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Bitcoin and beyond: what role for Gibraltar’s gaming industry?

Low cost, low hassle cryptocurrencies such as Bitcoin have the gaming world pricking up their ears, says KPMG’s Archie Watt. Here, he recaps a riveting discussion from Gibraltar’s most recent eGaming summit.

“Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again... If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit.”

These words from Sir Josiah Stamp, Director of the Bank of England, spoken in 1940, might well have been the message that one of the panels at KPMG Gibraltar’s Fourth Annual eGaming Summit was seeking to expound to the record breaking number of delegates on the Sunborn Yacht Hotel on 3rd April.

This eagerly anticipated panel session, featuring The Counting House’s Paul Davis, Ukash’s Stephen Quinn, Ian Benson of Maclay, Murray & Spens, and Eric Benz, Chair of the UK Digital Currency Association, was titled “Bitcoins and Beyond – Payments, Conventional and Alternative”.  A Bitcoin is a piece of machine code passed electronically over the internet between two individuals who both believe that it represents value which, the panel pointed out, presents a threat to the established banking fraternity.  Because Bitcoins are perceived to be capable of being freely transacted across borders between individuals or entities, they are direct competition to banks and other payment service providers. 

Interestingly, when the audience (which was made up of representatives from all the major operators based in Gibraltar) was asked whether or not they accepted Bitcoins, not a single one of them admitted to taking them. Outside of Gibraltar there are only a handful of online operators who accept Bitcoins as a means of depositing. 

Part of this reticence is caused by a lack of understanding of how they are controlled, while another hesitance lies in the need to gain regulatory approval to include Bitcoins as a payment method. Despite these uncertainties Bitcoins and – more widely – “cryptocurrencies” are of great interest at the moment, particularly to companies which operate and transact globally. Why? Cryptocurrencies are exchanged between users at zero cost, and retain their value in any economy. Whereas traditional banking incurs transaction fees, expensive finance departments and exchange rate losses when moving between countries, a Bitcoin may travel from one jurisdiction to another without undue delay or fees. A Bitcoin is worth the same amount anywhere in the world – an intriguing prospect for any global company looking to reduce expenditure and avoid exchange risks.

Gaming companies are no exception.  The panel also highlighted this eagerness as the reason why central banks and governments the world over are keen on spreading the publication of negative stories, linking Bitcoins with drug dealing, terrorism and money laundering.

The session wasn’t only promoting good news about Bitcoins however, and the legal framework (or rather, the lack thereof) was discussed.  The need for regulators to understand the issues was debated, as was whether or not Bitcoin operators could or should be regulated.  This discussion led on to one of the most interesting, and indeed shocking comments made during the session: “there really is no anonymity to Bitcoin. There’s privacy, but every single aspect of Bitcoin is visible.”  Because every single transaction of a particular Bitcoin is shown via the “block chain”, a public ledger of all transactions in the Bitcoin network, nothing is anonymous.  The panellists maintained that this should mean that the “route of title” (i.e. a Bitcoin’s trail of ownership) is capable of being followed at each stage. The issue, however, is that Bitcoin traders are not currently regulated and are therefore beyond the reach of law enforcement agencies, hence the panellist strongly advocated that governments and regulators move forward quickly with the application of existing codes of best practice in order to give protection to consumers.

All panellists believed that Bitcoins are not the final solution to reducing transaction costs and that they will not be the only cryptocurrency to emerge.  However, they all agreed that they are a step on the road toward a more free-flowing means of currency exchange, at a reduced cost but with high levels of security and transparency.  All delegates were eagerly looking forward to this day, particularly in light of the forthcoming change to the Point of Consumption (POC) taxation of eGaming profits from UK customers, a key part of the business of the majority of operators based in Gibraltar. Click here to read more about how POC will impact Gibraltar’s gaming industry.

Widening the conversation beyond Bitcoin to discuss gaming payment methods more broadly, the panel turned its attention to the issue of unlicensed gaming operators and how best to discourage financial transactions with them.

Encouragingly, a recent announcement made by Baroness Jolly to the House of Lords on 4th March 2014 stated that the Gambling Commission will be working together with a number of major payment systems – including Visa, Mastercard and other major debit and credit cards processors - to “block financial transactions with unlicensed operators.”

Despite this high-level promise, the panel’s view was that such blockades were essentially unenforceable, since many payment systems organisations have no knowledge of to what exact use the currency they transact is being put.  For example, a customer can deposit with an operator licensed outside the UK perfectly legally, and the payment systems organisation has no visibility over how that deposit is ultimately spent.

Inevitably, the debate turned next to the Point of Consumption Tax (POC), and whether or not payment service providers would be willing to share in the pain that would be suffered by all of Gibraltar’s licensees.  Unfortunately Gibraltar operators were left without a simple answer. Panellists encouraged them to continue to negotiate hard with their payment service suppliers.  A ray of hope was to be found, however, in the potential for alternative payment providers, such as pre-paid cash card service Ukash, to add value to the payments process by reducing new customer acquisition costs or through reducing fraud. Alternative payment may therefore be of great importance for the future profitability of Gibraltar’s gaming sector.

The panel concluded a very lively session by returning to Bitcoins, taking a more philosophical turn by comparing them with another item with a “perceived value”: diamonds.  “The only thing that distinguishes a diamond from any other stone on the ground is that there are only so many of them, and that work has been done on them to create a perceived value,” explained Paul Davis of the Counting House. The value of a Bitcoin is derived from this same “perception of value” – it worth will exist only for as long as a community believes in that worth.  As Davis neatly summarised: “Bitcoin is the diamond of the currency world.”

Archie Watt is head of eGaming at KPMG

Photo: Getty
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Looking to the future

In our last regular article on Gibraltar for a while, Gibraltar Chronicle editor Brian Reyes looks to the economic and political outlook for the short and medium term.

