Bitcoin Island: cleaning up the crypto currency

The Isle of Man is only 30 miles wide but is an understated haven for the super wealthy.

What do Thomas the Tank Engine, lifeboats, pilates, and the Bee Gees have in common?

They are all success stories from the Isle of Man.

The small independent island in the middle of the Irish Sea is now hoping to give a wholesome boost to the bad boy of digital currencies, Bitcoin.

Bitcoin tends to hit the headlines for all the wrong reasons - the spectre of infamous Japanese exchange MtGox, which went bankrupt in 2013 after a spate of hacking resulted in the theft of around 650,000 of the virtual coins (today worth around £150/$223 each), still looms large.

It has also gained notoriety as the currency for choice for illegal activity because Bitcoin transactions can be carried out anonymously.

But the Isle of Man government believes a combination of regulation and encouragement can not only reverse Bitcoin's reputation, but also push it towards the mainstream.

Bitcoin is now included in the Isle of Man's anti-money-laundering laws.

Prodigal son

Its attractively low taxes and relaxed legislation have already made the island a popular choice of headquarters for the e-gaming industry.

Over the last 12 months the government has been working on incorporating Bitcoin into its anti-money-laundering laws.

"We also passed through parliament the Designated Businesses Bill, which treats digital currency exchanges the same as any other company holding value for a client in escrow [a form of safe keeping]," said Peter Greenhill, head of e-gaming in the department of economic development.

"Be that a bank, estate agent or accountant - those come under registration with the Financial Supervision Commission."

The government is stopping short of offering customer protection on Bitcoin investments like the UK's Financial Services Authority (FSA), which guarantees individual savings to the value of £80,000 in the event of a bank collapse.

"But if we look at the most innovative Bitcoin exchanges they are already putting coins into cold storage, and introducing multiple signatories on coin movement," Mr Greenhill added.

"What we've done here on the Isle of Man is to recognize there's an area here that's important to the rest of the world that we can move quickly on in regulation.

"As long as we do that in a concerted way, to protect individuals and keep crime out, we can respond to the needs of an industry that looks like it's going somewhere."

Charlie Woolnough, founder of the island's only exchange CoinCorner, said the banks remain wary of the industry.

Coining it

Entrepreneur Charlie Woolnough set up CoinCorner, the island's only Bitcoin exchange 12 months ago.

He claims that the exchange already has 10,000 global customers, and 500 merchants are using it to accept digital payments.

Mr Woolnough told the BBC the banks are still very wary of the digital currency industry.

"One big problem we have had as a Bitcoin business is getting access to mainstream banking. If you're being conspiratorial you could say banks view Bitcoin as a threat," he said.

"Maybe a more rational approach is that they view Bitcoin and fintech as high risk right now."

CoinCorner operates on a Know Your Customer (KYC) basis, meaning that in order to open an account you need to upload official ID, proof of address and have your credit or debit cards verified by the firm before you can buy or sell any Bitcoin.

Although the exchange has always operated that way, Mr Woolnough is candid about the baggage of legislation, and it certainly slows things down - it took three days for me to open an official account and even then I remained unable to use my cards to buy any currency.

"I don't think anyone wants to be regulated," he admitted.

"With regulation comes cost and there's a burden that comes with it.

"But we are acting in a fiduciary capacity - anyone who expects this industry to remain unregulated really is living in cloud cuckoo land. the Isle of Man has just been the first mover in this.

"Bitcoin is the currency of the internet and a leading part of fintech."

User experience testing

But outside that rather exclusive world of the financial technology industry, what do the more everyday businesses make of the drive to go digital?

The Thirsty Pigeon Pub on the Isle of Man town Douglas proudly accepts Bitcoin.

Bitcoin pub landlord Robert McAleer of the Thirsty Pigeon

On the bar in front of the till sits a tablet computer for customers wishing to settle their tab with their digital wallet.

"Not many people really understand it I think," said landlord Robert McAleer, who admitted that not many Bitcoin payments had been made since a digital currency conference, held on the island last October, attracted Bitcoin enthusiasts in their droves.

"People need more information. and more people need to adopt it, more shops more bars."

Taxi driver Nula Perryn, who founded all-female cab company The Lady Chauffeurs, agreed.

Taxi driver Nula Perryn said she takes few Bitcoin payments at the moment.

"We do about 2 or 3 [Bitcoin payments] a week," she told the BBC.

"I think it's a bit of a gimmick... as a new firm it's something to get us noticed - however I do feel there's a very strong movement from e-gaming.

"The government is behind it... there's a lot of will behind it."

Island entrepreneur Adrian Forbes believes one solution may lie in making Bitcoin a lot less ephemeral.

His new start-up TGBex is selling physical coins (his lawyer is very keen to call them tokens, he insists, as they are not legal tender). Each coin comes with a QR code so that the owner can transfer the value into their digital wallet.

"Bitcoin for technophobes is what I like to call it," he said.

"I have three young kids and I wanted to buy them a bitcoin each - but [some of] the exchanges have failed or been hacked... for me I think offline storage is the safest at the the moment."

The lower "value" coins (1,2 and 5 Bitcoin) are made of brass alloy, the higher end (10/20 Bitcoin) of solid silver

It is a high risk investment, he conceded - but he's not keen on the government getting too involved.

"I'm not a big fan [of legislation].

"I see Bitcoin as something very niche. I don't think it requires same licences as banks and stockbrokers and hedge funds that have a thousand times as much money at stake.

"Bitcoin will work best in the third world first. In the west, it's a novelty, niche technology, a bit of fun.

"It might be advantageous in terms of speed but there's no real need for it."

Hear more from Zoe Kleinman on the Isle of Man's plans for Bitcoin in the Business Daily podcast