Bitcoin, anyone? Why you might need to take a fresh look at your money


With a Government review of digital currencies announced, and a seaside newsagent in Swanage accepting Bitcoin as payment, has this virtual system made the leap to the ‘real world’? Dr Llewellyn Thomas of Imperial College Business School lifts the lid on the rise of cryptocurrency – and the implications for UK businesses.

Dr Llewellyn ThomasHistorically, the evolution of money has been slow and focused largely on the mechanism of exchange – shifts from precious metals to paper money and on to cards. But is a more fundamental change underway?

Dr Llewellyn Thomas, an academic at Imperial College Business School, specialises in the technologies of money. With Chancellor George Osborne’s announcement that the Government is to investigate the role of ‘virtual’ currencies, and reports emergence of cryptocurrencies (digital currencies that use cryptography for security) being adopted even by small, low-tech enterprises – such as the Swanage newsagent reported on recently1 – Dr Thomas believes businesses of all sizes should monitor the ongoing developments and their potential long-term impact on UK businesses.

Just how alternative are cryptocurrencies?

Cryptocurrency infographicCryptocurrencies are radical – they not only use different mechanisms of exchange than conventional currency, but also new units and stores of value. They are even more radical in that they undermine the centralised, Government-controlled supply and flow of money. They offer an alternative – the quantity released is controlled by computer algorithms rather than humans.

Bitcoin, the most well-known cryptocurrency, can be obtained by purchasing them, accepting them as payment or earned through a competitive process known as ‘mining’ – essentially using complex processes to verify Bitcoin transactions, often as part of a pool of ‘miners’.2

What’s driving this movement?

Monetary innovation has always been driven by the art of the possible – the same is true of cryptocurrency. The always-on internet and the rise of complex cryptography made it achievable. And the financial crisis saw a growing interest in an alternative monetary system that removes centralised control over currency and gives people a sense of freedom. It’s a libertarian idea.

It was originally the preserve of aficionados and geeks – something to play around with. The anonymity it offers can be attractive to those trading in the online black market, the so-called ‘Dark Net’ – however, the majority of transactions are legal. A lot of tech-savvy libertarians out there like the anonymity too.

Because they are digital, we really only see cryptocurrencies used by digital businesses that trade online, and in developed countries with pervasive internet infrastructure and use. At present, cryptocurrencies account for a miniscule percentage of total currency flows. Their rate of adoption remains incredibly low in the real world. Adoption by the likes of Amazon or eBay would be a game changer. That’s when it will take off.

What do the regulators say?

When it comes to cryptocurrencies, some regulators are starting to take notice. The Chinese central bank has tried to stop Bitcoin – which is currently unregulated and based on trust – by banning financial institutions from handling Bitcoin transactions. A regulator in New York State has proposed the ‘BitLicense’, which, if approved, would apply to all companies that store, control, buy, sell, transfer, or exchange Bitcoins.

With regards to the UK, my understanding is that the Bank of England is not planning to act on cryptocurrency at the moment as it accounts for such a miniscule percentage of transactions. It’s not going to bring down the financial system, and the individuals taking part understand the risks.

However, some leading voices in the City of London are telling us they are keen for cryptocurrencies, and digital currencies in general, to be better understood and appreciated by the regulators, so that London can secure its position as a leading financial centre into the future. Chancellor George Osborne’s announcement of a new Government initiative to explore the potential opportunities and risks is a significant step in this direction.

Should UK businesses consider accepting cryptocurrencies?

It’s too early to say what the benefits will be for most UK businesses. The significant drawback for accepting cryptocurrencies at present is that there are few cost benefits. Using cryptocurrency requires investment in specialised infrastructure; there are additional currency transaction costs and banking costs, and traders and customers are exposed to volatile exchange rates.

There is also the environmental impact to consider. The immense amount of processing power used in Bitcoin ‘mining’ creates a significant carbon footprint.

However, there are benefits from a branding or marketing perspective – accepting cryptocurrency has potential if you want to be seen as forward-looking and dynamic. For some early adopters it has even proved newsworthy. And it offers anonymity that appeals to many tech-savvy consumers.

So, what does the future look like?

In terms of emerging forms of digital money, we are at the very beginning of what we in innovation studies call a ‘period of ferment’ – with lots of technological innovations vying for supremacy in solving a key problem. Over the coming years and decades, we will see the plethora of new digital currencies crystallise into those that are generally accepted. These are interesting times indeed – the task for businesses is to stay informed, and decide if and when the time is right to act.

Cryptocurrency: pros and cons for your business


  • Publicity for your brand.
  • Could attract next generation consumers.
  • Reassurance of anonymity for customers.


  • Requires significant investment for little tangible return at this stage.
  • Exposure to volatile exchange rate.
  • Social responsibility: massive processing power used in ‘mining’ means that cryptocurrencies come with heavy carbon footprints.



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