Bitcoin Forum

"The European Banking Authority (EBA) has weighed in on the use of virtual currency, and recommends that Bitcoin be avoided until regulatory systems are put into place.

A document prepared by the EBA for address to the European Commission and European Parliament sets out the regulatory body's opinion (.PDF) on virtual currency — such as Bitcoin, Litecoin and Peercoin — and warns financial institutions to keep their distance until the industry is regulated." -- Full story: http://www.zdnet.com/eba-investors-should-avoid-bitcoin-identifies-70-risks-7000031287/

From the original EBA report:

"A governance authority may, at first, appear incompatible with the conceptual origins of VCs as a decentralised scheme that does not require the involvement of a central bank or government. However, the mandatory creation of a scheme governance body does not imply that VC units have to be centrally issued. This function can remain decentralised and be run through, for example, a protocol and a transaction ledger." -- EBA Opinion on ‘virtual currencies’ pp. 40 -- http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

I agree with the EBA that an officially regulated virtual currency would be useful.

There is obviously pros & cons of every system. But, what do u expect from a banking authority ? They'll always find the cons.

They actually did list a few pros. Not as many as the cons though  ;D:

"a
VC schemes can be created (and their functioning subsequently changed) by anyone, anonymously: Anyone can anonymously create a VC and can subsequently make changes to the VC protocol or other core components if the required majority of (anonymous) miners agree.
A02, A06, A08, A21, A25, B31, C05, C15,
b
Payer and payee are anonymous: Transmitters and recipients of VCs interact on a person-to-person basis but remain anonymous.
A01, A03, A05, A06, A21, B01, B02, B03, B05, C01, C02, C03, C04, C05, C11, C12, C13, C14, C15, C17, C18, D01, D02, D03, E22,
c
Global reach: the internet-based nature of VC schemes does not respect national and, therefore, jurisdictional boundaries
C01, C02, C03, C04, C05, C11, C13, C17,
d
Lack of probity: exchange is neither audited nor subject to governance and probity standards, and is subject to misappropriation, fraud and seizure
A01, B23, C04,
e
Not a legal person: market participants are not incorporated as entities that could be subjected to standards
A01, A02, C12, C17,
f
Opaque price formation: price formation on exchanges is not transparent and is not subject to reliable standards, and exchange rates differ significantly between exchanges, which facilitates manipulation of exchanges
A03, A41, A43, A44, A45, A46, B23, D02, D03
g
No refunds or payment guarantee: VC transactions are not reversible, so no refunds are issued for erroneous transactions
A05, A06, A08, A 21, A22, A24, A27, A28, A29, A 43, B04
h
Unclear regulation: the regulatory treatment is unclear and creates uncertainty for market participants
A04,A10, B01, D01, E02,11, E22
I
Lack of definitions and standards: the features of a product can be misrepresented because of a lack of definitions and standards
A06, A42,
j
Inadequate IT safety: the IT systems, infrastructure, transaction ledger, VC protocol and encryption are either insecure, subject to fraud and manipulation, and, in the case of the protocol, can be changed through a majority of minders
A07, A08, A11, A21, A22, A41, A42, B11, B12, B21, B31, C16, D01,
k
Information is neither objective nor equally distributed: limited availability of comprehensible, independent and objective information on VC activities. As a result, some market participants benefit from information inequality, e.g. on events that influence price formation
A09, A41, A42,B05, B06, D03
l
Insufficient funds or VC units: market participants have insufficient funds to meet financial obligations or to compensate creditors in the case of bankruptcy
A21, A28, A29, A30, B04, B12, D01, D02,
m
No separation of accounts: VC units temporarily held at an exchange are often not segregated from the exchange, i.e. held in client accounts
A27, A30,
n
No complaint process: no effective channel for users to complain
A06, A22, A42, B24, B33,
o
Lack of access to redress: no access to redress, compensation or protection schemes
A22, A28, A30, A42, A44,
p
Lack of corporate capacity and governance: lack of skills, expertise, systems , controls, organisational structure and governance exercised by market participants
A45, B04, B11, B12, B32, B33, E21
q
No reporting: lack of reporting requirements to any authority, e.g. of suspicious transactions
C01, C02, C03, C04, C11, C13, C14, C16
r
Interconnectedness to FC: VC units and FC funds can be exchanged easily, therefore creating spill-over effects or risks from VC to FC systems
D02, D03, D04, B05,
s
Not legal tender: merchants are not legally required to accept a particular (or any) VC and can switch between different VC schemes
A23
t
No stabilising authority: no authority that could provide exchange rate stability and/or act as the redeemer of last resort
A44, B22," -- pp. 38: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

