The UK government has laid out its plan to become a ‘global hub’ for crypto.
The Chancellor’s recent announcement – which proposed new regulations for stablecoins, a Royal Mint NFT and a range of other measures to harness the potential of digital assets – represented a landmark moment in ushering cryptocurrencies into the existing financial system.
The Treasury’s plans reflect the rapid growth of the crypto industry over the past five years. Worldwide crypto adoption jumped 800% in 2021, while in the UK alone one in five adults are estimated to own cryptocurrencies. At the same time, an increasing number of large corporates have also begun integrating cryptocurrencies into their business models, with the likes of PayPal, Revolut and Facebook having expanded their crypto offerings over the past year.
With cryptocurrencies poised to play a long-term role in today’s financial and payments infrastructure, here we discuss what this means for the crypto industry and the future of digital finance.
Bringing in blockchain
‘Blockchain’ has become one of the technology sector’s most infamous buzzwords. Although there is constant talk of blockchain’s benefits, many of us don’t fully understand the impact that this technology will have on the way we manage our personal finances.
The Chancellor’s plans to attract digital asset firms to Britain, however, means that blockchain is set to fulfill its potential of transforming the way we pay for goods and services.
This potential is best demonstrated through cross-border payments. With fiat money, three to five parties are often required to facilitate a transaction, including the merchant, the merchant’s payment processor and the corresponding party’s network. Moreover, transactions can take days to process and involve the additional cost of third-party fees.
The decentralised nature of blockchain means that it offers far greater efficiency through its ability to bypass international third parties and process transactions in a matter of seconds. McKinsey & Company estimates that blockchain technologies used in cross-border payments could subsequently save corporates and financial institutions about $4 billion annually.
As more crypto companies come to the UK, we can expect these efficiency benefits to be felt not only in the corporate sphere, but also by the general public in the months and years ahead.
Regulation on the horizon
One of the most notable parts of the Chancellor’s announcement was his plan to regulate stablecoins.
The issue of regulation is one that has historically divided the crypto community. Some oppose the idea of regulation, arguing that the decentralised nature of cryptocurrencies means that they have no place within the proximity of official legislative bodies. For others, the implementation of clear laws and rules is a necessary step toward integrating digital assets into the existing financial system.
With regulation now firmly on the horizon, the nature of the debate has changed significantly. Rather than a matter of whether regulation should be introduced, the questions facing UK policymakers are what form regulation should take and how should it be enforced? We can expect to see the Government collaborate with the private sector to craft regulation that allows the industry to move forwards in a secure and sustainable manner.
NFTs are here to stay
NFTs (non-fungible tokens) are blockchain-based digital items whose values are unique, with most being stored on the Ethereum blockchain.
Although NFTs have existed for years, their usage and application have skyrocketed over the past twelve months. According to Chainalysis, in 2021 alone users sent $44.2 billion worth of cryptocurrency to NFT marketplaces, with some NFTs being sold for extremely high prices. The founder of Twitter, Jack Dorsey, sold his first-ever tweet as an NFT for over $2.9 million. It is therefore unsurprising that many have called NFTs nothing more than a short-term fad.
This fad, however, is seemingly here to stay. While the Treasury’s announcement did not specify what image or object the Royal Mint’s NFT would confer ownership of, nor whether NFTs would be used to raise funds for the exchequer, the decision to launch an NFT is significant in itself. Looking ahead, it is likely that an increasing number of investors will begin harnessing the benefits of NFTs, such as portfolio diversification and token authenticity.
Cryptocurrencies are at a critical point in their evolution. The size of the global cryptocurrency market is estimated to more than triple between now and 2030, with the increased demand for international payments set to be a key driver of this growth.
Rather than sitting on the fringes of today’s financial services industry, crypto is beginning to cement its position as a viable payment and investment option, helping to accelerate innovation in the financial sector throughout 2022 and beyond.
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