The British government intends to make digital currency exchanges subject to money laundering rules to encourage consumers and investors to support initiatives like Bitcoin.
After a wide-ranging consultation, the Treasury has decided that Bitcoin and other similar online payment services will not have the status of currencies.
However, the collapse of several Bitcoin exchanges that have resulted in consumers and investors losing hundreds of thousands of pounds have prompted calls for closer monitoring of the dealers that exchange Bitcoin for hard currency like pounds and dollars.
The Treasury explained that the measure is aimed at curbing crime and encouraging innovation.
“We think digital currencies are worth backing as long as stringent systems are in place to efficiently switch funds between users in a secure and legal environment,” said a spokesman.
Investor safeguards
“Crypto currencies like Bitcoin make micro payments and cross-border financial transactions simpler, providing the users are protected.”
The recommendation stopped short of designating Bitcoin as a currency – which would men any gain in value from holding them would be exempt from capital gains tax in the UK.
The 28-page document summing up the 120 consultation responses went on to explain that the government would invest an extra £10 million in researching and developing skills, tools and laws so law enforcement agencies can oversee the development of digital currencies in the UK.
Money laundering rules would include the power to seize or confiscate digital funds suspected to have been procured by crime.
The British Standards Institution will work with online exchanges to draft a code to safeguard digital currency consumers and investors.
Bitcoin is one of many cryptocurrencies that only exist online.
Dogged by crooks
Unfortunately the history of the Bitcoin is littered with allegations of money laundering, funding organised crime and fraud.
Two Bitcoin exchanges have been hit this year – in January UK exchange Bitstamp closed for a time after a suspected security breach. The exchange is now online.
In February, Hong Kong exchange MyCoin shut after allegations the operators were involved in a Ponzi fraud that tricked investors out of £250 million. Police are still investigating.
Last year, Japanese Bitcoin exchange MtGox also closed amid claims of fraud and hacking.
The events have left many prospective consumers and investors in doubt about using digital currencies due to fears about security and theft.
The problems that has dogged Bitcoin is the digital service is not linked to or regulated by any state bank or financial watchdog, leaving the system open to hackers and crooks.
