The Department of Economic Development (DED) in the Isle of Man has decided to run with the crypto-currency Bitcoin. If you want to set up an exchange, mine or trade in Bitcoins and need a secure base in a low tax jurisdiction then the Isle of Man is the place to be.
The DED has so far stopped short of providing definitive legislation, which is quite understandable given that digital currency is new and regulators would not be certain on what they are trying to regulate. So in a conservative approach existing laws, the Proceeds of Crime Act and the Anti- Money Laundering code, will be applied.
“The Isle of Man recognises both the risks and opportunities presented by digital and virtual currencies. We are conscious of issues that have surrounded these activities but also can identify serious and credible entrants to the market wishing to explore this innovative technology. Therefore, the Government has instructed the relevant departments and statutory bodies to ensure there is a regime that promotes both business opportunities but also applies appropriate anti-money laundering requirements.”
But be careful what you wish for. Bitcoin inventor Satoshi designed Bitcoin in such a way that no one is actually in control of the database so that no single entity can control it. It is in effect owned by the users.
You could have ownership of shares or registering land using block chain technology, taking the middle man out of the equation. Imagine Facebook without Facebook with users having the power to block out the prying eyes of government. EBay without EBay managing the auction, people will do it themselves and betting exchanges without Betfair and gambling online without William Hill, people will be able to use block chain technology to bet with each other.
Frisby, in researching his book, spoke to Charles Hoskinson the head of Ethereum who is building a decentralised value system, where they are planning to dis-intermediate the government and banks from the generation of money. But why stop there? Ethereum is looking at what else they will be able to dis-intermediate, ‘can we remove Wall Street from finance’, he says! If they can, will they be able to remove the house from the casino?
Some years back I recall the betting exchange Betfair, a young innovative disruptive company, entering the betting market. At the time they were struggling to maintain sufficient liquidity to make the website attractive. Cleverly they recruited racecourse bookmakers to set the odds on the exchange.
Short term bookmakers were able to take bets at low odds on the racecourse and arbitrage through Betfair at higher odds. It was “win-win” for both parties. I recall telling the bookmakers that the practise was against their interests; ultimately it would ruin their business.
But in a free market one competitor is set against another and it is the deal of the minute that counts. Eventually even the most stubborn bookmakers were dragged into using Betfair.
At the time the racecourse bookmakers were quite powerful.
The racecourse bookmakers, by operating on an exchange, had transferred their power to the exchanges. The betting prices were now being formulated on an exchange with a lower margin of profit than the bookmakers were used to. They had shot themselves in the foot!
This had far reaching consequences for the value of their racecourse pitches, their power to lobby in favour of better treatment on racecourses and their influence with Government on issues of taxation.
Disruptive technology is essential if we are to make progress, whether you want it or not it is going to happen. As we enter this new phase of development make sure you are moving forward with your eyes wide open.
by Warwick Bartlett