeoftransmittalofcurrencyrelatedinformationwillresultinpartfromaracetodevelopsystemsthatcan:

    a. readilybeexchangedforgoods,services,orotherdecentralisedcurrencyunits,b. beinterchangeablewithtraditionalcurrencies(fiat)wherenecessary,b. gainbroadadoptionanduseonmobiledevices,c. beutilizedviasystemssuchasSMSorTVsignalsthatdonotrelyontheinternet,andd. provideinherentprivacyoranonymity.

    Creationofsuchacoincanbebaseduponthepreexistingbitcoinnetwork,orcreatedasacomplementarycurrency.Eachoftheseprovidesjobsandbusinesses,someofwhicharefundedbythedigitalcurrencyinquestion,bearingnostrainonthetraditional,butactingasadditionalgrowthalongsideit.

    1.3. How do these benefits fall to different groups e.g. consumers, businesses, government, the wider economy? Theywillenablefurthergrowthinbusinessesandjobs.Hence,injectingnewlycreatedwealthintotheeconomy.Itisstillverylargelyunrealisedwealthaspeopleinnovateanddevelopnewapplications.Growthinthisareawillalsoattractsimilarhighendtechbusinesseswhichwillintheirturnattractotherrelatedtypesofbusinesses.

    1.4. How do these benefits vary according to different digital currencies?

    Contents

  • Understandingofalternativedigitalcurrenciesisstillveryunderdeveloped.Manyideasareasyetunthoughtof,andothersarequietlybeingworkedon.Someimplementations