Crypto evangelicals and the collapse of FTX are the reason we need to regulate
In the mid-to-late 2000s an individual known as Satoshi Nakamoto pioneered a new and innovative idea called Bitcoin – a cryptoasset that has since sparked the creation of more than 10,000 others.
Crypto – much like its pseudonymous founder – has always been shrouded in mystery – but its technology is already used to trade, transfer value, and invest every day.
It is largely underpinned by a new technology called blockchain: a secure peer-to-peer network ordered in chronological blocks – with carefully crafted unique code recording each and every detail transferred via the chain – potentially eliminating the need for intermediaries to validate transactions. This underlying blockchain technology is an exciting development that has the potential to transform the efficiency, cost and competitiveness of business across the UK – and is being actively explored by many.
Although still very far from mature, it has risen today to an overall value of around $1 trillion, supporting thousands of jobs, growth and investment all over the world – seemingly remarkable growth for a relatively nascent technology.
I recently wrote that as a government, we are committed to supporting innovators and entrepreneurs in the development of new products and ideas – ensuring that the benefits are felt by as many people across the UK as possible. But it is important to recognise that in seizing the opportunity, there will be issues that need to be addressed along the way – in particular to protect consumers.
You only have to look back as far as last year where we saw the high-profile collapse of the crypto exchange FTX, or indeed the collapse of the supposed stablecoin Terra (Luna). Each a seemingly successful project with a range of evangelical backers – but ones that ultimately failed.
But of course we also want to support genuine innovation that creates value for consumers and businesses. Even inventions that change the world can initially seem like a fad. So the job of government is to create a safe and stable environment for ideas to flourish and grow, and for products to develop, while protecting consumers.
It is in balancing these demands that yesterday I set out ambitious plans to bring further cryptoasset activities within the scope of regulation. This forms part of a staged and proportionate approach the UK has taken, seeking to address the most pressing risks first, while not choking off the huge potential in the market.
Under our plans, consumers are set to benefit from a new wave of protections, with new rules strengthening the requirements on exchanges, who operate the centralised trading venues; custodians, who safeguard customer assets; and intermediaries, who facilitate transactions on behalf of consumers. We will also deliver a world-first regime to establish clear rules on crypto lending, enhancing consumer protection and the operational resilience of firms. And, we are introducing a new crypto market abuse regime to further improve market integrity and outcomes for investors.
Separate to this, we’re moving ahead with new rules for crypto marketing to make sure consumers have the right information to invest and showing our commitment to flexibly adapting our approach by introducing changes to the way it will work for crypto businesses
Through ambitious and robust regulation of crypto, we are establishing clear operating principles for firms to innovate within – while providing interested consumers with the certainty, confidence and clarity required to engage with crypto. And we can do so with well-founded optimism: because the UK has a fantastic track record of embracing technological innovation and change; just look as far as open banking and fintech, where we are world leaders.
If we are to deliver on the government’s plan to grow the economy and to become a technology superpower, we must raise our aspirations, look beyond tomorrow, and seize the potentially limitless benefits new products and ideas can provide – but we must do so while elucidating the risks.