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Bitcoin regulatory update | Future Internet Lawyer

Bitcoin regulatory update |  Future Internet Lawyer

On 16th February The Times reported that a number of the world's largest investment bankers are considering using Bitcoin technology to revolutionise the $700 trillion market in deriviative trading. This is seen as an indicator that the cryptocurrency has finally turned the corner as a potential global payment plaftorm, much to the consternation of many policiticians and bankers, who see Bitcoin as the ultimate disruptive financial instrument.

 

 

Bitcoins for Derivative Trading

The Times 16th February 2015 reported that Barclays, Goldman Sachs and JP Morgan have become interested in using the block chain system used by Bitcoin, designed to make it impossible to couterfeit coins, or use them for more than one transaction by maintaining a real time record of all transactions conducted using legitimate coins.

The scale of Bitcoin technology can only described as 'mind boggling'.  Mining bitcoin relies on high powered computers searching for an encryption key, known as a hash. The market for 'mining' has grown exponentially growing  by a factor of 845 in the 12 months to June 2013 to 88,000 trillion 'hashes' per second . It then trebled in 2.5 months to 252 trillion hashes. The prediction is USA will produce ten petahashes, using a phenominal amount of electricity, requiring cooling and producing waste heat.

Each transaction is authenticated and then capped and recorded into a block, which is renewed every 10 minutes. Each authentic block contains a record of preceding transactions, making it possible to unwind and identify the details. It is this compliance chain that may be attractive to the banks who are engaged in the massive deriviates trading market, which produces $3 trillion worth of trades daily.

Bitcoin Mining Firm CoinTerra files for bankruptcy

One of the leading Bitcoin mining server farms based in Austin Texas has recently filed for Chapter 7 Bankruptcy after a Utah based data centre sued over a contract dispute. This followed litigation from a client based in California who alleged that the firm had failed to deliver his miner on time. 

CoinTerra announced that it had raised $1.5 million in venture capital investment in 2013 led by Ravi Iyengar who had been lead CPU architect at Samsung. The business model involved mining under it's own name,renting out service via cloud hashing contracts and the sale of machines to individual miners. The Salt Lake City environment had dry air, free of corrosive humidity, which was relatively cool and low in static electricty, ideal for one of the world's most high powered data centres.

The CoinTerra difficulties have not deterred other miners from raising funding. HashRabbit announced a recent investment of $500k to improve mining management, one day after Swedish firm KnCMiner raised a further $15m to develop its next generation 16 nanometer mining chip.

Regulatory uncertainty

UK company Netagio has announced that it will close it's bitcoin, pound, US dollar and euro exchange plaftorms, giving customers 30 days to withdraw their funds and close their trading accounts. Simon Hamblin, CEO said.

'We are imensley proud of our efforts and achievements to date while facing the reality of a stagnating market place in Europe, in an environment of regulatory and policical uncertainty facing bitcoin business'

In an interesting article on regulation of Bitcoin in the UK, Eitan Jankelewitz reviews the lack of regulation and concludes that Bitcoin businesses take more regulatory measures than regulated businesses. His view is that until there is a clear regulatory regime, banks here will consider it too risky to offer Bitcoin accounts. With the FCA declining to get involved, and the HMRC undecided about future taxation issues ( see J Barnett and James Ross article 'Future Regulation of the Future Internet ), perhaps this is one area where  the attention of the financial regulators such as the FRC would be welcomed.

For 5 years, Jeremy Barnett was visiting Professor of Law Informatics at Leeds University, Department of Computing.

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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