Representatives from three of the largest and most innovative crypto companies attended a UK Treasury select committee hearing to discuss cryptoassets. Iqbal Gandham, Chairman of CryptoUK & Managing Director of eToro sat alongside Marco Santori of Blockchain and Obi Nwosu CEO of Coinfloor. Izabella Kaminska, Editor at FT Alphaville, took the opposing side to balance the opinions.
The Treasury committee hearings are designed to provide UK MPs a chance to question industry experts and further their understanding of the opportunities and challenges cryptoassets present. CryptoUK a self-regulated cryptoasset trade group, has requested regulatory oversight for the cryptoasset industry. The panel was questioned on a wide array of topics over the course of almost two hours and although disagreeing on some topics they held a common belief that the technology is young and imperfect but an alternative choice to the current financial system and to many of their users that was a risk worth taking. The preceding was kicked off with perhaps the hardest question to answer:
“What are cryptocurrencies?”
Ms Kaminska cited Mark Carney’s speech, 'The Future of Money', explaining that they are far from currencies as they fail to perform the three basic properties of money; store of value, medium of exchange and unit of account. Consistent with the FT Aplhaville stance she stated that their primary use case was speculation, implying throughout the hearing that speculation was synonymous with gambling and thus had similar negative externalities. Aside from speculation cryptocurrencies served a purpose in the criminal markets, noting that these markets were fragmented as they will continuously search for the most private cryptocurrency available.
The remaining panel had much broader definitions and agreed that the term ‘cryptoasset’ is more accurate. Mr Nwosu said that cryptoassets have multiple functions ranging from currencies to commodities and everything in between. As they mature and layer two technologies take hold their use case as currencies will work “as originally intended”.
Mr Grandham agreed cryptoassets are their infancy and made the analogy to the internet and how it took email 35 years to gain mainstream adoption. Making the distinction that blockchain technology is better suited at transferring value without trusted third parties as opposed to just information. Marco Santori looked at the human angle and told the committee how bitcoin and other cryptoassets allow the unbanked to be banked and escape oppressive regimes:
“People don’t come to blockchain to speculate… they come to blockchain so that they can live, so that they can escape governments that have been irresponsible with their currencies, so that they can prevent their hard-earned savings from being nationalised”
In fact Bitcoin has outperformed Venezuelan Bolivars from its peak of $19,800 in December.
A number of questions focused on the health of the crypto markets and what qualities might be desired in the future. The panel agreed that increased liquidity, decreased volatility and greater consumer protection were the top priorities.
Mr Grandham cited CryptoCompare data that shows volatility dropping across almost all cryptoassets, he also believed volatility and liquidity would improve regardless of regulation. However, he noted regulation was essential to improve consumer protection and encourage UK-based crypto companies to not bank overseas which in turn would improve transparency and reduce customer costs.
Mr Nwosu was adamant that successful regulation would bring in money from institutional investors that is waiting eagerly for the markets to be regulated. His sentiment mirrors eToro’s belief that successful regulation will drive price up as more institutional investors will move in:
Security and Risks
Bithumb, Coinrail and Coincheck hacks were all cited has examples of the failure of trusted, centralised third parties within the crypto space. Both Obi and Iqbal noted that the proposed CryptoUK code of conduct requires exchanges to hold 90%+ of cryptoassets in cold storage – where private keys are never exposed to the internet. Coinfloor even holds 100% of their cryptoassets in cold storage and has never been hacked. Mr Grandham said Bithumb has reacted well by promising to reimburse customers and transferring their remaining hotwallet balances to cold storage after the hack:
Currently big backlogs and high fees on the bitcoin network. Just confirmed that it is Bithumb, cleaning out their hotwallet. pic.twitter.com/21ENfmZj56— Sergej Kotliar (@ziggamon) June 20, 2018
Security and consumer protection raised a lot of tricky questions, Izabella challenged the concept of ‘Be your own bank’ as she knew many highly intelligent investors who had lost their private keys. Thanks to the immutability of bitcoin and other cryptoassets their funds were irrevocably lost. Ironically this has led to the re-emergence of trusted third parties such as exchanges, which is juxtaposed to the ideals of bitcoin and cryptoassets. Ms Kaminska also pointed out that gaining security by storing 100% of funds in cold storage causes significant inefficiencies, for example, Coinfloor can only make withdrawals once a day.
A common belief amongst the three cryptoasset advocates was that the technology is young and imperfect but to many it was a choice. An alternative to the current financial system and a risk worth taking.
Compliance and regulation was discussed at length but will be covered in a follow-up article.