Most people have heard of Bitcoin. It is a global digital currency. It is one of many.
It raises many questions including: How long will it take to disrupt the old concept of Central Banks? Can they survive? Where is the opportunity?
Are cryptocurrencies of particular interest to PR and what do we need to know what it all means?
In three years, a simple process such as paying for University courses will be different. Today, the University of Cumbria accepts Bitcoins. Now, fifteen marketing agencies are accepting Bitcoin for client payments and there is already a Bitcoin ATM in Penzance.
The Bitcoin system is peer-to-peer, and transactions take place between users directly, without an intermediary. In 2015, the number of merchants accepting Bitcoin exceeded 100,000 according to Cuthbertson. PR people are asked to explain how cryptocurrencies work. Here is one such example. There are more comprehensive examples like this one.
Basically, people from around the world sign up to digital ‘wallets’ that gives them access to these virtual currencies. This allows for instantaneous transactions and borderless transfer-of-ownership. These are cryptocurrencies. Scotland already has a digital currency.
Bitcoin is a global digital currency created in 2009 that uses decentralised technology for secure payments and storing money that doesn’t require banks or people’s names.
People see value in money free from government control and the fees banks charge. Bitcoin has been seen as a tool for private, anonymous transactions. It has many commercial advantages but has a dark side as the payment method of choice for drug deals and other illegal purchases.
In the ‘normal’ world, Lush Cosmetics is one end of the scale of organisations accepting Bitcoin while Dadiani Fine Art, located in Cork Street, London, is revolutionizing how buyers can pay for art by accepting Bitcoin.
As of July 2017, there were around 16.5m bitcoins in circulation. In March 2017, the value of a Bitcoin, at $1,268, exceeded that of an ounce of gold ($1,233) for the first time.
These ‘currencies’ transcend national boundaries and have potential to disrupt the traditional role of Central Banks such as the Bank of England, the FED and the ECB. One can ask, what is the role of central banks when there is a virtual global bank, with unlimited liquidity, that anyone in the world can use for free which is issuing global coins and setting global exchange rates.
In addition, it is worth examining the way blockchain technologies can bring about – and justify – new models of governance.
In PR, it will be important for professionals to know about cryptocurrencies. Many will charge and be paid using this new coinage over the next five years. Some PR vendors will be paid in digital coins – and international transactions can be much less expensive using digital currencies. In addition, the industry will have to explain why clients are legitimately using Bitly (after all, it does have a dark side). Ensuring that organisations use cryptocurrencies ethically is part of the PR job.
This is a new financial environment. It is attracting a lot VC-backing for start-ups like Colu which is open-sourcing its banking infrastructure known as Bankbox in an effort to remove the technical barriers and reduce costs for central banks that want to issue digital currencies.
Examples of Central Banks looking at digital currencies include Russia, which is getting more into digital currency development with its central bank launching tests of several digital currency schemes. There are other examples such as Singapore.
There are local communities in the UK as in East London which has become home to its own local digital currency, aimed at encouraging spending at local businesses.
The European Community has some big players such as Barclays, State Street, Credit Suisse, Bank of Ireland and Fidelity looking at this space. Germany has an interesting initiative. Digital currencies like Bitcoin and Ethereum will gain support in Germany with the founding of a new nationwide federal digital currency and blockchain lobby group called the ‘Blockchain Bundesverband’ – the German Federal Blockchain Association.
The Bank of England says:
Central bank-issued digital currencies.
At the moment, the Bank of England provides electronic accounts to banks and key financial institutions, but the public can only hold central bank money in physical form – as banknotes. If a central bank were to issue a digital currency everyone, including businesses, households and financial institutions other than banks, could store value and make payments in electronic central bank money in addition to being able to pay with cash.
While this may seem like a small change, it could have wide-ranging implications for monetary policy and financial stability.
We are undertaking a multi-year research programme into the implications of a central bank, like the Bank of England, issuing a digital currency. We first raised the possibility of a central bank-issued digital currency in our research agenda in February 2015. We have since released a more detailed selection of research questions on the topic. We welcome continued engagement from the wider central banking and academic community to shape our research in this emerging field.
For further information, email DigitalCurrenciesTeam@bankofengland.co.uk.
Professor Laurie Simon Hodrick, A. Barton Hepburn Professor of Economics in the Faculty of Business, Columbia Business School, says:
The distributed ledger, while not yet ready for wide scale adoption, may be a transformative technology that provides ubiquitous, safe, faster electronic solution(s) for making a broad variety of business and personal payments, supported by a flexible and cost-effective
means for payment, clearing and settlement groups to settle their positions rapidly and with finality.
Barclays has been in contact with one of UK’s top financial regulators, a senior official for the bank said recently.
According to Ashok Vaswani, CEO of Barclays UK, the bank communicated with the Financial Conduct Authority (FCA) to bring cryptocurrencies “into play”. Vaswani disclosed the conversations in an interview with CNBC.
Vaswani did not elaborate what exactly such “play” is, remarking that the bank been working with financial technology startups and the FCA for projects that focus on blockchain.
“We have been talking to a couple of fintechs and have actually gone with the fintechs to the FCA to talk about how we could bring, the equivalent of Bitcoin, not necessarily Bitcoin, but cryptocurrencies into play,” he told the network.
As for how the regulator might react to the push, that remains to be seen.
Though the FCA has played an active role in creating an environment that fosters innovation – the regulator has welcomed a number of blockchain and digital currency related start-ups into its experimental “sandbox” – it has also expressed caution in recent weeks about investing in cryptocurrencies.
“I am not saying that we view digital currencies as an inherently bad thing … but we do have to exercise a degree of caution,” Chris Woolard, the FCA’s director of strategy and competition, said during a blockchain-related event earlier this month.
Going beyond digital currencies
There are some initiatives that look exciting such as the LSE/IBM initiative. The London Stock Exchange Group (LSEG) recently partnered with IBM to build a blockchain solution to digitally issue private securities of small and medium-sized enterprises (SMEs) in Europe. The new platform’s goal is to help simplify tracking and managing shareholder information by storing it all on a distributed ledger, effectively opening up new opportunities for trading and investing.
A further form of licence can be offered to other banking institutions operating out of the UK.
The US Financial Accounting Standards Board (FASB) is exploring an accounting standard for digital currency in response to increasing concerns about inconsistent accounting standards.
FASB, which sets standards for U.S. Generally Accepted Accounting Principles (GAAP) adopted by the U.S. Securities and Exchange Commission, will consider adding this project to its agenda at a public meeting, the time of which has not been set, according to Thomson Reuters
The Chamber of Digital Commerce (CDC) requested standards to address concerns that have emerged in the expanding digital currency market. CDC sent a letter on June 8 seeking the FASB’s help in providing guidance to determine when to recognize digital currency and how to measure it.
The PR sector can learn from this that cryptocurrencies are here and are being taken seriously by the major financial institutions in the world. They are evolving fast.
They will affect and be used in PR as they are already in marketing. Time to read-up about them and not be taken by surprise.