Bursting onto the scene as a favorable jurisdiction for bitcoin at a time when global regulators were largely taking a reactionary approach to the digital currency, the self-governing British crown dependency won quick acclaim from prominent members of the ecosystem.
By September, however, doubt was cast on the viability of its initiatives when key banking channels available to startups were abruptly severed during a high-profile conference.
Undeterred, the Isle of Man is seeking once again to make the case that it can provide a safe haven for digital currency projects, and in the process, spur the kind of economic boom it saw arise from its early embrace of online gambling and electronic gaming.
Speaking to CoinDesk, Brian Donegan, the Isle of Man’s head of operations for digital development and e-business, asserted that the government is still moving aggressively to put key measures in place that would help the region's budding digital currency industry thrive.
“The Proceeds of Crime Act, an existing piece of legislation from 2008, is being amended to embrace bitcoin and digital currencies generally. That proposal is in hand as we speak and due to be laid in front of our parliament for approval later on this year.”
While unable to provide an exact date as to when the regulation would be enacted, Donegan voiced his optimism that it would be more likely “earlier on than later”.
Interpretations of how bitcoin could be addressed by the Financial Services Act of 2008 first surfaced in July. At the time, the island’s Financial Supervision Commission (FSC) noted it would seek to amend schedule 4 of the Proceeds of Crime Act in a bid to bring such businesses under anti-money laundering (AML) and counter-terrorist financing (CFT) law.
To Donegan, the Isle of Man’s embrace of bitcoin is part of a long-term trend that has found it seeking to diversify its reliance on banking and insurance companies.
Research from Ernst & Young indicates that e-gaming, for example, accounted for 8% of the national income on the Isle of Man in 2010, providing nearly 700 jobs at that time. The Isle of Man was early to embrace the e-gaming industry, enacting specific regulation in 2001 that it believes proved integral to helping the industry grow to $20bn in annual revenue.
As such, Donegan sees a big opportunity in helping the bitcoin industry achieve similar growth, given the unique combination of resources it offers.
“We need the tech platform in terms of the telecoms interconnectivity, we need the bandwidth and the data centers, and we have those in spades,” he said, referencing strengths listed in the island’s published materials.
Donegan further cited the developing relationship between the bitcoin and e-gaming sectors as yet another reason courting the bitcoin industry is smart business.
To date, there have been a number of bitcoin companies and projects that have sought to strike e-gaming partnerships, including most notably bitcoin processor GoCoin.
Banking services need regulation
Such a future, however, won’t be possible unless the Isle of Man can encourage UK banks to engage again with startups on the island.
Donegan indicated that while such relationships were discontinued as a result of a “combination of factors”, the island’s planned regulation will send a strong message that it plans to keep crime out, thereby encouraging banks.
“I think the general view is that once we have this legislation in place, this will allow the banking services that these businesses need to thrive,” Donegan said.
Still, he said the Isle of Man will seek to keep an open mind about the policies it enacts, suggesting the island will follow the industry closely to potentially develop or change its policies as needed.
He maintains that the island’s roughly 20 startups, employing 30–35 professionals, are finding banking partners elsewhere for the time being, but that all moved to the island in advance of this year’s coming regulation.
Eye on crypto 2.0
Notably, Donegan expects other factors to mitigate any banking concern, citing the rising interest in crypto 2.0 projects like Counterparty and Factom that aim to encourage non-financial use cases for bitcoin technology.
Calling them “pure software plays”, Donegan indicated his belief that these companies can migrate to the island to start working today.
“2.0 is going to be a big deal for us in 2015, and we’ll be putting a big focus behind it,” Donegan explained, noting also that this part of the bitcoin sector generally faces fewer regulatory and banking hurdles.
Donegan also stressed that the Isle of Man offers favorable tax policies for entrepreneurs that want to build 2.0 startups, increase their value and later exit.
“Our strong intellectual property laws allows them to have full ownership of that property when they decide to dispose of it or sell it as part of their exit strategy,” Donegan said. “If you have a 2.0 business and you build that up and then exit, there is no capital gains tax, you pay no capital gains tax on the profits, and there’s no inheritance tax and there’s no tax on dividends.”
He added that the Isle of Man is already in talks with startups working in the distributed applications (Dapp) space in the field of insurance, legal and medical records. Donegan admitted to a strong personal interest in this field, suggesting that he and other Isle of Man officials see this technology as a common sense solution for the future.
“If you have two lawyers transacting on a business or purchase of a property, then that’s going to be code driven, so the contracts will be uploaded to the blockchain,” he added, concluding:
“We’re very very keen on the technology, we think it’s transformational and that we’re really at the very beginning of an explosive development in information technology.”