CoinSummit is in full swing while CoinDesk has published its excellent quarterly “State of Bitcoin” report. Pantera Capital just unveiled a much-needed bitcoin activity tracker, which measures the strength of bitcoin’s fundamentals while ignoring its price moves. Ross Ulbricht learns that different US regulatory bodies can categorize bitcoin differently, as the director of the US Mint details the bitcoin regulation maze, as the Bitcoin Foundation discloses that it has retained lobbyists in DC, as Andreas resigns from the organization over disagreements with its leadership. Ah the tangled webs we weave…
Only two things could have kept me away from the CoinSummit today and tomorrow in London: a wedding or a funeral. Luckily for me, it was the latter. Yes, ladies, I’m sorry to break your hearts, but today there is officially a Mrs. TBI. If you would like to shower her with gifts (and demonstrate that her husband’s daily writing is a viable occupation), you can send tips to the honeymoon fund:
https://coinbase.com/twobitidiot
Of course, I’ll still keep you posted with the latest and greatest in bitcoin news and analysis. Today, a guest post of the “this is actually good news” variety from someone who I can safely say is smarter than yours truly. Tom Robinson, co-founder of the London-based Elliptic, an insured enterprise-grade bitcoin vault, has an Oxford PhD in atomic and laser physics and says the recent EBA report is good news for digital currencies. He makes a good case. Enjoy.
Excited to get back to action next week following a much needed break on the honeymoon. Until then…
Cheers,
TBI
"Why the EBA Report is Good News for Digital Currencies" | Tom Robinson, co-founder of Elliptic
Last week, the London-based European Banking Authority released a 46-page “Opinion on Virtual Currencies”, covering both centralised and decentralised digital currency systems. The EBA is entrusted with ensuring effective and consistent regulation of financial institutions across the EU and this document provides a thorough evaluation of the risks presented by digital currencies, as well as initial thoughts on how they might be regulated.
Many of the headlines have focused on the EBA’s “ban” on regulated financial institutions holding, buying or selling digital currencies. However, the report actually makes many concrete short-term recommendations that will help digital currency businesses continue to innovate and flourish, without the immediate burden of full-blown regulation.
The Risks (and Benefits)
The report begins by listing the risks and benefits it perceives as being inherent in the use of digital currencies. The reduced transaction costs, shorter processing times, increased financial inclusion and greater privacy/security are all acknowledged, although it is claimed that none of these are really issues in the EU anyway(!) and therefore won’t have much impact.
Much has been made of the seventy risks that are then listed as arising from digital currencies. These range from Bitcoin exchanges disappearing with customer funds to financial regulators getting criticised for not enacting appropriate regulation! Many of these risks aren’t new - financial regulators have already faced them with cash and other payment systems, investment products and technologies. Which is not to say these risks aren’t real, and should be tackled head-on by the digital currency community.
The Long-Term Response (Maybe)
So what to do about this impending Bitcoin apocalypse? The EBA makes it clear that they believe the appropriate long-term response to these risks is to institute comprehensive, bespoke regulations. It warns against forcing a square peg into a round hole by placing digital currencies under the remit of existing legislation, such as the Electronic Money or Payment Service Regulations. This rules out a quick-fix, but at least recognises the fundamental differences between fiat and digital currencies, and between the approaches required to regulate them effectively.
These bespoke controls would look very similar to those in place for other payment systems, with customer due diligence, reporting requirements, registration/authorisation and separation of client funds all in place for various types of digital currency business. However, one proposal sticks out - the creation of “scheme governance authorities”, non-governmental entities that establish and govern the rules for the use of a given digital currency - i.e. the Bitcoin Foundation on steroids. The EBA admits that this “may, at first, appear incompatible with the conceptual origins of [digital currencies] as a decentralised scheme” - and they’d be right. Vague assertions are made that such an authority could itself be decentralised, although it would also have to be a “legal person”. It’s highly questionable whether any attempt to regulate the digital currency protocol itself, rather than the businesses offering digital currency services, would succeed.
But all of this is, by the EBA’s own admission, still pie in the sky. Such a regulatory scheme would take years to develop, fine-tune and implement. During this period the way digital currencies are used may well change drastically, organisations such as the UK Digital Currency Association will lobby for changes, and other jurisdictions will propose alternative approaches. Of more interest are the short-term recommendations made in the report - concrete measures that could have an immediate impact on digital currency businesses in the EU.
The Short-Term Response
The EBA’s immediate recommendations focus on maintaining a separation between regulated financial services businesses and digital currencies. Key to this is their recommendation that:
"national supervisory authorities discourage credit institutions, payment institutions, and e-money institutions from buying, holding or selling [digital currencies]”
Barclays was never exactly falling over itself to go long Dogecoin, but this will certainly provide another reason not to. However, this does not prevent banks from being indirectly involved with digital currencies, for example by offering bank accounts to digital currency businesses - a point explicitly made by the authors. The recommendation is also notable in excluding “investment firms”, which also fall within the EBA’s remit - hedge funds etc: fill your boots!
Also of note is the recommendation that digital currency exchanges should be brought within the scope of anti-money laundering and counter terrorist financing requirements. This is of importance to the many digital currency businesses that have been unable to obtain bank accounts - banks often cite the lack of AML/CTF oversight as their reason. In the UK this might mean these businesses would fall under the oversight of HMRC - not ideal, but a step in the right direction.
The short-term measures recommended in this report give digital businesses a few years of breathing space to continue innovating, without the heavy burden of compliance. They also give some much-needed legitimacy to these companies by bringing them within the remit of AML/CTF regulations. Perhaps most significantly they prevent the big players from moving in too early, and dominating a diverse new industry that is still experimenting and challenging the status quo. This can only be a good thing for the future of digital currencies.
