While bitcoin is attractive because of its inherent decentralised nature, it has struggled to be perceived as a legitimate currency, given the lack of accountability and total absence of someone or something to blame when the bit hits the fan. There have been problems. Say bitcoin to some people and they will immediately think of huge price shifts and global shutdowns, not to mention the Silk Road. Others see it as the digital solution to an unequal and outdated global financial system.
So, does the Isle of Man’s recent public announcement that it is open for business as a new global crypto currency hub help to allay the fears of conservative financiers? Probably not in the short term. Becoming an online gambling hub a decade ago was hugely lucrative for the island and now accounts for 13 per cent of its GDP. Clearly, it has learned from the experience.
Despite any nefarious connotations associated with gambling, as well as the resulting comparisons people might make with its recent decision to go full-crypto, the Isle of Man has nonetheless chosen to dip its toes into another financial area which still has questions to answer.
Dip its toes? More like cannonball into the Irish Sea. In an article in the Daily Telegraph in September 2014, deputy head of technology on the island Matthew Sparkes made its position perfectly clear: "Unlike jurisdictions which have made crypto currencies illegal, such as Bangladesh and Bolivia, or regulated them so fiercely that they stifle innovation entirely, like New York, the Isle of Man is welcoming them with open arms . . .
“The sales pitch for the island is compelling: with no capital gains tax, potentially no corporation tax and extremely low income tax, entrepreneurs could walk away with large rewards should their company gain traction. And the government’s positive stance on Bitcoin provides stability and certainty – it has begun to regulate crypto currencies, but only enough to provide legal and financial stability, not to squash innovation.”
British prime minister David Cameron has made his opposition known towards some crown-protected island states' lack of corporate responsibility. He has even demanded they make changes to some of their legislation.
With a population of approximately 85,000, the Isle of Man is almost entirely dependent on the UK. The queen is on their money – albeit without her crown – and the UK looks after its foreign affairs, but ultimately it is a self-governed society.
Its parliament is even considered to be one of the oldest continuously governing bodies in the world, so it doesn’t really matter what Cameron or anyone else thinks.
"We watched the growth of digital currencies closely throughout 2014," says Brian Donegan from the Isle of Man Department of Economic Development. "We may be a small jurisdiction but we're very nimble and saw an opportunity to diversify our offering. That said, we are open for digital business as long as there is appropriate regulation, we can keep crime out and ultimately protect the consumer."
The Isle of Man’s decision is somewhat of a gamble. Anyone attempting significant disruption of the established fiat-based financial industry is essentially taking on the most powerful groups in the world. But if the momentum behind crypto currencies is already too great, even the Rothschild family may consider learning how to speak Manx.
For any small nation, such a major economic policy decision will always be helped if it is also backed by people on the ground. So, in an effort to both allay any fears Isle of Man residents might have for crypto currencies, as well as showcasing just how potentially ubiquitous bitcoin could become for start-ups considering a relocation, the island’s authorities have actively encouraged its local businesses to adopt bitcoin as a legitimate currency.
“So far its arrival has been positive for the island economy,” says Donegan. “There is a small cluster of crypto currency-based companies that have established themselves here and who must incorporate their business, perform audits, handle legal issues, all of which require staff. So jobs are being created.
“It has been slow but we are beginning to see a number of businesses on the island accepting bitcoin. These are mainly corporate and retail businesses. You can walk down the high street and buy a coffee or hail a taxi paid for with bitcoin.”
While the Irish Central Bank declined to comment on the role of other countries and jurisdictions in respect of emerging currencies, its position on crypto currencies more generally is like that of any other state still tied up with traditional fiat currency structures: sceptical.
In an interview with The Irish Times around the same time the Isle of Man first went public with its decision in July 2014, Central Bank of Ireland director of markets supervision Gareth Murphy said virtual money still posed "significant challenges for financial, monetary, economic and fiscal authorities. Some of the main challenges include prevention of money-laundering, collection of taxes, consumer and investor protection and the calibration of monetary policy."
While bitcoin and other crypto currencies may still have questions to answer, the technology itself is dogged by a reputation which overshadows some of the other potential uses it has beyond simply transferring money anonymously.
Blockchain is a term which refers to the technology underpinning bitcoin. It is what makes transactions secure and reliable, even if the people involved don’t know or trust each other.
The blockchain has been described as a “shared single source of truth”.
In a nutshell, it is a platform which could support an incorruptible global spreadsheet.
This digital ledger, however, can be used well beyond the financial realm. In fact, virtually every recorded piece of information deemed important or valuable – medical procedures, educational degrees, birth and death certificates, marriage licences, deeds and titles of ownership etc – that can be written in code, could be safely stored.
"Blockchains are like the internet – they're owned by everybody and nobody," says Peter Kirby, president of US-based blockchain technology provider, Factom.
Kirby has travelled to the Isle of Man and met the relevant government authorities and is now considering relocating his business there. “The blockchain provides a distributed global ledger that doesn’t have to be owned by a bank or government or anything else. Through this you can build a permanent tamper proof layer of transactions.
“We have been stuck in conversations about the lack of regulation around bitcoin or how to move money faster and safer in the world. But the point is, you can now take this technology to everything: all record keeping for banks, governments, insurance companies etc.”
Despite US regulation in this area being as grey as anywhere else, Factom has been in discussions with several major financial institutions. They are all seriously looking into blockchain tech,” he says. “Large US accounting firms, insurance companies, even the big Wall Street firms.”
In May, DBS Bank, the largest bank in Singapore by asset value, will host a blockchain hackathon.
The competition is being sponsored by IBM, which recently came out of the blockchain closet. But it's nothing to be ashamed of any more. Dell, Reddit, Expedia, PayPal and Microsoft all accept bitcoin as a form of payment.
On the surface, it sounds like this technology is on its way to becoming the norm. So will the question shift from why the Isle of Man is getting involved in such a “shady” business to, why Ireland is not?