A Regulatory Framework Is Coming To Bitcoin

BitCoinThe news may have escaped most people’s notice, but the world of Bitcoin is taking another huge step forwards.

While there are many investment related risks associated with a new currency, the failure of the largest exchange, Mt Gox, showed that there are huge potential problems with infrastructure as well.

Mt Gox is still being investigated, but the recent news isn’t good. It seems that insiders may have been manipulating prices with automated trading bots. Were the missing BTC stolen? Only time will tell.

This has highlighted one of the combined greatest strengths and greatest weaknesses of Bitcoin. On the one hand, many people like the currency because it is not controlled by any one government and is peer to peer. However, many governments have looked into Bitcoin and decided that it is too small and too international for them to try and regulate.

This has enabled tech startups to spring up across the world and it really is very difficult to know who to trust. The added complexity of cryptography means that there are a relatively small number of experts that can – if they so choose – take advantage of the rest of us. Generally that has not happened, but the amounts that are lost when it does are in the tens or hundreds of millions of dollars in BTC.

Because the speed at which Bitcoins become available are limited by the design of the algorithm and the amount of mining underway, the currency cannot be debased in the way that printed fiat can. That makes the supply side much safer for investors than most normal currencies. But without an overseeing body protecting consumer interests from the industry itself, systemic risks remain.

Enter The Isle Of Man

A small island in the Irish Sea is stepping into this breach. The Isle of Man is already well known as a financial centre and has some very strong regulations in place already.

The government has announced that it is soon to introduce the world’s first regulatory framework for Bitcoin. To be clear, they do not propose to write rules that regulate the currency. Instead, they are writing rules to regulate the businesses that provide the infrastructure.

This should be a huge step forwards for the overall integration of Bitcoin and many other crypto currencies into the mainstream economy. The Isle of Man already has a startup culture and if it is able to grow and become a tech hub for currencies, the likely growth prospects for the sector are strong.

Or to put that another way, in a couple of years time, Bitcoin might just be safe enough for any of us to invest in…

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