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Jurisdictions embracing bitcoin and bitcoin-related businesses can
dramatically improve their countries' economies in a multitude of
ways. But, what exactly would a favorable bitcoin jurisdiction look like?
For starters, it would ideally have no VAT or capital gains tax on
bitcoin transactions and would encourage an active two-way exchange
market with national currencies.
Commercial banking partners would not be subject to costly and
overbearing regulatory guidelines that threaten or impede innovation.
Furthermore, wallet providers, merchants, and payment processors would
be under no restrictions.
Isle of Man
As the bitcoin protocol expands globally, we are already witnessing
some jurisdictions announce their intentions to become welcoming
business hubs for bitcoin innovation.
Most recently, UK Crown dependency, the Isle of Man, outlined plans
to provide an environment that enables companies operating within the
bitcoin space to flourish and its government posted an informative Questions & Answers document.
Capitalizing on the inability of more bureaucratic jurisdictions to embrace bitcoin, group General Counsel for Counting House Services Paul Davis emphasized:
“They cannot come here to launder money, defraud the
public, or damage the island’s reputation. But they can pitch their tent
here, do their business, build their software and offer their
services.”
Furthermore, the island’s Financial Supervision Commission, confirmed
in March that a bitcoin exchange holding client funds with a licensed
overseas payment service provider is not required to obtain a licence in
the country for its activities.
Luxembourg
Luxembourg also made headlines earlier in the year when it publicly
advertised its intention to start an open dialogue with bitcoin
businesses seeking a jurisdictional home.
Several teams of bitcoin industry experts have already met with Luxembourg officials. Michael Jackson, partner at Luxembourg-based Mangrove Capital Partners, characterized his conversations with the country’s regulators thus:
“[They're saying] we’re very open to people coming here
and explaining their businesses. We don’t have any problem with a
bitcoin business, as long as it does what it’s supposed to do and
behaves properly.”
Jackson also expressed optimism that Luxembourg’s decision would
carry weight in the broader European community, noting that it is a
financial center of Europe.
Gibraltar
Somewhat reluctantly, Gibraltar has recognised its leadership role in
the electronic payments industry for e-gaming and what that means for
bitcoin. The British Overseas Territory has hosted two conferences, one
in 2011 and one in 2014, that highlighted the strong business benefits for taking a leadership role on bitcoin integration.
KPMG’s Archie Watt told New Statesman:
"Low cost, low hassle cryptocurrencies such as Bitcoin have the gaming world pricking up their ears."
Two operators in Gibraltar have expressed to me privately that senior
members of the Gibraltar government want the jurisdiction to lead
rather than follow and that the responsive framework is already in place
to make that happen.
A question of costs
When discussing bitcoin's benefits for an economy, one must
distinguish between the economic benefits of a jurisdiction making
itself appealing to bitcoin business versus the jurisdiction adopting
bitcoin as its territorial unit, which is an entirely different strategy
(to be covered in a future analysis).
The economic benefits of the former can be seen as setting the stage for bitcoin jurisdictional arbitrage.
'Jurisdictional arbitrage' is defined as the practice of taking
advantage of the discrepancies between competing legal jurisdictions.
According to Wikipedia,
it takes its name from arbitrage, the financial practice of purchasing a
good at a lower price in one market and selling it at a higher price in
another.
Patri Friedman,
grandson of economist Milton Friedman, explains that, just as in
financial arbitrage, the attractiveness of jurisdiction arbitrage
depends largely on its transaction costs – in this case, the costs of
switching legal service providers from one government to another.
Reaping the rewards
With respect to extreme economic benefits, a jurisdictional hub for
bitcoin with an independent and functioning court system would
immediately experience an influx of new capital and new businesses,
thereby contributing to a growing GDP (Gross Domestic Product).
“A forward-looking jurisdiction for bitcoin business would demonstrate strength and leadership for the new digital economy.”
Due to bitcoin's inherent lack of a third-party intermediary, the
leading financial service industries of today would gradually become
dis-intermediated and this newly open jurisdiction would serve as the
disruptors' laboratory.
New, disruptive operators geared towards building out the bitcoin
mobile payments infrastructure, funds transfer business and asset
management industry would flock to the region, spurring vigorous job
growth and opportunity.
The hub would soon find itself a magnet for related advisory
services, venture capital, and other professional support services
seeking to capitalize on the bitcoin boom. Retail banks could be
rejuvenated as demand increases for true bitcoin services, such as foreign exchange, transaction escrow services, and trusted safekeeping.
Most significantly though, a forward-looking jurisdiction for bitcoin
business would demonstrate strength and leadership for the new digital
economy, catapulting the country and its people to the world stage.
Much like Gibraltar became the worldwide hub for e-gaming in 2004 and Zurich
became the world's gold trading hub in 1968 due to the collapse of the
London Gold Pool, a jurisdictional bitcoin haven would make history.
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