The UK announces its intention to become a global crypto hub
On Monday, the UK government announced a series of measures they’re putting in place, including moves to see stablecoins recognised as a valid form of payment, to achieve their aim of making the UK a global hub for cryptoasset technology and investment.
In a press release, Chancellor of the Exchequer Rishi Sunak said, “It’s my ambition to make the UK a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.”
Introducing stablecoins into the UK payment system
The first step involves bringing stablecoins into the UK payment system. “This will enable consumers to use stablecoin payment services with confidence,” said John Glen, Economic Secretary to the Treasury, in a speech made at the Innovate Finance Global Summit on Monday.
Stablecoins are cryptocurrencies that are “pegged” to an underlying asset, such as a fiat currency — and in the case of the most popular coins US dollars. For example, Tether, a popular stablecoin, is pegged to the dollar, so 1 Tether = $1. Stablecoins are popular and particularly useful in DeFi because cryptocurrencies are generally volatile, fluctuating in value from day to day or even hour to hour. This makes using traditional cryptocurrencies for loans, purchasing products or other financial instruments extremely challenging.
Stablecoins help to negate this issue as they maintain a stable value. This means they could work well as a form of digital payment, allowing people to make purchases at a set price through cryptocurrencies.
The UK government stated, “With appropriate regulation, they could provide a more efficient means of payment and widen consumer choice.” Their initial goal, therefore, is to bring stablecoins within the existing regulatory framework for electronic money so that they can be supported for use in retail and become a widespread means of payment, driving consumer choice and efficiencies.
However, it is worth noting there is some controversy around stablecoins. For the “peg” to work, there needs to be some collateral — essentially a guarantee you can redeem your tokens at the stated price. In the case of Tether, the collateral is, in theory, actual US dollars held by Tether themselves. But there is ongoing ambiguity around how much money Tether actually holds as collateral and whether Tether is really stable. This is likely the reason the UK government wants to regulate their use.
The UK outlines next steps
An ongoing consultation since last year has shaped this decision. In January 2021, the UK government launched a consultation and Call for Evidence from industry leaders and stakeholders on the regulatory approach to cryptoassets and stablecoins and distributed ledger technology (DLT) in financial markets. On Monday, they published their response, outlining their next steps.
The document confirms the government’s intention to take the necessary legislative steps to facilitate the use of stablecoins used as a means of payment into the UK regulatory perimeter. The initiatives also include introducing a ‘financial market infrastructure sandbox’ that will enable firms to experiment with new cryptoasset types and structures and innovate, similar to the digital sandbox run by the FCA recently. The government also confirmed it wants to explore the possibility of using Distributed Ledger Technology (DLT) for financial services.
Other measures announced include the government looking into ways to enhance the competitiveness of the UK tax system to allow for further development of the cryptoasset market in the UK. “We don’t think the tax code will need major surgery to make it work more easily for crypto,” said Glen. They will also look into resolving specific issues around DeFi loans and staking and consulting on extending the scope of the Investment Manager Exemption to include cryptoassets.
The Economic Secretary is set to establish and chair an industry group called the “Cryptoasset Engagement Group,” designed to help the government “work more closely with the industry”, and help guide the next steps in regulation. This generally shows a positive intention to foster innovation and collaboration with the crypto industry (rather than a combative stance).
Meanwhile, the FCA will hold a two-day ‘CryptoSprint’ in May with key industry participants, seeking their views on critical issues related to the future development of a cryptoasset regime.
Finally, Glen announced that the UK government had asked The Royal Mint to create an NFT that will be issued in the summer. They say this is “an emblem of the forward-looking approach we are determined to take towards cryptoassets in the UK”. Glen said more details on this would be available “very soon”.
A positive stance towards crypto in the UK
It’s clear from this announcement that the UK want to appear welcoming to crypto. The NFT itself is essentially a PR exercise, but the fact the government is seeking this kind of press is telling, especially considering the deputy governor of the Bank of England was critical of crypto as recently as December. This announcement solidifies the UK’s stance toward crypto, and it is both positive and encouraging. They see it as a way to ensure the UK financial services sector remains at the cutting edge of technology.
Glen himself stated, “If crypto technologies are going to be a big part of the future, then we — the UK — want in, and in on the ground floor.”
“We think that by making this country a hospitable place for crypto we can attract investment… generate swathes of new jobs… and create a wave of ground-breaking new products and services.”
Concerns surrounding the environmental impact of cryptoassets
Despite the positive outlook towards crypto, it was noted in both Glen’s speech and the published report that many were concerned about the environmental impact.
In response to these concerns, Glen stated, “On carbon footprint, the UK is a world-leading centre for green finance… so, of course, we will be looking closely at energy usage associated with certain crypto-technologies.”
The report also outlined that the UK is committed to ensuring its approach will be aligned to environmental objectives, including the UK’s net-zero target. In addition, the government noted that they welcome the efforts of cryptoassets based on the more energy-efficient ‘proof of stake’ processes, like Cudos.
The environmental impact of some blockchains is huge, leading to big premiums in the form of gas fees. This is because many are built on a proof of work system that requires a substantial amount of energy consumption. Cudos is dedicated to providing a more sustainable blockchain, and decentralised compute option. The Cudos Network is a decentralised Proof of Stake network, meaning that it has lower gas fees and is a far more environmentally friendly option. Proof of Stake has fast become the answer to the environmental issue of blockchain, and Cudos is leading the way with this technology.
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