“Crypto-assets have been embedded in certain pockets of society and industry, and it is highly likely that they are here to stay. The UK Government and financial services regulators appear to be deciding whether they will allow the current ‘Wild West’ situation to continue, or whether they are going to introduce regulation. The current ambiguity surrounding the Government’s and the regulators’ positions is clearly not sustainable,” the committee said.
Under the proposal, regulatory power would be given to the Financial Conduct Authority (FCA), and would involve amendment of the existing Regulated Activities Order.
The committee report used the term ‘crypto-asset’ rather than ‘cryptocurrency,’ on the suggestion of the Bank of England’s (BoE) Martin Etheridge, who was quoted as saying, “[Cryptocurrencies] are not acting as a medium of exchange; they are not particularly good as a store of value, given the volatility; and they are certainly not being used as a unit of account.”
The BoE, in its statements to the committee, also noted that scalability and transaction costs remained a challenge, without distinguishing between the performance of the many cryptocurrencies available.
“Measured against the U.S. dollar, [BTC] is ten times more volatile than sterling, and other cryptocurrencies are even more volatile,” the BoE said.
Based on such input, the Treasury committee said, “The slow, costly and energy-intensive verification process for transactions is not unique to Bitcoin, but a fundamental feature of crypto-assets based on public, decentralised blockchains. This may ultimately limit the extent to which crypto-assets and blockchain can replace conventional money and payments systems.”
Among other risks cited in the use of cryptocurrencies were the hacking of exchanges, loss of passwords, price manipulation, use of cryptocurrencies for money laundering, and “implications for financial stability” with the growth of the industry.
The report, while critical of cryptocurrencies, did acknowledge the potential use of blockchain. “The Committee recognizes that blockchain technology may have the potential to solve problems caused by a lack of trust in data integrity and may be a more efficient method of managing certain types of data in the long term, offering higher levels of security than centralised databases,” it said.
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