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The Parliamentary Treasury committee is looking at the opportunities and risks associated with digital currency and how technologies such as blockchain will affect the finance sector.
The inquiry will assess how the government and financial services regulators such as the Financial Conduct Authority (FCA) and the Bank of England can create an environment to protect consumers without holding back innovation.
The committee chair, Conservative MP Nicky Morgan, said people are becoming increasingly aware of cryptocurrencies such as bitcoin, but may not be aware that they are unregulated in the UK, with no protection for individual investors.
“The Treasury committee will look at the potential risks that digital currencies could generate for consumers, businesses and governments, including those relating to volatility, money laundering and cyber crime,” said Morgan.
“We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment,” added Morgan.
Blockchain, which is the distributed ledger technology that underpins bitcoin, will also be assessed by the committee. “The distributed ledger technology that supports digital currencies is said to have significant transformative potential, not least within the financial services sector,” said Morgan.
Blockchain is already being adopted in multiple business and government sectors across the world as companies take advantage of its ability to allow data to be securely stored and shared with certain parties through a network.
Earlier this month, the European Commission (EC) committed resources to support the development and use of blockchain technology in the European Union (EU) through a new organisation, the Blockchain Observatory and Forum, which will monitor blockchain developments and ensure EU organisations are engaged in the industry.
Labour MP Alison McGovern said the inquiry comes at the right time, as regulators and governments wrestle with recent events in cryptocurrency markets.
“New technology offers the economy potential gains, but as recently demonstrated, it may also bring substantial risks,” she said. “It is time that Whitehall and Westminster understood cryptocurrency better, and thought more clearly about the policy environment for blockchain technology.”