Bitcoin: How the Isle of Man is leading a cryptocurrency revolution

A scattering of businesses on 'Bitcoin Island' accept the digital currency for everyday transactions alongside sterling

Cahal Milmo
Sunday 03 January 2016 17:32 GMT
Douglas, the Manx capital, where a number of businesses now accept Bitcoin as payment
Douglas, the Manx capital, where a number of businesses now accept Bitcoin as payment (Alamy)

Like most coffee shops, Java Express in Douglas offers its clientele a diverting range of beverages, from an invigorating espresso to a gold-dusted hot chocolate. It is only when customers reach the cash till that they might notice a difference: the bill for a couple of shots of caffeine comes to 0.01202 Bitcoins.

The smart café in the Isle of Man’s sedate capital is one of a scattering of Manx businesses, including a chauffeur company and a popular pub, that accept the cryptocurrency for everyday transactions alongside sterling.

The process is slightly cumbersome. In order to pay with Bitcoin, a receipt has to be produced carrying a conversion from pounds and a square QR code. A mobile phone app then reads the code and sends the requisite fraction of a Bitcoin from the payee’s cryptocurrency virtual wallet. A Bitcoin payment takes maybe three or four seconds longer to perform than a conventional one.

Even so, the company that installed the payment system says it has processed transactions for “thousands of pounds worth” of coffees.

The ability of Douglas’ 27,000 residents to go about at least some of their daily business using a form of money that many still associate with a netherworld of nerds is emblematic of a wider embrace of digital currency on the Isle of Man. While some jurisdictions, including the UK, continue to be cautious on cryptocurrencies, this crown dependency in the Irish Sea has set out its stall to become a global leader in the sector. Many are now referring to the Isle of Man as “Bitcoin Island”.

As of last month, legislation came into force that requires all cryptocurrency businesses on the island to formally register with its government and submit to inspection by its financial regulator.

What is Bitcoin?

Unlike conventional currency, Bitcoin and other cryptocurrencies hold no physical form as coins or notes.

Instead, they inhabit cyber space as “hashes” or unique solutions to mathematical problems, each of which holds a monetary value that can be exchanged between individuals.

Vast amounts of computing energy are dedicated to “mining” each hash code. The resulting “bitcoin”, currently worth about £300, is then traded via a network of computers that holds the “blockchain” – a publicly held database that verifies each coin and records each transaction.

Born from the idea that people should be able to trade without the need for a third-party guarantor, the system has no central authority. The result is a truly devolved currency, governed by consensus. But when it comes to debate about its future – for example, whether to increase the size of each blockchain to increase the number of transactions it can process – that consensus can be difficult to find.

It is one of the final pieces in a two-year process to put in place what Manx legislators insist is the world’s first regulatory framework to help digital currencies become a game-changing tool.

About 25 start-ups using Bitcoin or other cryptocurrencies are now working on an island hitherto best known for its tailless cats and annual TT motorbike race.

Brian Donegan, the head of digital business at the Manx government’s Department of Economic Development, told The Independent: “We have an advantage here in that we can put the legislation in place and provide the rigorous oversight that is needed more rapidly than other jurisdictions.

“We move quickly because we can see the potential of what is out there. This technology is transformational and we want to be in the lead.”

As recently as a few decades ago, the Isle of Man was the polar opposite of the hub of techno-globalisation to which it now stakes a claim. Its economy relied on fishing, agriculture and tourism.

But over the past three decades it has grown at three times the rate as the UK, helped by ultra-low tax rates and a willingness to embrace the new. After first cornering the market in satellite operators in the 1990s, the Isle of Man has in recent years offered online gambling companies a home to the extent that electronic gaming now represents 16.7 per cent of its £4.1bn GDP.

It is this heady cocktail of financial and technological expertise, pragmatic government and robust infrastructure – the Isle of Man sits astride several heavy-duty global internet cables running from Britain and Ireland – that has helped spark the Manx cryptocurrency goldrush.

Invented in 2008 by a programmer operating under the pseudonym Satoshi Nakamoto, Bitcoin has become synonymous with all the strengths and many of the failings of cryptocurrencies.

Born from a libertarian ideal of individuals being able to transfer money without the intervention of a bank, digital currency works using unbreakable mathematical codes “mined” using vast computer power and then recorded on a public database, known as a blockchain or distributed ledger. The result is an ability to send money to anyone around the globe for little or nothing.

However, the system is not without its problems. Like other currencies, the value of each Bitcoin floats and has been subject to violent fluctuations. The system also conceals the identity of both payer and payee, an attribute that has provided Bitcoin with its main reputational problem. It has become the currency of choice for users of the so-called “dark web”, such as websites offering illegal merchandise from drugs to AK47s.

But the proponents of cryptocurrencies argue that this has allowed the established behemoths of global finance to unfairly tar the industry with the brush of shadiness as they seek to maintain their stranglehold on handling the £275 trillion of non-cash payments that take place around the globe each year.

The search for mainstream acceptance – and a slice of those revenues – is why cryptocurrency companies are making a dash to the Isle of Man. Among them is GreenCoin X, an alternative to Bitcoin that started life in the Indian city of Ahmedabad and has now set up shop in Douglas. It claims to be world’s first fully identifiable digital currency, incorporating the details of the customer on the blockchain detailing each transaction.

Alan Molloy, head of the company’s Isle of Man operations, said: “Generally speaking, banks see digital currencies as an enemy. But there is absolutely room for digital currency in the mainstream, and that revolution is coming.”

Charlie Woolnough, an Isle of Man native and founder of CoinCorner, a Douglas-based Bitcoin exchange, as well as the recently formed Manx Digital Currency Association, said: “Two years ago, banks were either horrified or largely unaware of cryptocurrency. Now they are waking up to the idea that it has some merits.”

The cryptocurrency pioneers are also turning their attention to blockchains or distributed ledgers in the belief that the engine behind digital currencies can be retooled for more diverse purposes. Blockchains are now being developed for uses from land registries to guarantees for luxury goods.

Mr Donegan said: “The potential for this technology is absolutely huge. It is the blockchain side of things that we are excited about. We may not be Bitcoin Island so much as Distributed Ledger Island.”

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