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About 50 civil servants from HM Revenue & Customs, the Serious Organised Crime Agency, Home Office and GCHQ – the intelligence listening service – held a one-day conference which examined how Bitcoin works and how criminals might seek to exploit the electronic cash system, which is currently unregulated by any financial authority.
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The meeting, entitled The Future of Money, focused on the implications that widespread adoption of the currency might have. As Bitcoin users are anonymous, authorities worry that it could be used for purposes such as money laundering, and that transactions between individuals fall outside boundaries of tax collection.
The Revenue said its attendance at the conference had been to further its understanding of “current tax-related issues” and that it was monitoring the development of the Bitcoin market. “The tax system already deals with transactions in currencies other than sterling,” the Revenue said. “Any such transaction will be potentially taxable.”
Also under consideration was the idea of creating a regulated exchange, which would be the world’s first. Such an entity would go some way to addressing concerns about criminality by requiring users to provide proof of identity. An unregulated exchange was set up in London in 2011 but closed a year later after its bank account was shut down.
The Future of Money conference, which included presentations on how the cryptocurrency works, was organised by the government’s Foresight Horizon Scanning Centre, an arm of the Department for Business, Innovation and Skills which develops innovative, long-term policy. Although unofficial meetings have been held previously, this was the first official meeting of civil servants held to discuss Bitcoin. No government ministers were present.
Michael Parsons, a banking management consultant and chartered accountant who presented at the event, said: “There were a lot of questions. Everyone was very receptive and keen to learn more.”
GCHQ confirmed that it had sent staff to the conference in the interests of its role in helping to deliver cyber security.
Civil servants will now prepare two reports for ministers on their conclusions: one public and one private.
The decision to examine Bitcoin follows similar moves by authorities in the US. The Commodity Futures Trading Commission, a US financial regulator, said last week that they were exploring how they might regulate Bitcoin and protect markets and consumers. Last year the European Central Bank produced a report on virtual currencies, highlighting the challenge they pose in extending oversight and their threat to central bank control of the financial system. As well as attracting investors, Bitcoin’s advocates include technology fans and libertarians who champion its decentralised nature.
The price of Bitcoins soared last month, as speculators rushed to invest. It then fell sharply, partly due to hacking attacks at exchanges such as MTGox and on users’ online wallets, which undermined confidence in the four-year-old currency.
The price has stabilised at about $110 and the present market capitalisation of the Bitcoin economy is estimated at $1.25bn.
As a payments system, Bitcoin’s attraction is that users can transfer money directly to each other, thus avoiding middlemen and making the cost of transactions virtually nil. In recent weeks businesses using Bitcoin in the US and Canada have had their bank accounts shut, pointing to nervousness by the banks about the rise of the digital currency.