these all are things that post offices would have said about the internet in an equivalent way too back then  ;D

Hahaha too true! Such truth would be refreshing ey. Imagine they compare the risks or banks/fiat to btc/decentralised trade :D

Now that would be nice ;)

+1

How are the 100% perfect regulation and transparency of money supply and transaction rules in bitcoin, as implemented since 2009, not official?

There has never been a currency as regulated as bitcoin. What exactly are you implying would be useful?   

I meant regulated by an official legal authority. I would feel safer if I knew that the cryptocurrency was backed by a governance authority as EBA calls it.

From the EBA report:

"The entity would be called the ‘scheme governance authority’, which is a non-governmental entity that establishes and governs the rules for the use of a particular VC scheme.24 It is a legal person, and is responsible for maintaining the integrity of the central transaction ledger, the protocol, and any other core functional component of the scheme. The scheme governance authority would be required to comply with regulatory and supervisory requirements of various kinds to mitigate identified risks." -- pp. 39: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

What aspect could a legal authority improve on?  Currently we know exactly when and how many newly issued coins there are, exactly what the money supply is, and the rules are strictly enforced by all parties in records auditable publicly forever.  How would this "official authority" you suggest improve on this strictest regulation scheme ever devised by man which is already in place? 

A cryptocurrency backed by a legal authority would be protected against governments messing with the currency. It's true that California has accepted Bitcoin, but for how long? What if some politicians in the future decide to make Bitcoin illegal?

They are really starting to get nervous  ;D

blah blah bah

european announce incoming

"investor warning: trading in bitcoins is risky, investors can lose aswell as gain"

.. and now to get on with my life..

Well, after seeing the debacle of the banks in Europe and their role in the massive crisis, we gotta thank them for releasing that note. Noone in their right mind, would follow their advises.

Thanks for your reply.  
Well I don't think there is anything we can really do about that.  After all, you are welcome to declare illegal in your jurisdiction anything you like no matter what authority I claim to have.  However with bitcoin there is nothing really to declare illegal because we are dealing with an informatics primitive.  Every number is a private key.  Trying to prevent people from using this kind of communication is really like trying to prevent people from using any communication or using symbols to convey meaning.  Of course I shouldn't underestimate the insanity of those who feel they have the right to make laws...  if you have a way we could avoid that kind of problem I'd sure like to hear it :)  
  

who gives a F%$* what the EBA says. They have no weight on the legality of bitcoin.

every industry is nervous in this age with the way technology is changing the landscape

"here today gone tomorrow" is becoming a very prophetic statement

might be about time to start a thread showing showing how certain industries have been

affected by technological change

hhahhahha yeah you right. we gonna trust the guys who invented "bank bail-ins" . their statement sounds like some kind of a scheme to me.

Ah, screw the EBA and the EU.

The backstory here is that the EU is in serious trouble financially.  Especially the PIIGS countries, thus they are trying to find a legitimate way to sell VC regulation to the public and keep the economic hostages in place.

-bm

The EBA may not have any legal authority to make laws but they can propose recommendations, such as:

"Until a comprehensive regulatory regime is developed, (if it is developed at all), only those risks can be mitigated that arise in the interaction between VC schemes and the regulated financial services sector (but not those that arise from activities within or between VC schemes). This would include risks of money laundering and financial crime, the risks to conventional payment systems, and some risks to individual users. To that end, the EBA recommends that national supervisory authorities discourage credit institutions, payment institutions, and e-money institutions from buying, holding or selling VCs, thereby ‘shielding’ regulated financial services from VCs." -- pp. 44: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

Nailed it.

