Should Britain replace sterling with Bitcoin?

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by Joe Curtis| 18 June 2014

Institute of Economic Affairs calls for level playing field for private currencies.

Britain should replace the pound with Bitcoin, according to a free-market think tank report that believes the cryptocurrency is here to stay.

A demand for alternative currencies will usher in a "tidal wave" of private forms of money that will see Bitcoin and other mediums of exchange co-exist with a privatised pound, predicted the Institute of Economic Affairs' new report.

The published paper, 'New Private Monies: A Bit-Part Player?' calls on the Government to give all private money a level playing field, claiming it has stifled their competition with sterling.

Director general of the institute, Mark Littlewood, said: "If government were to embrace private monies rather than suppress them, there would be profound implications for individual freedom.

"Bitcoin has proved widely successful as an alternative form of exchange and as way of restoring financial freedom. It is just the beginning, however. Fierce demand for private money will drive innovation, creating a tidal wave of new and superior forms of exchange."

The report's author, Durham University's professor of finance, Kevin Dowd, said the financial world is growing frustrated with state-backed currencies due to a perceived weakened ability to act as a store of value, growing financial restrictions and "oppressive" taxes.

He contrasts this with Bitcoin's low transaction costs, which has seen it hailed as a model for payment transfers among fintech firms, as well as its self-regulation based on code algorithms, rather than being controlled by any central bank.

"Let's suppose that Bitcoin became a very prominent currency," Dowd told the Guardian. "[To ensure a level playing field], the government itself would accept Bitcoin in tax payments. So, in effect, the Government should not be favouring its own currency, or any particular currency, through any of its unique powers. Nor have regulations against them."

Currently prominent British Bitcoin users are pushing for regulation, however.

HMRC scrapped VAT on the currency in March, considering it a barrier to international competition, and members of the UK Digital Currency Association (UKDCA) have claimed it is only a matter of time now before it becomes regulated in Britain.

UKDCA director Tom Robinson said: "It's a very progressive view. The decision really puts pressure on the FCA because if it's money, then they should be regulating it.

"The last barrier is financial regulation. The only issue is the FCA still refuses to say anything about it."

Bitcoin's value is also highly volatile, and the value of the cryptocurrency plummeted after exchange Mt. Gox lost 650,000 bitcoins back in February, allegedly stolen by hackers.

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