Controlling Crypto-Currencies, June 2015

Liberal Arts and Natural Sciences was delighted to have the opportunity to sponsor a conference on crypto-currencies as part of our goal to foster lively debate on provocative and challenging topics. With Apple Pay just launched in the UK, and contactless payments becoming ever more normalised, exploring the ripple effect from crypto-currencies becomes increasingly important and urgent. University of Birmingham Law lecturer Dr Tatiana Cutts reports back from the conference, for Liberal Arts and Natural Sciences.

Tatiana writes:

In the year of the bailouts, 2008, The bankers were printing more debt for the state The dollar grew weaker, the big picture clear As they fed the hangover more Keynesian beer […] Who’s to blame, is this caused by desire for wealth? When perhaps the real problem is money itself! The idea isn’t new, maybe everything’s tanking ‘Cause society is built on fractional reserve banking And so called ‘‘investment’’ and attempted control May soon spiral fiat into a death roll […].

 — an Ode to Satoshi Nakamoto, “coretechs”

In 2008, in a paper published in an online cryptography forum under the name “Satoshi Nakamoto”, a writer presented the blueprint for a decentralised digital monetary system. Through that system, Nakamoto attempted to eliminate the risk of double spending without reliance upon trusted third parties, such as banks and credit-card providers. Bitcoin was introduced shortly afterwards as open-source software, and gained momentum gradually, as those with personal, economic and/or political agendas began to adopt the new technology. Bitcoin’s popularity increased rapidly when in 2011 Wikileaks announced that it would accept donations in Bitcoin. That decision resulted in one of the first significant spikes in value, and at the start of 2015 the value of one bitcoin stood at a little over $300.00. The Bitcoin system adheres closely to Nakamoto’s model. “Miners” solve complex computational problems by which transactions are verified and recorded in a public ledger (the “Blockchain”), in return for bitcoins. Users hold a private and public “key”, and release only the latter to make a payment. In this way, the system is entirely pseudonymous, and can be maintained and developed without the need for a central authority. Thus far, the number of Bitcoin transactions carried out each day across the globe has never exceeded 130,000, in comparison with approximately 295 million conventional payment transactions in Europe alone. Nonetheless, the European Banking Authority, the US Treasury Financial Crimes Enforcement Network (“FinCen”), the UK Financial Conduct Authority (“FCA”) and HM Treasury, amongst others, have accepted that the risks of crypto-currency are too many and too great to ignore. Further, the pressure from the Bitcoin community to develop clear rules is growing: service-providers want the consumer confidence associated with state approval, and need the support of traditional financial organisations in order to continue to grow. In many cases Bitcoin business are already engaged in anticipatory self-regulation. On 12 June 2015 Liberal Arts and Natural Sciences supported a conference on crypto-currencies, hosted at the University of Birmingham by Tatiana Cutts and Joanna Gray of the Law School. Its purpose was to bring together practitioners, stakeholders, financial regulators, and academics to discuss the most important issues raised by these developments, in order to create a solid research platform to inform emerging regulatory and private law frameworks. The day began with an introductory talk by Jonathan Levin of Chainalysis, who introduced some of the foundational concepts and fundamental questions in Bitcoin and distributed ledger technology. Next up was Dirk Haubrich of the European Banking Authority, who spoke about the Warning and Opinion issued by the EBA regarding consumer protection issues and pseudonymous payment mechanisms. To round of the first session, Robleh Ali, speaking on behalf of the Bank of England, spoke briefly about the Bank’s stance on crypto-currencies, and its nascent project to link decentralised and centralized payment systems to create a more efficient central banking network. The second session was comparative, and contrasted the UK approach to crypto-currencies with the American, Canadian and Australian frameworks. This created a foundation for a more in-depth look at the workings of distributed payments networks, with industry insights from Tom Robinson and Gareth Jenkins, and an analysis of the private law framework by Tatiana Cutts. The last session tested the boundaries of the subject, drawing in governance issues, regulation, privacy and security and emerging movements towards inclusivity in banking, addressing some of the more controversial aspects of cryptographic technology. It was clear from conversations on the day that technologies and research projects such as this are only the start of the fintech revolution, and that the way that we understand moral and economic debt, the way in which we calibrate value and think about ethereality in the context of money, status and property and – most important of all – the way we conceive of power and governance structures of our society are all changing at an unprecedented rate. This is an exciting time for those engaged in research in the Liberal Arts and Natural Sciences, and the conference will form the foundation for an ongoing collaborative project between Tatiana Cutts (Law) and Dr Matt Hayler (English), looking at “Money in the Age of Ubiquitous Computing”. For more information email t.cutts@bham.ac.uk or tweet @TatianaCutts Liberal Arts and Natural Sciences made live-streaming possible on the day, enabling the event to have a truly global reach, with over 1,000 people tuned-in. The videos can be viewed here.