The Vancouver Sun reports that the European Commission, the executive body of the European Union, will be pursuing restrictive Bitcoin legislation. This news comes a relatively short time after the European Banking Authority (EBA) warned financial institutions operating within the European Union to refrain from and discourage the use of Bitcoin until the EU has built up a satisfactory legislative infrastructure. The EBA identified over 70 risks involved in using Bitcoin—mainly the anonymity that Bitcoin provides, which could make it difficult for governments to track down the users of the crypto-currency. The EBA’s warning caused a small, fear-induced sell off, which resulted in a $10 decrease in the Bitcoin price.
An excerpt from the recent EBA report on the recommended infrastructure of Bitcoin regulation:
Based on this assessment, the EBA is of the view that a regulatory approach to address these risks would require a substantial body of regulation, some components of which would need to be developed in more detail. In particular, a regulatory approach would need to cover governance requirements for several market participants, the segregation of client accounts, capital requirements and, most importantly, the creation of ‘scheme governing authorities’ accountable for the integrity of a particular virtual currency scheme and its key components, including its protocol and transaction ledger.
Even further back, a few months ago, the European Central Bank issued its own warning against Bitcoin. They warned that Bitcoin price volatility and lack of consumer protection legislation made using the digital currency very risky.
Chantal Hughes, a spokesperson for Michel Barnier, the financial services commissioner, commented that:
It’s imperative to move quickly on this issue, the potential for money laundering and terrorist financing is too serious to ignore.
Bitcoin Regulation Consideration Has Become More Serious in Recent Months
Ever since the failure of Mt. Gox, formerly the largest Bitcoin exchange in the world, several governments have become more aware of the existence of Bitcoin. As their awareness increases, so does their desire to pass restrictive Bitcoin regulation—or at least their desire to discourage its use. After the Gox crash, governments turned their eyes towards Bitcoin and immediately started trying to figure out what they would do with it.
Of course, everything they want to do will be under the guise of consumer safety. Things like anti-money laundering laws and terrorist financing laws seem to be a focal point of discussions on Bitcoin regulation. Governments list some of Bitcion’s greatest virtues as dangerous risks involved in using the digital currency. The Financial Action Task Force recently said that Bitcoin is an interesting technology, but the decentralized nature of the currency poses a threat to government authority:
There is no central oversight body, and no AML software currently available to monitor and identify suspicious transaction patterns. Law enforcement cannot target one central location or entity (administrator) for investigative or asset seizure purposes (although authorities can target individual exchangers for client information that the exchanger may collect). It thus offers a level of potential anonymity impossible with traditional credit and debit cards or older online payment systems, such as PayPal.
The Argentinian central bank has urged the citizens of Argentina to not use the currency, citing all the cliché, anti-Bitcoin arguments. They even went as far as to passively threaten Argentinian Bitcoin users, “reminding” them that conducting transactions in terms of bitcoins violates the country’s legal tender laws.
Additionally, the Organization for Economic Co-Operation and Development released a report several weeks ago saying that the blockchain technology can streamline the existing banking system, but the currency itself cannot and should not be used in place of government legal tender because it would become difficult for the authorities to collect taxes:
Crypto-currencies can never become an alternative to legal tender, for the simple reason that people have to pay their taxes. This protects existing fiat currencies from being displaced, and the fear of loss of monetary control should not be used as an argument to prevent Bitcoins from circulating as parallel currencies.
New York’s Bitcoin BitLicense Sets the Bar
Lastly, and most recently, the first draft of suggestions for the pending BitLicense regulations in New York state has been made public. This Bitcoin regulation would seriously hinder the growth of the Bitcoin economy in New York—due to all of the KYC/AML requirements that would be imposed upon any Bitcoin business based in New York, or any Bitcoin enterprise at all that does business in the state of New York. All in the name of consumer protection and fraud prevention, of course.
See Coin Brief’s Sean Wince discuss the potential BitLicense legislation with Erik Voorhees:
All of these proposals for Bitcoin regulation and Bitcoin bans are clearly cropping up because governments, and banks, are becoming nervous about the growing Bitcoin adoption. Maybe the fear is growing because the governments are starting to understand the threat that Bitcoin poses to their monetary monopolies; however, those potentialities are far from being fully realized, if they will even come to fruition at all. In reality, the governments are likely scared simply because Bitcoin is new, they do not yet fully understand it, and its acceptance is growing every day. Although the direct challenge of government authority is still on the distant horizon, Bitcoin is already hinting at a possible paradigm shift in monetary technology. The governments are scared because any change threatens their power, and they are willing to do almost anything to maintain their dominance.
So, the European Commission’s venture into Bitcoin regulation is only the latest, and certainly not the last, development in a long line of government attempts to restrict the use of Bitcoin. We can only wait and see what comes next.