Related:
http://bitcoinsberlin.com/bitcoin-doesnt-properties-money-changes/

http://www.pfhub.com/ireland-central-bank-official-warns-virtual-currencies-can-challenge-sovereignty-of-states-909/

http://www.zerohedge.com/news/2014-07-06/european-banks-are-trouble

http://www.theguardian.com/technology/2014/jun/17/bitcoin-privatise-pound-free-market-thinktank

European banksters: "Trust our system, it may not be decentralized but it's backed by loads of men with guns!"

The problem with that logic is that any violence-backed system is inherently unstable.

I don't think EU citizens have much to look forward to as far as monetary freedom goes.  Mostly the activity will be in the US and ex-Soviet regions.  Some spots in South America(eg. Uruguay) might have some interesting developments.  Also Israel is bound to be a major center of activity.

In the US the states to watch are CA, NV, NH, AZ, TX, ND (maybe GA and SC).

There has been some relevant legislation- all it needs is some public support and we can move it through congress.  EU is a lost cause(in more ways than one)

https://beta.congress.gov/bill/113th-congress/house-bill/77

-bm

The concern from EBA is not without baseless claim.

ya most of these opinions are fairly predictable if you follow the discussions.  The UK is caught between a rock and hard place, because if they install truly free markets they have to do deal with their much larger and powerful little brother- the United States of America, who have the tendency to make any industry they develop look like crap.  Ireland of course chimes in with the typical wackadoo ranting they're well known for.  Berlin is a fairly interesting contribution as always and no doubt you'll see interesting things come out of there- it's the only Western economy that has extensive relations with the ex-Soviet regions.

I tend to think the future is going to fracture Europe along north and south lines which will cause enormous stress to places like Belgium and Ireland.  It's generally not looking good for Europe or the parts of the US that depend on European markets( ie NYC ).  What most Euros dont realize is the US is a vast country with a huge productive interior that they know virtually nothing about.

France, Spain, Italy are going to have huge problems.

-bm

if they regulate bitcoin, it will become the opposite of what Satoshi envisioned
if they don't, it will always be seen as some crazy investment and not taken serious enough by most people

To join the mainstream, it will need to be regulated at some point.

It is a refreshing upgrade from China "speaking" and having the market actually pay attention.  :)

So it becomes pointless as it becomes just another tool controled by the powers that be. This is not what satoshi wanted.

No but it IS what all those who advocate for Bitcoin "regulation" wanted.

Assholes, anyway.

Notice that the EBA wants Bitcoin and other cryptocurrencies to remain unregulated:

"Other things being equal, this immediate response will allow VC schemes to innovate and develop outside of the financial services sector, including the development of solutions that would satisfy regulatory demands of the kind specified above. The immediate response would also still allow financial institutions to maintain, for example, a current account relationship with businesses active in the field of VCs." -- pp. 44: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

The cryptocurrency regulated by an governing authority would then be a new kind of virtual currency, separate from Bitcoin and other unregulated currencies I guess.  ???

in other words, looks like Bitcoin, smells like Bitcoin- but isn't Bitcoin.  They want to make a Bitcoin impostor to placate the masses so they believe they have the same monetary freedom as Americans.

-bm

Competing cryptocurrencies are good for the market. The problem is that the virtual currency regulated by a governing authority would have the unfair advantage of being accepted by ordinary banks and other financial services, while Bitcoin and other unregulated cryptocurrencies would be shunned by the mainstream financial markets in the EU.

What's so bad about it? BTC is not going anywhere (in large scale) untill there is legal background. USA, EU or anywhere else in the world. Yes, BTC does not need regulation as it has no boundaries, but legal infrastructure can greatly help and speed up adoption, and that's what we really want, isnt it? BTC lovers want it, BTC investors want it, there is practicly not anyone who doesnt want it....

