When we look at the transformative digital tools or products we use today like Amazon, Netflix, Facebook which replaced institutions of our society such as commerce, entertainment, and social life.

Amazon was founded in 1994, Netflix in 2002, and Meta in 2004. It’s can be easy to forget that these monolithic digital products and services weren’t always so deeply entrenched, they were at one point written off, maligned and disregarded as disrupters.

Through every ceiling they broke, guidelines and legislation had to be drawn in order to protect UK consumers from anti-competitive e-commerce, entertainment and content creation, as well as privacy and data collection.

It could be argued that this is similar to what’s happening to crypto, depending on your view’. Almost fifteen years after Bitcoin was first launched, the realm of digital assets has spiralled into a potentially transformative technology with the capacity to replace another institution of our civil society: currency.

Crypto’s Come-up

Bitcoin was first launched in response to the financial meltdown in 2008. Between January and December of that year, the FTSE 100 had dropped by 31.3%, causing a ripple effect through the UK economy in triggering a significant recession. 

“The idea behind (Bitcoin) was that we had a lot of kind of counterparty risk within the banking system, and it could not be relied upon, be trusted, or be hypothecated,” said Baker-Taylor during her Keynote speech at DIGIT’s Fintech Summit on 21 September at Dynamic Earth in Edinburgh. 

The blockchain is meant to be the anecdote to late-stage capitalism, where the value of currency is decentralised and democratised for the user by open sourcing the blockchain for anyone to build products on it.

“So Bitcoin is born, and most financial regulators don’t pay much attention for a while.”

According to a global crypto-asset regulatory study by the Cambridge centre for alternative finance, crypto-assets were only mentioned in an official report by a regulatory authority two times before the first crypto bubble in 2013. They were the French financial intelligence unit, Tracfin in 2011, followed by the European Central Bank in 2012.

Come 2013, crypto entered a massive bear market, with Bitcoin’s price rising above $1,000 (£819) for the first time. At this point, other coins – and the technology they run on called blockchain – started popping up. 

While only two regulatory authorities had mentioned crypto-assets before this time, 30 did so in 2013. “By the end of 2023, there are around 50 other cryptocurrencies,” said Baker-Taylor, “by April 2017, that number was 789.Today, we have around 23,000, different tokens.”

That being the case, regulators are really beginning to wake up and see crypto for the wild-west that it can be. According to the law firm RPC, £306m in crypto was stolen through fraud in the UK between March 2022-2023, up 41% from the previous year. 

“So over the course of the last year, this just gives you a snapshot of what’s happening around the world,” said Baker-Taylor. “A lot of these things are incredibly positive, and some of them could be considered less so.”

The Good

The fact remains that crypto fraud thrives on the transnational nature of the technology. Since laws surrounding crypto may differ around the world, but untraceable coins can be transferred instantly between international accounts, it opens the door to many illegal activities.

This is something the global financial community is finally cracking down on, chiefly through the G20 meeting earlier this month. 

“So despite these losses, despite the bad actors, we have had a number of jurisdictions that are really focused on comprehensive rulemaking and enabling this technology to flourish and thrive within some guardrail,” said Baker-Taylor.

There, the countries came up with a new framework that will require countries to exchange information on crypto transactions, giving tax authorities better visibility into tokens and their movement.

In the UK, the financial conduct authority (FCA) enacted a ‘travel rule’ where service providers operating in the UK need to collect, verify, and share information regarding transfers made on their platform, even if the users are overseas. 

However, there is still a long way to go to have a completely harmonious global relationship on regulation crypto. The G20 framework does not come into effect until 2027, and even then, it will only be G20 countries who need to abide by it. As for the travel rule, the UK is one of a small minority of countries who are complying and enforcing the rule. 

Out of 151 responding jurisdictions, over half have taken no steps to implement the rule, and 75% are not compliant, or partially compliant with them. 

The Bad

“Crypto has legacy negative connotations,” said Baker-Taylor. By this, she means the discourse around crypto being a ‘wild-west’ turns away new investors, and becomes a self fulfilling prophecy. 

This concept, she says, is dated. “Today we’re seeing a number of use cases, which are materially useful,” she said, referring to crypto and blockchain being used to send immediate disaster and displacement funds to refugees in Ukraine. 

“It’s immediate, it’s fast, there’s no leakage or slippage from delivering pallets of cash,” said Baker-Taylor. 

However, Baker-Taylor points out that many jurisdictions still struggle to solve the regulation problem. 

“The US is lagging behind,” she said. “It’s a major market, there’s a lot of innovation, centred in the United States and yet it still struggles to get its arms around how and what it wants to regulate.”

As far as the UK is concerned, Baker-Taylor said they sacrificed a holistic approach for regulating activity by activity. “In some ways that’s positive,” she said, “in this country, we’ve seen great announcements from the government, and then not a quick follow up from the treasury to put those things in place.”

“At the heart of that, I think, is a very hardworking FCA that’s trying to keep up with the industry, but doesn’t always have the authority to act,” she says. 

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• FCA Introduces New Rules for Marketing Crypto

The Ugly

The ugly side of the crypto sphere, simply put, is the cult of personality according to Baker-Taylor. 

“There’s a reason that people were able to build the wealth and the operations that they were able to, without a lot of scrutiny or governance around them,” she said, saying these countries adopt a “Game of Thrones” mentality towards crypto. 

This kind of mentality pushes away regular investors, and dampens the impact of exchanges and projects with tangible impacts on society, running safely and securely.

“Regulators either can’t get their arms around what they’re going to do,” she said, pointing out that governments have historically been too caught up on preventing the technology from thriving. 

“It’s here,” she said, “It’s going to continue to grow.”

“Governments and regulators need to talk to each other more, and try to find common solutions that benefit the industry,” said Baker-Taylor. “Equally, the industry needs to talk to their governments and regulators more so they can better understand the risks and opportunities.”