The Gibraltar Government is currently buzzing with new legislation and pronouncements on “Cryptocurrency”. In fact the Acquarius Trust Group even has a download on it here if you really want to ‘upload’ the information in the old fashioned way. Although seemingly new to those of us that aren’t currently in Government or perhaps not as tech savvy it has been around for a considerable time. since 2008 to be precise.
This chap (or chapess) called Satoshi Nakamoto, that no one can find or knows what they look like, launched the bitcoin. A “satoshi” is now a unit of bitcoin equal to 1 millionth (0.00000001) of a bitcoin by the way. A group of other like-minded individuals or geeks tagged along for the ride and eventually this new type of payment seemed to have legs. Its basic premise is that banks control currency and people’s lives or business’ are either ruined or made grand depending on how the banks deal with their control of this currency. Top that off with a healthy dose of fraud or theft and you have what this group believe is a flawed system (even though it’s been around since people started swapping turnips for cheese 100s of years ago).
The thinking by Satoshi was that if he/she could produce a unique currency where theft is impossible and control of the currency is not in the hands of one institute then we have the perfect currency. I know; you are thinking two things, maybe three.
- We’ve already got currency it’s what I spend every day why do I need a new one?
- How do I spend money on my computer?
- What’s to stop anyone adding a few coins to their computer stash?
Lets answer the easy one first. How do I spend money on my computer?
The obvious answer is you already do. Your online banking is just computer code and the number therein. Do you really think your bank, holding your account, has a little drawer in it’s safe with your name and a few pounds/dollars/euros stashed in it? The system allows for money transfers in the blink of an eye no need for them to send a promissory note with a Knight Templar these days.
Next what is to stop anyone adding to their stash?
The simple answer is you cannot. Only 21 million bitcoins were created it may be in the future they create more but right now that is your lot. Each and everyone of those coins is accounted for; wherever it is located. Every computer connected (networked) in the system knows where each coin is and what transaction it was used on. This is the key to preventing fraud it is not just in one place but in thousands if not hundreds of thousands and each computer has that record and each computer has to validate any further use of that coin before it can be allocated elsewhere. Confused?
Ok lets assume you have £1 and two friends also have £1 each. With todays system all you have to do is take one or both of theirs and you have £3. They won’t know you took it and until they go to use it they won’t know either. The world (bank) doesn’t care because there is still £3 floating around somewhere so their account balances. It’s just your friends who are out of pocket. But! If they were bitcoins every one of those computers has a record of where that £3 is, who owns it, who last spent it and where. Now if you want to use any of it except for your own £1 everyone will know you got them illegally or created them illegally. These record are locked and each transaction is a record that cannot be changed. Although the transaction is known immediately it takes a little longer for the network to confirm the transaction. Once confirmed that transaction is complete.
Finally, we’ve got currency why do we need a new one?
Well to be fair we have not one but hundreds some better than others and whether the bitcoin is adopted or not as a worldwide currency depends on a number of factors. The biggest one being will the banks release control of the financial markets, will governments allow it to develop without regulating it in favour of the bankers and their own self interest and finally will the public trust it and it’s claim to be tamper proof?
Watch this space because already Governments are creating legislation for cryptocurrency, not ideally what Satoshi wanted but in order for it to get into the market and be traded it is supposed some regulation will be needed. The Gibraltar Government and the Finance Centre is ahead on this and over the last 12 months or so has been drafting a legislative framework so Gibraltar is in at the beginning of what seems to be an exciting new area of finance.