The Financial Conduct Authority Mulls Over Companies Using Blockchain

Shortly after the United Kingdom Gambling Commission announced that gambling operators across the country will be able to use Bitcoin as a form of alternative currency, The Financial Conduct Authority (FCA) found themselves busy mulling over the approval process of some companies that have applied for permits to start using Bitcoin technology.

Bitcoin

Bitcoin is a digital asset and a payment system, which was introduced released as open source software in early 2009. The currency transfer service uses cryptography to allow people to send and receive money anonymously.

Bitcoin and related services can be used without linking it to a person’s real world identity; it only keeps track of addresses to where the money is located; each address has two important pieces of cryptographic information, or keys – a public one and a private one.

The process of generating the bitcoins is known as mining and the people who use their computers to mine Bitcoins, are paid with a small percentage of the bitcoins they generate. A number of sites exist to facilitate the peer to peer transfers of Bitcoin; they are called exchanges. Given that Bitcoin addresses are pseudo-anonymous, each member using the service can have multiple addresses for themselves; Wallets provide a way to keep track of associated public and private addresses.

Bitcoin adoption and use continues to grow each year. Since 2012, Bitcoin has gained the attention of the mainstream media and in February 2015, the number of merchants accepting Bitcoin surpassed 100,000. This increase in popularity among businesses could be because the fees for Bitcoin transfers are much less than credit card services.

Bitcoin services have undoubtedly attracted the attention of criminals but financial officials in the USA have agreed that Bitcoin can prove to be a legitimate and useful financial tool too.

UKGC Approves Bitcoin as a Legitimate Currency

In a recent amendment of the gambling regulations, the UKGC has made an alteration to the License Condition 5.1.1 section of the “License Conditions and Codes of Practice;” to allow the usage of Bitcoins as a cash alternative for online gaming purposes. The change is expected to make the transfer of money between bettors and gambling sites easier, faster and less expensive. The UKGC hopes to boost the gambling industry with this change in laws; the gaming commission also announced that Unlike Curacao, where Bitcoin usage is most prevalent at the moment, they wish to offer consumer protection to players, who place wagers using Bitcoin in the UK, through legal and licensed operators.

Blockchain Based Products

The financial regulatory body of the United Kingdom told the Financial Times that there are a number of groups in the country that are currently engaged in the development of Blockchain based consumer facing products; these companies and products are already in the pre-approval stage of the process with the authorities.

Blockchain

A Blockchain is a distributed database that maintains some form of a continuously-growing list of records and keeps them secure from being revised or tampered with. It consists of data structure blocks, each of which contains information on batches of individual transactions, which are each also given a timestamp and a link to a previous block.

The Blockchain too was conceived in 2008 and first implemented in 2009. It serves as a public digital ledger for Bitcoin transactions. The Blockchain resides across a network of computers and is protected by powerful cryptography. Whenever new transactions occur, Blockchain is authenticated across this distributed network, before the transaction can be included as the next block on the chain. Blockchain provides an option to hold and spend money in a more open, transparent and flexible manner than traditional banks and credit card companies.

According to news outlets, the director of strategy and competition for the FCA, Chris Woolard, said, “We do think [Blockchain] has got some potentially interesting applications and we are talking to firms thinking about how to apply that to financial services and how it could benefit consumers or indeed make the business of compliance easier.”

“There may be areas where we might want to encourage it a bit,” he added

Bitfinex

Bitfinex can simply be describes as a Bitcoin exchange; founded in Hong Kong, the site provides an environment for the spot purchase and sale of Digital Tokens. The Site permits both unfinanced and financed transactions. Purchases and sales of bitcoins are settled by actual delivery of the full amount of the bitcoins or other Digital Tokens into the buyers account.

Unfinanced purchases are fully funded by trading participants, through funds of their own. However, financed transactions in Digital Tokens are permitted through the Site’s peer to peer financing functionality. Financing Recipients are allowed to accept financing for up to 70 per cent of the value of a Digital Tokens purchased. Another type of financed transaction is permitted on the site, it is called shorting and involves “long sale” of Bitcoin.

Bitfinex allows trading participants to use third party peer to peer financing options, from other participants on the site, to trade Digital Tokens. Financing Recipients may obtain financing by placing bids for financing on the Financing Order Book; or they can elect to be automatically matched through the site’s order matching engine, with one or more Financing Providers, at the best prevailing price.

As set out in the Terms of Service, Bitfinex agency works in favour of the Financing Providers to ensure they are repaid in full. Just like traditional exchanges, trading markets in digital tokens can shift quickly, with sudden changes in prices, so users who engage in financing services may end up losing more than they own is in their various wallets.

The trading features of the Trading Order Book can be accessed through the users’ “Trading Wallet” and the Funding Order Book can be accessed through their “Deposit Wallet.”

Bitfinex Offers to Reimburse Losses

Some time back, Bitfinex had to halt all trading activities when they discovered a security breach in the system, which resulted in the theft of 119,756 Bitcoins, worth more than USD 61 million at the time, from some of their users.

They announced in a blog post, last month, that “after much thought, analysis and consultations, [they had decided to] generalise losses across all accounts. Upon logging into the platform, customers will see that they have experienced a generalized loss percentage of 36.067 per cent. In a later announcement we will explain in full detail the methodology used to compute these losses.”

This meant every Bitfinex users, even those not affected by the hack, would have their accounts replaced with BFX tokens.

Bitfinex also said that they were in active negotiations with potential investors to try and raise the capital to reimburse their users, but until then, “the BFX tokens will remain outstanding”

However, it looks like the exchange has found a way to allow customers to convert the tokens; Bitfinex teamed up with UK investment platform, BnkToTheFuture, to enable the redemption of BFX tokens for equity in iFinex Inc.

“The next steps are to continue our discussions with BnkToTheFuture and work towards putting this plan in action,” Bitfinex community director, Zane Tackett, told CoinDesk.