Credits Feature in Bloomberg Markets Magazine

Greetings from Bitcoin Island

Bitcoin paradise 70 minutes from London : a growing number of businesses on the Isle of Man accept the digital currency bitcoin.
by Jeremy Kahn for Bloomberg Markets

The Isle of Man is a strange place. Home to four-horned sheep, cats without tails, and perfectly preserved Victorian-era steam locomotives, this rock in the middle of the Irish Sea is perhaps best known for hosting the world’s most dangerous motorcycle race, the Manx TT.

It is also a place where, after you take a 70-minute flight from London, a car service called The Lady Chauffeurs will meet you at the airport in a silver Mercedes-Benz S-Class. Imagine my surprise, then, when I’m greeted at arrivals by Keith, who, while courteous, impeccably dressed in a grey suit, and an able driver, is most decidedly not a lady. “All of our regular drivers are busy,” says an apologetic Nula Perren, who owns the company and has accompanied Keith to the airport. Not that I mind. I didn’t choose The Lady Chauffeurs for its ladies – I booked for the bitcoin.

Lady Chauffeurs is one of a growing number of businesses on the island that accept the digital currency. Bitcoin start-ups tend to cluster where the venture capital money is: London, New York, San Francisco. Taking on these behemoths might appear to be a stretch for a tiny British protectorate that can seem more time capsule than Tomorrowland. Yet the Manx government is seeking to make the island the world’s foremost hub for the technology. Twenty-five start-ups working with digital currencies or the blockchains that underpin them are already based here, and it’s growing steadily.

As our S-Class glides toward Douglas, the island’s capital, passing green hills speckled with sheep, Perren explains that her car service caters exactly to this crowd of cryptocurrency entrepreneurs and bitcoin enthusiasts. Many of these newcomers are young programmers and tech-savvy professionals from the US, Canada, and Brazil who arrived for jobs in online gambling.

Although most online gaming companies won’t accept bitcoins, the digital currency is popular among the island’s tech set and some have traded their jobs for start-ups dedicated to digital currencies.

Nick Williamson, 29, a toussle-haired American who dropped out of university to play professional poker, is one of them. “As long as you can find a chance to get off the rock from time to time so you don’t get cabin fever, it’s great,” he says.
Off-the-shelf software

Williamson became interested in bitcoin for its potential to revolutionise online poker, perhaps one day eliminating the need for a neutral party to administer the game and verify players’ stakes. After moving to the island, he started writing his own blockchain protocol. In November 2014, he left online gambling company PokerStars to focus on Pythia, an Isle of Man start-up he founded that provides off-the-shelf software customers can use to create and run their own customised blockchains.

To prove the feasibility of Pythia’s protocol, Williamson found an unusual partner: the Isle of Man government. The government is creating a register of the island’s cryptocurrency companies, and as a pilot project, that register will be stored on a blockchain created using Pythia’s protocol. This will make the Isle of Man the first government anywhere to use a blockchain to store official data, Williamson says.

“It just demonstrates our bona fides,” Brian Donegan, an official who helps spearhead the island’s pitch to cryptocurrency businesses for the Department of Economic Development, says of the blockchain pilot. “But it also signals that we have a balance between the importance of regulation and being open for business.”

The way Donegan sees it, while Britain dithered next door, publishing hand-wringing white papers about how to approach bitcoin, the island’s government ploughed ahead. In less than a year it created a regulatory framework and passed legal changes through the Isle of Man’s Parliament, the Tynwald, which dates back more than 1000 years and claims to be the world’s oldest continuously operating legislature.

E-commerce already accounts for more than 20 per cent of the Isle of Man’s $6 billion annual gross domestic product.
Under increased scrutiny

The Isle of Man’s swift acceptance of digital currencies comes at a time when the protectorate is under increased scrutiny from Britain and other governments for its status as an offshore tax haven. It is also seeking to further diversify its economy, and e-commerce – which includes online gaming – already accounts for more than 20 per cent of its gross domestic product.

But doesn’t regulation undermine the whole point of bitcoin, which was founded on the libertarian promise of unshackling money from government oversight? It’s a question Charlie Woolnough hears often. The island native helped set up CoinCorner, a bitcoin exchange, in 2014, as well as the Manx Digital Currency Association, which represents the island’s nascent cryptocurrency community in discussions with the government and regulator.

Woolnough says submitting to “an intelligent regulatory regime” is the only way bitcoin will gain widespread acceptance. “Otherwise, bitcoin could become just the plaything of the dark web,” he says, referring to the constellation of illicit internet sites run by anonymous servers.

Not that the digital currency is exactly ubiquitous yet: My Lady Chauffeurs taxi ride; a couple of cappuccinos at Java Express, a Douglas cafe; and a few pints of Manx-brewed Okells at Douglas’s Thirsty Pigeon pub were the only things I managed to actually buy with bitcoin during three days on the island.

As Woolnough tucks in to a lunch of locally caught hake at The Little Fish Cafe, a forest of sailboat masts swaying in Douglas’s North Quay behind him, he says he hopes that bitcoin becoming a regulated industry on the isle will also unlock access to mainstream western European banks. CoinCorner, like most European bitcoin exchanges and digital-wallet providers, has an account with a small eastern European bank, which deters some customers and business partners who would prefer the added comfort of dealing with a bank whose brand they recognise and respect.
Much less traceable

But the new regulations divide the Isle of Man’s burgeoning bitcoin fraternity. “You can buy a Rolex or diamonds without going through an extensive know-your-customer process, and these things are much less traceable than bitcoin,” Isle native Adrian Forbes says.

The founder of TGBEX, Forbes sells physical bitcoins or – rather, as his lawyer always reminds him to clarify, lest he be classified as a foreign exchange operator – “decorative, metal novelty tokens”. Each token is engraved with a bitcoin private key that enables a purchaser to transfer a set amount of the currency to a digital wallet. Forbes does the engraving himself in a tiny office decorated with CrypArt lithographs that incorporate QR codes for bitcoin digital wallets.

A bitcoin true believer, he sees the digital currency as a step toward a better world: “It’s a global currency that can’t be manipulated by any government, can’t be devalued on a whim,” he says. “You have these debt crises going on – these things couldn’t happen if everyone used bitcoin.”

Hipster bakeries, locally brewed beer, ultrafast broadband – the Isle of Man has everything a bitcoin hub needs, plus some seriously strange charm.

By Jermey Khan for Bloomberg

About Cecile Baird