The Chancellor, Philip Hammond has said that cryptocurrencies must be regulated before they become large enough to disrupt the global industry, adding that he felt there was a strong need to be cautious about Bitcoin, due the volatile rise and falls in recent weeks. Even Prime Minister, Theresa May got involved, saying that the government needed to look ‘very seriously’ at virtual currencies, warning that it can be used by criminals.
His recent comments come after the price of Bitcoin fell below $10,000, but he suggested that there was a need that the whole world should act before digital currencies start to pose a threat to economic stability. However, he warned against doing anything that could constrain the blockchain technology, which runs all of the virtual currencies. He said;
“I am interested in Bitcoin and the Bank of England as you know among the central banks has been leading on looking at Bitcoin. It is a very interesting, new development. I think we should be cautious about Bitcoin and possibly we do need to look at the way we regulate this environment before the amount of outstanding Bitcoin becomes large enough to be systemically important in the global economy…It is not there yet but it could get there soon. What is really important is that in regulating cryptocurrencies we don’t inadvertently constrain the potential of the technology that underlies it, the blockchain technology, which has a wider and more important application”.
The blockchain that Bitcoin runs on holds a decentralised record of all transactions that is updated and held by all users of the network, and in order to create Bitcoins, users must generate blocks on the network. These blocks are created cryptographically, using computer power, before being added to the blockchain, so miners can earn Bitcoins by keeping the network running.
The value can never be diluted because there is a limit for how many Bitcoins that can be created. In December it was reported that the Bank Of England could set up their own virtual currency, and since, a research unit set up by the bank is investigating the possibility of having a cryptocurrency that is linked to sterling.
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