At the beginning of March, over 150 members of the local business community gathered in the World Trade Center construction site for a ‘topping out’ ceremony. As the last beam was placed on the structure, guests heard speeches about Gibraltar’s resilient economy, its potential for international growth and the need to offer global businesses the necessary working environment to remain competitive.

The EU referendum and the prospect of a so-called Brexit are dominating the headlines, and much of the coverage is gloomy. But in the background, Gibraltar’s private sector continues to drive projects which, in the long term, will help attract international investors to the Rock.

Earlier that same day, Gibraltar’s Development and Planning Commission heard submissions from well-known British architect Jonathan Manser, who leads the design team behind Eurocity, another major development that has its eye on Gibraltar and a prosperous future.

There are other schemes too, some still on the drawing board, some already under way. The MidTown Development, a mix of offices and top-end flats, is funded by a local consortium on a prime site in the heart of town. On the east of the Rock, the ambitious Bluewater project promises a mix of luxury and affordable homes alongside a marina. There are plans too for a former Ministry of Defence site named after Admiral Rooke, while in the Old Town, developers and individual home owners are breathing life into this run down but charming warren of steep, narrow alleyways.

Elsewhere, work is progressing on key infrastructure that will be essential for Gibraltar’s future, in or out of the EU.

Experts are finalising the environmental impact assessment for a facility that will store liquefied natural gas for Gibraltar’s new power station, already under construction. Work should resume too on the airport tunnel project, vital to freeing up Gibraltar’s clogged roads. A new sewage treatment plant, although still some way off, is also in the pipeline, a critical and long-overdue element of Gibraltar’s infrastructure.

There are new attractions for tourists - the opening of the Upper Rock rope bridge and sky platform is eagerly awaited by locals too - and important developments in culture and education, where the University of Gibraltar is building strong academic links across the community and beyond.

And against the background of uncertainty over the UK’s - and by extension Gibraltar’s - membership of the EU, the Gibraltar Government is leaving nothing to chance. A team of economists is analysing the different possible permutations of membership of the EU, EFTA or the EEA, including the potential effects on the Rock’s export economy of membership of the Common Customs Union. 

Despite the combative nature of Gibraltarian politics, there is unity on this question. Both the Gibraltar Government of Gibraltar and the Opposition agree that the UK and Gibraltar should remain in the EU and that Brexit could undermine the Rock’s economic model, creating uncertainty that Spain will undoubtedly seek to exploit. They add that the UK must factor Gibraltar into any post-Brexit negotiation with the EU.

Gibraltar’s long-term economic future will also be placed under scrutiny locally this year by the 2025 Committee, which brings together the public and private sectors and unions to draw up 10-year strategies for the different sectors of the economy, identifying challenges and opportunities in areas as diverse as e-gaming and shipping. A key element of this will be to find new opportunities for business in emerging markets in Asia, the Americas, the Middle East and Africa.

In parallel, a cross-party select committee of the Gibraltar Parliament will analyse various aspects of the 2006 Constitution ahead of a constitutional conference with the United Kingdom on a date yet to be determined. Along with the UK’s referendum on EU membership, the constitutional review will dominate much of parliamentary and political activity during 2016 and likely into 2017. If any changes are proposed as a result of the review, they will first have to be put to a referendum before they can be adopted.

Gibraltar is keeping a wary eye too on Spain, which has yet to swear in a government following an inconclusive general election last December. The future of cross-border relations will depend not just on whether the UK remains within the EU, but on the outcome of the post-election wrangling in Spain.

But even as Spanish politicians try to hammer out a coalition pact in a bid to avoid a return to the polls in June, there is grassroots contact across the border.

The Cross Frontier Group, which brings together business and union interests from Gibraltar and the Campo de Gibraltar, is forging ahead with a proposal to access EU funding for cross-border initiatives. Separately, the government continues to maintain contact with Spanish politicians ranging from PSOE senators to the mayor of La Linea, Juan Franco.

The hope is that, having cleared the EU referendum hurdle, Gibraltar will be able to develop positive dialogue with Spain, irrespective of who is in government. There is much to be gained through practical cooperation in areas as diverse as commerce, culture and sport.

There is, inevitably, a degree of caution. Spain’s acting Foreign Minister, José Manuel García-Margallo, has signalled that if Britain left the EU - and if his party remained in power - he would seek to revive the joint sovereignty proposal robustly rejected by Gibraltar in 2002. 

It would be a move doomed to failure because Gibraltar will have nothing to do with such a a proposal, and neither will the UK. Their shared view is that nothing can be decided on Gibraltar’s future without the agreement of the Gibraltarians.

When he was sworn in as Gibraltar’s new Governor last January, Lieutenant General Edward Davis reaffirmed the UK’s double-lock commitment to the people of Gibraltar, underscoring their inalienable right to self-determination and the UK’s commitment to secure their consent in all matters that pertain to the sovereignty of Gibraltar.  

In doing so, he was reflecting the words of one of his predecessors, General Sir William Jackson.

“Gibraltar is neither Spain’s to claim nor Britain’s to give,” Sir William wrote, in a sentence that resonates to this day and sums up the situation succinctly.

“It is the rock of the Gibraltarians.”

This will be the last item on the New Statesman’s Gibraltar hub for at least a while. We’ve thoroughly enjoyed bringing you insights and hopefully greater understanding of the issues affecting the Rock as well as its politics, culture, geology and a great deal else. We would like to thank our sponsors the Gibraltar government, our many writers and above all our readers.

Charlotte Simmonds, editor, March 2014-March 2015

Guy Clapperton, editor March 2015-March 2016

Brian Reyes is the editor of the Gibraltar Chronicle.