The bitcoin bubble proves we desperately need financial education in schools

It should be part of the National Curriculum – it’s more important than History or Geography or Physics or Chemistry. Only Maths and English exceed its worth

Chris Blackhurst
Sunday 24 December 2017 18:44
In a few years’ time, people will be ruing cryptocurrencies just as they did in previous investment disasters
In a few years’ time, people will be ruing cryptocurrencies just as they did in previous investment disasters

There is hardly a day goes by at present when I don’t receive an unsolicited call from someone saying they can help me get a refund on a missold financial product, or they’ve heard I’ve been in a road accident and they can assist with an insurance claim.

I end the chat immediately, but clearly plenty don’t, or else they would not ring. As a nation, we don’t teach how to manage money to children, or to adults. It should be part of the National Curriculum, more important than History or Geography or Physics or Chemistry. Only Maths and English exceed its worth.

But we invest more in the learning of dates or formation of volcanoes, or movement of smoke molecules or the periodic table, than how to guard your cash, how to avoid running up debts, how to invest wisely, how to plan for retirement, and how to spot a con.

For PPI, Equitable Life, dotcom stocks, and the rest – now read bitcoin. Such is the smell, the grip of money, the prospect of making a quick profit, that the cryptocurrency is the current crowd must-have.

Some people have doubts, but in others there is a gleam in their eyes as they tell tales, of someone they know who made a massive gain in no time, or another who got into bitcoin early and is now sitting on a stack of wealth.

It’s a currency, they declare, the same as any other. Except it isn’t.

A currency has three key properties: as a store of value; a medium of exchange; and a unit of accounting. Bitcoin has only the first of these – and then, not dependably, as it’s extremely volatile and has no government or central bank behind it to intervene in a crisis. It could easily go to zero.

For the second and third qualities, bitcoin is not legal tender, and accounts can’t be submitted to Companies House or HMRC in bitcoin.

Neither is bitcoin a large enough currency for governments to issue bonds in it – and besides, they wouldn’t undermine their own currencies. Nor can it sustain a lending market, and it can’t be used for collateral as it won’t be accepted.

Possession is not safe. The risk of theft by hacking is unquantifiable. You can get hacked by someone on the other side of the world, and not even know. And if you do find out, in what jurisdiction has the theft occurred? How do you achieve redress? What if North Korea purloins your bitcoins?

Remember the banking crisis? Savers did not lose out. Does anyone even realise there is no such underwriting for bitcoin?

And you can forget Anti-Money Laundering or Know Your Client: the staples of doing business legally and properly today. Every time you trade a cryptocurrency, you could be quite literally transacting with the Medellin drugs cartel.

In cryptoland, the chance of trading with the dodgy guys is pretty much guaranteed. There is a self-fulfilling spiral at work: the higher bitcoin goes, the more the crook can launder per coin; the more they can launder per coin, the higher it goes – and so the higher the price goes, the more the crooks will use it, and the more likely you are to be trading with a crook.

So, the untested questions: how will the legal system respond? Could trading cryptos therefore be criminalised? Could any member of the public dealing in bitcoins unwittingly have committed a serious crime already?

Thanks to the rising price of bitcoin, a lot of dirty money can finally roam the world freely. A Notting Hill mansion is on the market at £17m, but only if the buyer pays in bitcoin. This deal would circumvent the banking system (they could send bitcoins from Medellin in a click of an app).

Indeed, how does regulation, compliance or even any law apply?

The seller says: “We think in future it is going to eliminate the need for solicitors and property title, and is really going to change how real estate transactions are conducted.” And, “We would like to be the first company to transact in bitcoin. It can be done quicker, more efficiently and it is much easier to deal with than using banks, which are putting in unnecessary over-regulation.”

But what “unnecessary over-regulation”? The Anti-Money Laundering and Know Your Client rules that prevent money laundering? Should it be up to private citizens to decide for themselves which laws are unnecessary? Should following the law be a consumer choice?

In many ways, bitcoin is seized upon as a response to a traditional money system that has been discredited. It’s beautiful because it lacks regulation, centralisation and control.

But just wait until shirts are lost on bitcoin. Sadly, in a few years’ time, people will be ruing cryptocurrencies and bemoaning losses, just as they did in previous investment disasters. Then they will be craving that old-fashioned regulation, centralisation and control.

We don’t understand that if something is too good to be true, it usually is; we believe that financial bubbles belong only to the past.

Bitcoin is further proof that we must be better educated in matters money, and then, finally, we can begin to see sense.

Chris Blackhurst is a former editor of The Independent, and executive director of C|T|F Partners, the campaigns and strategic communications advisory firm.

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