‘Cryptofilia’ – or the desire to mine, to buy, to sell, or to invest in crypto- currencies – is a relatively recent phenomenon in the world’s financial markets. When bitcoin, the first of these ‘cryptos’ was mined (a decade ago), it was worthless in terms of everyday, or fiat currency, and the first transaction using this ephemeral asset is said to have been five months later when Lazlo Hanyecz bought two pizzas in Jacksonville, Florida for 10,000 bitcoins*.
In the decade since then, more than 2,000 different cryptocurrencies have been launched… and more than half of these have disappeared without trace – either uncovered to be outright scams or as business failures.
Crypto-currencies – and, by association, the distributed ledger technology (DLT) which evolved to help them function – were seen by bankers, international regulators and most financial authorities as the new ‘Wild West’ of Cyberspace.
Measured against fiat (real) cash, the mercurial rises in value – followed by equally sharp plummets – of the most popular of the ethereal currencies gave huge profits to some investors and burnt the fingers of others; and the international financial community looked for some way to bring order to the shambles.
Their focus turned to Gibraltar and its ground-breaking legislation to regulate and licence not only DLT firms, but sponsors of ICOs – the initial coin offerings which fund crypto currencies. The two, effectively, go hand in hand, and are unlikely to be affected by Brexit whatever its eventual outcome.
DLT or blockchain legislation became effective in January last year. Although, thus far into the regime, only five firms have been granted licences, more than 30 other applications are currently being processed. In granting the licences, Gibraltar’s Financial Services Commission has had to break new ground – exploring areas of Cyberspace which regulators had not visited before.
But, with more licences expected within the next few weeks and the Rock’s Blockchain regime firmly entrenched in the local stock exchange (GSX), DLT’s future in global markets seems assured. This expectation was reinforced last month when Britain’s Financial Conduct Authority (FCA) reaffirmed that whatever the outcome of Brexit, Gibraltar’s relationship with the City will remain unchanged.
And, as Commerce Minister Albert Isola confirms, 92 per cent of Gibraltar’s financial services business is with the UK. Unlike firms operating from within the European Economic Area, Gibraltar will continue to exercise passporting rights with the UK, the FCA stressed.
Gibraltar’s move to regulate and licence DLT firms is likely to prompt similar financial and economic success to that of the online gaming industry, which from small beginnings at the end of the last century has blossomed into one of the biggest employers and a major revenue spinner for the Government.
Indeed Minister Isola has stressed that, by building on the start-up success of DLT, the prospects for Gibraltar to become an international hub of the new FinTech world are excellent – and could outstrip gaming to become the Rock’s leading player in financial services.
*Until two years ago, the actual accrual in the value of bitcoin remained slow, and took more than five years to reach parity with the US greenback. And though in a spell of meteoric and mercurial trading last year it briefly touched the $20,000 mark, the cryptofiliacs regained a modicum of common sense and the price dropped to below $4,500.
But it remains ridiculously high, and sensible investors are waiting in the certainty that its bubble will burst.