When a UK parliamentary committee proposed last month that cryptocurrency be regulated as gambling, it didn’t take long for the Treasury to reject the idea.
But the fact that it was suggested at all is revealing, says Gavin Brown, associate professor in financial technology at the University of Liverpool.
“[The committee] didn’t really understand the technology,” he says.
And in this, they aren’t alone — despite cryptocurrencies, digital currency designed to offer an alternative payment method to traditional money, now being over a decade old.
“I see that all the time. I’ll get a taxi in London and the taxi driver will know ten times more [about cryptocurrency] than the CEO of a multinational bank I’m about to visit,” Brown says.
“We still see that disparity of knowledge, and not just from people on the street, but also from people who are actually making the policies who should know better.”
That’s because crypto is “powerful stuff”, he says.
The largest ever Bitcoin transaction was for just over $US1 billion ($1.5 billion), which, to move without a bank, carried a transaction fee of $US3.56 ($5.35).
“And it cleared and settled in minutes,” Brown says.
He argues that ignorance of cryptocurrency is risky.
“Western Anglo-Saxon economies are stuck between a rock and a hard place, because it’s not going away — and it’s a constant threat.”
‘Deliberate’ targeting and ‘nefarious use’
There are thousands of different cryptocurrencies — Bitcoin is the biggest — and trying to regulate them is anything but simple.
Larger crypto companies are centralised, meaning they are traditional companies with shareholders or a board of directors.
But the same is not true of cryptocurrencies, which are decentralised.
“The problem we have with things like … Bitcoin, is that it’s not really controllable or ban-able in a traditional sense because … [it] doesn’t have a CEO, a head office, any employees, an email address, doesn’t file any accounts, doesn’t have any buildings, has no AGM, has no shareholders,” Brown says.
“Literally, Bitcoin is an idea. It’s a computer program that’s being run globally all over the world at the same time.”
In some senses, that elusiveness is exactly the point.
“[Cryptocurrency] has been deliberately constructed in a way that is anti-state, and almost naturally beyond the reach of regulators,” Brown says.
It’s one of “a ton of downsides [associated with it], like nefarious use by criminals”, he says.
John Reed Stark, a lawyer in Washington DC specialising in the intersection of law and technology, told ABC’s Four Corners last year that “horrific crimes from ransomware attacks, and terrorism, and evading sanctions during war time … drug dealing [and] sex trafficking” are crimes that are “now a lot easier to do because of cryptocurrency”.
Natasha Gillezeau, SXSW Sydney production lead and former Australian Financial Review tech journalist, says “people need to understand how serious [cryptocurrency] is”.
“We have to understand how much of a marketing and advertising push that crypto [companies have] done in the last few years,” she tells .
“We’re talking sports stadiums [sponsored by] crypto.com, we’re talking outreach to influencers … We’re actually in a different point in the cycle of how much the marketing and advertising industry has legitimised it.
“I’ve been in conversations with people who have said, ‘We target people deliberately on Facebook and Instagram, that we know have gambling problems, with crypto ads because they’re more likely to flip than others’.”
‘Very different to gambling’
While Gillezeau doesn’t see the UK’s gambling regulation proposal as the best solution to the problem, she believes it does recognise “the human effects of cryptocurrency”.
“Probably what these British MPs [who raised the proposal] are speaking to is that there are certain segments of society that have been affected and blasted the last few years with crypto-specific advertising, they’ve lost a lot of money … and this is a response,” she says.
If crypto trading was designated as gambling, platforms could face additional licensing rules, requirements to protect vulnerable users, stake limits and closer control of advertising.
Brown can also appreciate some of the motivation to align cryptocurrency use with gambling regulations such as these.
“[Cryptocurrency] has the power to defraud, it has the power for people to lose significant amounts of wealth, it kind of feels a bit like gambling as well. And therefore, by taking that kind of ultra prudent label of gambling and just pinning it on it, it’s quick and it plays to that downside risk agenda.”
It also allows regulators to dip in to, and “just repurpose” ready-made law.
“But that misses a trick,” Brown says.
“These new types of technology are not gambling, they’re very different to gambling, actually. There is no house and punter. In fact, it’s much more nuanced than that.”
‘Can’t afford to get left behind’
Here in Australia, in mid-2022 around one million people owned cryptocurrency. In the UK, 5.2 million people — or one in nine — have either used or owned cryptocurrency.
“It’s come that far in 13 years,” Brown says.
“Go forward another 10 years. What happens if that number [in the UK] is 30 million or 40 million?
“What happens if every British person or every Australian person wakes up and says, ‘I’m a bit sick of … inflation, I’m sick of interest rates, I’m sick of my government or whoever controlling money in a certain way. I want a different type of money’.
“Well, guess what? There is this alternative type of money … and all you need is an internet connection to access it.”
The more a population uses alternative currency, the more difficult it becomes to control its economy, Brown says.
“If people aren’t using that [traditional] currency, you’re completely emasculated. That right hand of your two-handed approach is gone.”
After presenting on cryptocurrencies to the UK Treasury six years ago, Brown was asked, “If people start using this [cryptocurrency], who pays for schools? Who pays for roads? Who pays for defence?”
“This is dangerous”, the person said.
And Brown agrees.
“For so long cryptocurrencies and digital assets have been kept at arm’s length … our fingers in the ears, ‘let’s hope it’ll go away, let’s hope it’ll disappear’.
“Nation states would like it to go away, but it’s just not going away.
“The challenge we have, especially for countries like the UK and Australia, is because financial services are such an important part of the economy, we can’t afford to get left behind.”
Governments must have an effective digital strategy, he says. And while crypto itself might be extremely difficult to regulate, the same is not true of the people and companies who interact with it.
“If someone says, ‘Hey, we’re a cryptocurrency bank’, well, guess what? I can regulate you as a bank of a digital asset.
“If someone says, ‘I’m a prime broker’, or ‘I want to be a custodian of Bitcoin’, or ‘I want to be a financial adviser of digital assets’, we can regulate those people because they are companies and individuals in a traditional sense.
“And that’s a much more pragmatic thing to do.”