To be fair, here are the benefits of virtual currencies (VCs), such as Bitcoin, listed by the EBA:

"Economic benefits

-Transaction costs
-Transaction processing time
-Certainty of payments received
-Contributing to economic growth
-Financial inclusion outside the EU

Individual benefits

-Security of personal data
-Limited interference by public authorities" -- http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

The beauty (and true power) of any decentralized pseudonymous cryptocurrecy is that unlike banked fiat, but like cash and digital information, obedience to any regulation is strictly optional. These regulations are fundamentally unenforceable.

In other words:

http://i.lvme.me/xmeh35.jpg

Bitcoin has shaken up the thousand years old banking sector. That's pretty impressive. The EBA report makes it clear that the top banking authorities take cryptocurrencies very seriously. They even seem to want to implement their own virtual currency with strict regulations and personal ID requirements etc. Is it because the current EU currency, the euro, sucks?

If they will try to launch a mainstream cryptocurrency I hope they will make it peer-to-peer and that the tough regulations will be for banks and exchange services etc, not for us ordinary people who should be able to make transactions directly person to person (physical or legal), and with ZERO transaction fees. And with super fast transactions, say a fraction of a second for micro payments and payments in shops etc.

Is it possible to have transaction speeds below a second and still have it secure? ??? Bitcoin has a transaction speed of about 10 minutes per transaction.

if it's centralized, sure.

Also Ripple has instant transaction verification, and it's decentralized (in theory), as it's practically a web of trust. Banks could implement Ripple, or just rip (ahem) it off.

Only the standard for the protocol etc will be centralized; the actual operation of the virtual currency will be decentralized it seems:

"A governance authority may, at first, appear incompatible with the conceptual origins of VCs as a decentralised scheme that does not require the involvement of a central bank or government. However, the mandatory creation of a scheme governance body does not imply that VC units have to be centrally issued. This function can remain decentralised and be run through, for example, a protocol and a transaction ledger." -- pp. 40: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

I wonder if the currency can remain decentralized and have super fast transaction times of under a second. Maybe it's possible! The miners don't have to function exactly as in Bitcoin. Some proof of work algorithm would probably still be needed though for security reasons.

well whateves, their effort will be in vain, trying to replace something open with something proprietary, it will be like Email vs De-Mail (https://en.wikipedia.org/wiki/De-Mail)  :)

It seems that the EBA is aiming at something that is like Bitcoin for transactions between personal wallets:

"With transfers and exchanges of VC units (other than person-to-person transactions between wallets), information on the payer and the payee has to be exchanged with the relevant scheme governance authority." -- pp. 40: http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

So surprisingly consumer-to-consumer transactions will go peer-to-peer without any authority or middleman interfering.

When it's cheap, or even profitable for you, it is easy to hail the government. When your fortune is at stake, you find your ways.

I'm almost certain there will be central authorities where you will have to register your full identity (AML/KYC and all).

So it will be more bureaucratic and cumbersome to use, and thus also more expensive (albeit that part will be probably subsidized).

Still, as said, who uses any of those gov-mail things over email?

Hmm... I guess you are correct about that they will require registering personal information:

"The risk driver b), which concerns the anonymity of payers and payees could be addressed, at least within the EU, by requiring exchanges, and any other non-user market participants that interact with FC, to comply with CDD requirements. CDD requirements include the collection and verification of basic identity information; matching names against lists of known parties (such as ‘politically exposed persons’); determining the customer's risk in terms of likeliness to commit money laundering, terrorist finance or identity theft; and monitoring a customer's transactions against their expected behaviour and recorded profile, as well as that of the customer's peers."

What the heck is 'politically exposed persons'? ??? Sounds Orwellian.


The (unfair) advantage they will have is that mainstream financial services in the EU will use their virtual currency and perhaps refuse to accept Bitcoin.

exactly. and "politically exposed persons" would be snowden or wikileaks of course.

One stunt the EU could do is to have eurocoins created by exchanging them with euros. Say for example 1 eurocoin = 1 EUR. And when new eurocoins are created the euros are destroyed. This means that the money supply in the EU will remain the same and that the euro is gradually replaced by the new cryptocurrency Eurocoin (or whatever name will be used).

