Bank of England (BoE) governor Mark Carney believes cryptocurrencies should be regulated to combat illegal activities, promote market integrity, and protect the financial system.
“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system,” Carney said in his speech at the inaugural Scottish Economics Conference in Edinburgh on March 2.
Carney believes cryptocurrencies are “poor short-term stores of value” that have “exhibited classic hallmarks of bubbles” with “neither intrinsic value nor any external backing.”
“Their worth rests on beliefs regarding their future supply and demand—ultimately whether they will be successful as money,” Carney said.
Carney pointed out that the daily standard deviation of Bitcoin was ten times that of sterling over the past 5 years.
“Consider that if you had taken out a £1,000 student loan in Bitcoin in last December to pay your sterling living costs for next year, you’d be short about £500 right now. If you’d done the same last September, you’d be ahead by £2,000. That’s quite a lottery,” he said.
While some countries have banned cryptocurrencies, Carney said regulation would be a better approach.
“A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system,” he said.
A spokesperson for cryptocurrency trade body Crypto UK told the BBC:
“This shouldn’t be viewed as a crackdown, but an opportunity to establish parameters that protect consumers while encouraging the biggest and best crypto-currency businesses to make the UK their home,”
A cryptocurrency is a kind of digital currency, i.e., it only exists in electronic form. Cryptocurrencies have no central bank, unlike fiat currencies. The dollar, euro, pound, yen, yuan, won, and rupee, for example, are fiat currencies.
Cryptocurrencies use a network of blockchains. A blockchain comprises several blocks. A block is a record, i.e., similar to a ledger page. Every block contains data regarding all the system’s transactions, plus details on the preceding block and a timestamp.
Unlike centralized systems, blockchains use what we call distributed ledger technology. In other words, the data is not centralized; rather, it is shared across the whole system.