Originally published on the Elliptic blog here.
Group to Watch
College Crypto Network (@CollegeCrypto)
Back in February, CCN launched with three student chapters dedicated to promoting blockchain education and development at schools across the globe. Today they have 50 chapters, not to mention some serious corporate sponsors. If you are interested in sponsoring student bitcoin initiatives, let me know. I’m helping these kids fundraise because they are the real deal. Visittheir site to learn how you can help or check them out at the North American Bitcoin Conference!
Today’s Tid Bits
Ross Ulbricht Loses Bid to Dismiss Federal Silk Road Suit
http://www.coindesk.com/ross-ulbricht-loses-bid-dismiss-federal-silk-road-suit/
Ross Ulbricht’s request to dismiss his suit for operating Silk Road, which included charges of money laundering and federal narcotics, has been rejected by a US court. Ulbricht’s defense claimed bitcoin should not fall within money laundering laws, but was rejected by Judge Katherine Forrest. The judge concluded that bitcoins have value and can be medium of exchange, which can be used to launder money. Ulbricht also faces charges of computer hacking and criminal enterprise, he trial is set for November 3rd.
Former US Mint Director: How to Save Bitcoin from the Regulators
http://www.coindesk.com/former-us-mint-director-save-bitcoin-regulators/
Edmund Moy, former director of the US Mint under the Bush administration, offered his advice on how bitcoin should approach governmental regulation. Moy explained, in an interview with Coindesk, that each governmental agency (CFTC, FTC, FEC, etc.) is going to “only look at bitcoin through the prism of what they understand.” This leads to a fragmented regulator environment, Moy argues, instead we need to establish clear and consistent langue at all governmental levels. He also goes on to mention self-regulation within the bitcoin community, bank integration, and the overall evolution of money.
Bitcoin Foundation Hires Lobbying Firm
http://online.wsj.com/articles/bitcoin-foundation-hires-lobbying-firm-1404918261
The Bitcoin Foundation has hired Thorsen French Advocacy, a lobbying firm led by two former bipartisan congressional staffers. At least 13 US government agencies have examined bitcoin in the last month. The Bitcoin Foundation’s move to establish their Washington presence comes at a crucial time, as the government will have to deal with bitcoin in the near future.
Pantera Launches BitIndex to Track Bitcoin
http://www.coindesk.com/eschewing-price-pantera-launches-bitindex-track-bitcoin/
Investment fund with a focus on bitcoin, Pantera Capital has announced an index to track bitcoin. The BitIndex will take in to account developer interest, merchant adoption, Wikipedia views, hashrate, google searches, user adoption, and tranasaction volume to chart bitcoin’s overall progress. Bitcoin price will not be taken in to account for the index, but instead will focus on the technological aspects of bitcoin.
Andreas Antonopoulos: Can’t Have the “Smallest Association With the Bitcoin Foundation”
http://newsbtc.com/2014/07/09/andreas-antonopoulos-can-longer-even-smallest-association-bitcoin-foundation/
Andreas Antonopoulos, bitcoin expert and Blockchain.info Chief Security Officer, tweeted yesterday about how he no longer wants to be associated with the Bitcoin Foundation, due to lack of transparency. Andreas also mentioned how he previously had resigned as head of the anti-poverty committee for the Bitcoin Foundation, and now he has resigned as a member.
CoinDesk’s State of Bitcoin Q2 2014 Report
http://www.coindesk.com/state-of-bitcoin-q2-2014-report-expanding-bitcoin-economy/
According to CoinDesk Q2 has seen bitcoin’s price bounce back 39% and VC investments increase by 28%. The report is also predicting $285.5m to be invested in bitcoin startups before the end of the year along with 8 million wallets and 100,000 bitcoin merchants. The entire report can be found in link above.
Coinfloor Boosts Team with Ex-Goldman Sachs Exec
http://www.coindesk.com/coinfloor-boosts-team-ex-goldman-sachs-exec/
Coinfloor, UK-based bitcoin exchange, has hired Adam Knight as its executive chairman today. Knight previously has the global head of metals within the commodities group at Goldman Sachs and the managing director of the investment banking division at Credit Suisse.
Upcoming Events
The North American Bitcoin Conference (July 19-20 in Chicago)
Following the success of the European Bitcoin Convention and the North American Bitcoin Conference in Miami (I was there; it was awesome), TNABC is doing an encore in Chicago. Thanks in part to the support of corporate sponsors like Perkins Coie, Blockchain and BitPay, the tickets to this one are only $100 - amongst the most reasonable rates for any of the conferences I’ve been to.
Coin Congress (July 23-24 in San Francisco)
I’m heading out to San Francisco on July 23-24 for the Coin Congress, a digital currency conference which will feature speakers from BitAngels, GoCoin, Blockchain, Coinbase, Gyft and other leading bitcoin ventures. You can use the discount code acom-u2014 for 25% off ticket prices at checkout and follow @CoinCongress for real-time updates. Let me know if you are heading out there too, I’d love to meet you!
American Banker Digital Currencies Conference (July 29 in NYC)
If you are a Wall Street type or serious investor, this might be the conference for you. Attendees will include Bitcoin industry representatives from BitPay, Circle, SecondMarket, BitReserve, and DATA, as well as executives from Fiserv, Wells Fargo, the Internet Archive Federal Credit Union and the Massachusetts Division of Banks.
Tips Are Always Appreciated
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