Unless you've spent the last year living underground, with no access whatsoever to another human being, much less any contact with social media, you will have heard/seen something about cryptocurrency (crypto for short), or at least a mention of the most famous of all the 1,300 cryptocurrencies in existence today - Bitcoin. At the time of publication, one Bitcoin is valued at $17,439 and total market cap for all cryptos has risen from $17bn at the start of the year to $492bn.
What is cryptocurrency?
Crypto/virtual currency, is defined by the Financial Action Task Force (FATF) as a digital representation of value that can be digitally traded and functions as a medium of exchange; and/or a unit of account; and/or a store of value. It does not have legal tender in any jurisdiction, and it is not issued nor guaranteed by any jurisdiction. Its functionality and value exist only by agreement of a community of its users and is different to e-money in that e-money is a digital representation of FIAT (or 'real') money.
What is 'blockchain' and why is everyone talking about it?
The blockchain is the term used to describe the 'distributed ledger technology' (DLT) that is at the heart of the majority of cryptos - the DLT is, as the nomenclature suggests, distributed in that there is no one central server to which a corporation/government has the keys; the technology sits on a network of computers around the world – the coin is represented by a cryptographic key which only the owner possesses and, therefore, controls.
Why is Gibraltar at the forefront of developments in the space?
Gibraltar is a leader in this field as a result of the work of the Gibraltar Government Cryptocurrency working group which was formed a number of years ago. On the basis of the working group's findings, the Government published regulations in October which will come into force from 1 January 2018. Gibraltar is leading the charge as the first jurisdiction to regulate this kind of activity, ensuring that it regulates only the financial aspects of the application of these technologies and not the technologies or the currencies themselves, an important distinction.
Having overseen the creation and development of the gaming space over the last twenty five years in Gibraltar, our professionals, in tandem with Government, seek to replicate the formula by, once again, taking advantage of an alignment of the interests of three stakeholders - the jurisdiction, the businesses active in this space and the advancement of investor protections.
Is Bitcoin a bubble?
It is important to distinguish Bitcoin, for example, one of the best known examples of a 'killer app' built on the blockchain, from the blockchain itself. Blockchain is about the many inherent features of the technology which excite and fascinate in equal measure. Decentralisation, anonymisation and democratisation – a technology that 'provides trust in a trustless world', a technology that allows us to reimagine how we do things that we have always taken for granted, a technology that, in my view, is here to stay.
As for Bitcoin itself, Nicholas Szabo, a legal scholar and computer scientist that some suggest could be Satoshi himself says that "running non-stop for eight years, with almost no financial loss on the chain itself, [Bitcoin] is now in important ways the most reliable and secure financial network in the world". The growth in value it has seen in recent weeks has been nothing short of staggering and, in an unregulated world where market manipulation rife, it's hard to disagree with the 'bubble' suggestions – but it certainly hasn't popped yet!
Selwyn Figueras is the Head of Business Development at ISOLAS LLP. Selwyn forms part of the Fintech team at the firm — he has spoken at a number of industry events. Contact him by email selwyn.figueras@isolas.gi , on Twitter @selwynf and on LinkedIn
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