And miners would not earn any eurocoins. Instead it will be up to the governments in the EU member states to set up Eurocoin miners as a public service.

They could, and it would be a continous change (much like moving from paper euros to plastic euros).
You would get anonymity and direct remote transactions. But I have not much hope, because they would probably take out the anonymity aspect.

Yes, the EBA report (http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf) mentions CDD requirements.

"The concept of CDD begins with verifying the customer’s identity and assessing the risks associated with that customer." -- https://www.ffiec.gov/bsa_aml_infobase/pages_manual/OLM_013.htm

I think that could be good. And Bitcoin, Anoncoin etc will become stronger, since they have anonymity.

In another thread I wondered if the use of unique user IDs would allow the coins to be stored only on the block chain. Then that would remove need for the cumbersome protection and storage of coins in private wallets etc.

This is like Walmart, blockbuster, Best Buy and Barnes and Noble announcing buying online is very very dangerous and not recommended 10 years ago. Sure, I'll believe you, now go read the rest of your fairy tale ;)

The Eurocoin could become interesting, IF they can keep it free enough from Orwellian control.  >:( And Bitcoin and other cryptocurrencies will be useful as an alternative and to ensure that the bureaucrats are kept in line.

Even more interesting to me is the possibility of a FREE cryptocurrency. Plug for my thread about that: https://bitcointalk.org/index.php?topic=683740.0

OF COURSE, they say BS like that. A currency beyond bank's control is their worst enemy. They will not succeed in "writing it down". To me, statements like this only show their fear of losing control over currencies.

Bitcoin will force the banking cabal to respond. Indeed, the EBA report is a proof of that. Sure, the fiat currencies are still massively more important than cryptocurrencies, yet the fiat fractional reserve scam currencies are perhaps like dinosaurs. Ha ha.

70 risks my ass, they are investors, they know the risks they are taking and know damn well how to cope with them.

Anyway, EBA is BS and they spread such things for they're own wellbeing.

I learned that the bitcoins are actually stored on the block chain and are therefore secure. It's the private Bitcoin addresses that people need to store and protect locally and personally. With eurocoins there would be no need for that! If the eurocoins are stored together with real user IDs then the coins are safely stored on the block chain without the need for local storage of private addresses or anything like that.

Also, if the user ID sign-in is like banking style safe, then that's a huge advantage over the risky Bitcoin wallets.

EDIT: Correction: I read again: "With transfers and exchanges of VC units (other than person-to-person transactions between wallets), information on the payer and the payee has to be exchanged with the relevant scheme governance authority."

So it seems that the eurocoin block chain actually will be anonymous, since information about person-to-person transactions need not be exchanged with the governance authority.

But as already been pointed out, that remains to be seen if that actually will be the case.

Anyone with a marginal level of investment experience can spot a Ponzi scheme a mile away.

You mean Eurocoin will be a Ponzi scheme? I wonder what the U.S., China and other countries will do if Eurocoin becomes real.

One plan may be that they will gradually convert euros into a eurocoin cryptocurrency. And then a globalcoin is launched and the whole world will convert their currencies into that.

Or the U.S. will in a response to Eurocoin adopt Bitcoin as an official currency. That could be an interesting fight. :D

this is great, BTC does not care about any banks regulation because it operates without them and without large parts of state machinery.

how ever the obverse is not true, or increasingly less true. Banks will cease to exist for the most part without BTC/ BTC TECH.

It's not true

"The EBA recommends European banks and financial institutions to have Bitcoin exchanges to follow financial requirements like KYC and AML to have Bitcoin innovation succeed outside of the current financial sector. This is perfect. Many exchanges already have sound information on their customers and are happy to inform regulators about big transactions or other suspicious actions of their customers (for example to prevent terrorism). This makes Bitcoin just a little more acceptable for mainstream businesses and people."
http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf

yup, exactly, and hopefully;

it's like Murdoch looking at the internet and trying to come up with his own version of an "internet" under his control. (although the centralization of information in "our" internet with dominant players like google of facebook is concerning of course).