London aims to become a bitcoin hub

London At Night

U.K. policymakers are set to woo the burgeoning bitcoin industry with a new study looking at the opportunities and risks involved with the technology.

In a speech at London's Canary Wharf in the east of London, U.K. Finance Minister George Osborne didn't refer to the term "bitcoin" but instead used the phrase "Fin Tech", or financial technology, to discuss the sector as a whole.

"Just as the introduction of paper money hundreds of years ago revolutionized commerce. So the technologies being developed today will revolutionize the way we bank, the way we invest, the way companies raise money. It will lead to new products, new services, new lenders," he said in the speech which marked the first step by the country at what could be formal regulation of the rapidly expanding sector.

"And with the right backing from government, I believe we can make London the Fin Tech capital of the world," he added.

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Bitcoin is a "virtual" currency that allows users to exchange online credits for goods and services. While there is no central bank that issues them, bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining. Some 13 million bitcoins are believed to be in circulation, with a cap of 21 million - meaning no more bitcoins can be created after that point.

The digital currency has sparked interest by venture capitalists on both sides of the Atlantic but has also run into regulatory issues in many countries and its price volatility has also meant it's been heavily criticized.

Bitcoin first received international media attention in April 2013 which culminated in its price rallying over $100. Later in the year a regulatory meeting on Capitol Hill helped it surge above $1,000.

However, with Chinese authorities tightening the rules on bitcoin and a Japanese exchange filing for bankruptcy protection, investors decided to cash in on their holdings. The price has since remained steady at around $600 with little news flow this summer. The volume of trades has also reduced, according to data from bitcoincharts.com.

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London, already classed as a financial hub to rival that of New York's, has attracted industry sectors like tech startups and Islamic funding. Bitcoin transactions were initially taxed with a 20 percent charge in the U.K., but the country's tax authority announced it was scrapping this added cost back in March.

In New York, meanwhile, regulators have already made their move and are currently weighing up a raft of new rules to regulate bitcoin and other virtual currencies. On July 17, New York State's Department of Financial Services proposed issuing a "BitLicense" that would protect consumers, prevent money laundering and enforce cyber security.

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Many bitcoin enthusiasts remain defiant that their cryptocurrency should remain free from regulation, any centralized authority and any threat to its opaqueness. Jon Matonis, an executive director of the Bitcoin Foundation, which is a lobby group for the technology, has previously written about his concerns on regulation.

Writing on bitcoin news website Coindesk, he said that if new regulation meant that if users were required to give away internet protocol addresses - and therefore their locations - then bitcoins in that regulated jurisdiction could start trading at a discount price.

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