The United Kingdom is one of the few countries where cryptocurrencies are vastly popular. As many as 6.2% of adults had crypto in 2021, a notable increase from 4.95% in 2020. More than that, as much as 74% of the population has heard of cryptocurrencies. 

Cryptocurrencies and blockchain technology have entered the mainstream, not just in the UK. They have changed various aspects of the modern world, from transactions to the supply chain, and they have had a significant impact on industries like healthcare, banking, real estate, and insurance. 

Crypto and the blockchain are gaining momentum with online payments, especially in the entertainment and gambling industries. Numerous Bitcoin casinos highlighted at CryptoGambling.tv accept payments in Bitcoin and other cryptocurrencies. 

With such vast expansion, it’s no wonder that the UK government wants the country to be the global digital asset industry hub. The Bank of England has followed suit by preparing its first crypto assets regulatory framework. 

Bank of England’s Approach to Crypto

The Bank of England began working on its first crypto regulatory framework in March 2022, stating that the sector required regulations due to its rapid growth. England’s central bank believes the field is currently too small to affect the financial market but that the rapid growth could lead to instability unless adequately regulated. 

The Bank of England’s Financial Policy Committee (FPC) stated that the current pace of growth would almost certainly influence the financial market in the near future. We can see that from the fact that the crypto sector has increased tenfold from 2020 to 2021. The FPC said that regulation should be based on existing financial services as long as they are similar to the corresponding crypto-based ones. 

The FPC has stated that it plans to control the risks within the banking sector to ensure its stability and protect consumers from the dangers of unregulated cryptocurrencies. 

In early May 2023, the Bank of England’s Prudential Regulation Authority (PRA) uncovered its ideas for creating global standards regarding crypto and banks. The PRA is responsible for supervising and regulating more than 1,500 financial institutions in the country, and its new business plan aims to, with the help of international partners, create a global standard for how crypto asset exposure is handled in banks, according to a report from Yahoo Finance UK. 

In general, the PRA’s key objective will be to evaluate banking developments in the crypto market, the role of banks in stablecoin issuance, and the interconnectedness potential of the crypto ecosystem.

More than that, the PRA wants to propose new rules for digital assets and cryptocurrencies that won’t hinder its growth and innovation. 

All of this requires support from the government itself. Thankfully, the current UK prime minister, Rishi Sunak, is viewed as a crypto-friendly leader. However, little progress has been made by his administration so far. The government is looking to impose new regulations, but these mainly revolve around reigning in some of the more problematic practices in the industry. This commitment emerged largely from the fall of FTX and the problems this massive company’s demise unveiled. 

This type of regulation is necessary, but it also shows that the government is still hesitant toward the crypto market. Various UK lawmakers have also stated that the country should treat cryptocurrency and crypto trading as gambling because virtual currencies aren’t backed by tangible assets and thus have no intrinsic value.

Is a Crypto Economy Even Viable?

The hesitancy we see from various UK lawmakers and regulatory bodies primarily comes from the fact that no one knows whether a crypto-based economy or one incorporating crypto is even possible. 

El Salvador, the first country to make Bitcoin a legal tender, has tried creating a crypto-based economy but has largely failed. The Bukele-led government invested $375 million to build the Bitcoin payment system. Still, an overwhelming number of people installed the new Chivo wallet just to withdraw the signup bonus and then either deleted it or stopped using it. 

Later reports have shown that as much as 86% of the country’s businesses have never even had a Bitcoin transaction. 

This hasn’t discouraged other nations from trying to use crypto. According to this CoinDesk article, Zimbabwe’s central bank is launching a gold-backed digital currency to fight the volatility of its local fiat money and the raging inflation. 

Methods like these might succeed more than an immediate and forced introduction of crypto into the economy, such as El Salvador’s. 

Moreover, introducing blockchain technology into the economy can be a better alternative than using existing cryptocurrencies. As previously stated, blockchain is already improving various aspects of corporations worldwide, and it can provide more security and privacy to the general public if governments find a successful method of incorporating it. 

What Are the Main Difficulties Cryptos Have to Face?

Cryptocurrencies have many problems to solve if they are to be accepted by governments and become more ingrained in society. 

The main issue is the volatility. Almost every crypto, besides stablecoins, is highly volatile, with constant and substantial price swings. 

Besides that, crypto’s anonymity features are not always beneficial. They are used to conceal criminal activities like illegal transactions, money laundering, bribes, and more. In the case of El Salvador, Bitcoin has even been used to steal money from the state. 

Lack of scalability is another issue. Bitcoin can only handle three transactions per second, while Visa can process 65,000. This means that Bitcoin can never be used on a broader scale due to its lengthy processing times. 

The good news is that most of these issues can be fixed in existing cryptocurrencies or by creating new ones. But we are yet to see that in practice. 

Cash Is Becoming a Thing of the Past

Cash is quickly becoming a thing of the past. Despite being available and used everywhere, in practice, its usage is hindered in many areas within most of the developed world. Sometimes, citizens can’t pay bills or taxes with cash and are forced to use online banking and credit cards. 

Bitcoin and cryptocurrencies have the potential to become the cash of the digital world. But as we’ve seen so far, banks and governments are hesitant to use and regulate the market and let it expand into the mainstream. Thankfully, the example of the Bank of England and the UK government indicates that this might change.