Bitcoin position paper
The goal is to clarify some basics about Bitcoin and to make constructive suggestions for a sensible long-term inclusion of Bitcoin in the existing regulatory and legal framework. We are currently at a crucial point in time where the position of governments and agencies towards Bitcoin is being shaped. We therefore aim to get this position paper in shape so that it can be presented to EU officials. We hope to get support from the Bitcoin community in order to have a broader and more representative view. The first proper version of this text should be made into a nice-looking pdf, with some formatting. This pdf should then be sent to interested political parties throughout the EU. Maybe it makes sense to have a list of "underwriters" for this document.
What is Bitcoin?
Bitcoin exists since 2009. It was conceived and implemented by an anonymous programmer who released it as free software, open and transparent for anybody to review. The technology behind Bitcoin was unavailable ten years ago and can be considered revolutionary, since it achieves the previously thought impossible goal of having a practically usable, cryptographically secure, digital currency, without having any trusted central instance. It acts simultaneously as a transaction network a currency. Soon, the project gathered support from people interested in technology from all over the world, and it is being improved every day by a large number of volunteers.
The State of Bitcoin
Compared to other projects of this scope Bitcoin is very much in its infancy. Some have compared it to the email system in the 80s. Only a very small minority of Internet users have even heard the term. Email competed with the traditional mail system like Bitcoin competes with the banking system. Its total market cap is growing slowly, currently at about 100M €. Using this system is currently not trivial but many enthusiastic individuals and companies are working on making it easier for everyone.
Bitcoins relationship to traditional currencies and gold
Bitcoin is the world's first completely decentralized and forgery-proof digital currency. In contrast to most other currencies, Bitcoin is neither minted, nor controlled by any single government, company or individual. It does not represent a claim against an issuer, but represents a unit of account and derives its value from its scarcity and its acceptance by voluntarily participating parties. In many aspects it is comparable to digital gold, except its production is very green and it is divisible to 10ˆ8 decimal places. Unlike traditional currencies and transaction systems this enables very cheap micro-transactions. Because of its nature some people have called Bitcoin a digital commodity.
The current monetary system builds strongly on the central banks' exclusive power to control the money supply, based on national economic or political considerations. Bitcoin on the other hand is being created automatically throughout the worldwide user base, according to a predictable and immutable mathematical algorithm. In addition to that, the total amount of Bitcoins that will ever exist is strictly limited, which makes external influence on the money supply impossible. Unlike most other forms of electronic payments, transactions with Bitcoin are final and mathematically guaranteed impossible to reverse. There are also no prerequisites to provide any kind of credentials in order to be able to use Bitcoin and there is no central authority or clearing house.
New technology, new opportunities, new frameworks
Bitcoin is only at the very beginning of its use in the general public - comparable to the Internet in the early 1990s and to email in the 80s. As with any completely new technology that possibly has a very wide area of application, Bitcoin also challenges the established ways of thinking in politics, economics and society. New legal frameworks are certainly necessary in order to capture the concept of a decentralized, non-governmental currency like Bitcoin and to incorporate it in the existing world of monetary regulations and laws about financial transactions. However, it is very important to exercise caution and foresight when drafting rules for such a novel technology, in order to balance the objective to inhibit tax evasion and money laundering and to facilitate the potenitial of innovative, secure and more efficient ways to interact financially.
In modern economy, transnational financial transactions are an absolute necessity. Despite the advanced technology that allows us to transmit huge amounts of data in a fraction of a second between all parts of the world to exchange and without significant costs, financial transactions are still burdened with high fees, huge delays and all sorts of regulatory obstacles. Many parts of the world are also completely excluded from the global market because of limited and expensive local payments infrastructures. Despite all kinds of new electronic payment providers trying to fill that niche, it is important to note that these only enable to exchange claims against a company instead of real money. With Bitcoin it becomes finally possible to exchange money itself online in a fast, secure and very efficient way.
Large parts of the world do not have access to the global payments infrastructure. A secure and efficient payment system enables especially these people to take part in as more equal partners in money transfers, even if they don't have access to a bank account. They also benefit from the much lower fees compared to traditional banking.
Electronic payments have become an important economic factor. Companies have tried to innovate on implementing new forms of paying on the Internet and there has been a general trend away from physical cash. Europe must make sure that it does not fall behind USA, China and even Africa. Innovation needs an environment where it can evolve and the legal basic conditions play an important role. Bitcoin as a means of decentralized online payments is an idea that is here to stay. It is important to have consistent policies and freedoms to make sure everyone in Europe will benefit from it equally. Too restrictive regulation will only lead to innovation happening elsewhere and new businesses being built outside Europe. Thus this could lead to an unfortunate situation where Europe will have to catch up in its development of local businesses.
There have been claims that Bitcoin enables obfuscation of illegal transactions. These claims are refuted by Dank Kaminsky who proves that the anonymity of Bitcoin is an often-cited myth, and since all transactions are public it should be trivial for law enforcment to trace and analyze transactions and to identify individuals involved.
For the existing banking infrastructure Bitcoin poses a challenge to adopt to new technology. The enhanced capabilities of this network will put the traditional service level under scrutiny. Innovative Banks will know how to leverage those new possibilities to integrate Bitcoins into their product portfolio.
Regulation of Bitcoin
The free exchange of speech and ideas across borders has become an integral part of the modern information society. Attempts to limit free communication between people or to censor usually leads to protests of the population. In western democracies those limits are seen as disproportionate measures of dictatorial regimes. Censorship of the Bitcoin network and attempt to control transactions is not only nearly impossible, it would also be a far-reaching interference with the way the Internet works.
Due to the decentralized structure of the Bitcoin network, this would go beyond the censorship of social networking sites like Facebook and would lead to a crowding-out into less accessible areas of the Internet. An attempt to exercise control at this level is the completely wrong way and should clearly be rejected. Instead the existing structure of voluntary declaration of income and sales should be adapted to the needs of Bitcoin. The transparent properties of Bitcoin transactions can also lead to an increased efficiency in an adapted taxation system.
Call for action
We identify the following issues as positive to the development innovative services:
- Clarification of Bitcoin as a currency, because it currently fits neither e-money nor foreign currency definitions. This also means that the trade of Bitcoins is not subject to VAT, but rather their usage in other transactions.
- Non-discrimination of Bitcoin businesses and startups when trying to interact with traditional banking systems
- Adoption of national guidelines on how to correctly use Bitcoin as a vendor, both online and offline
- Generous discretionary margins w.r.t regulation in many areas for new Bitcoin businesses
- Clear definition of Bitcoin as a valuable good, so that fraud and theft can be prosecuted like with any other good or currency
(It would be nice if we can expand this section into proper legalese that can be copy-pasted into a legal bill)
Ideas to be incorporated into the text
- Bitcoin will put pressure of competition as a transaction network on existing banks. If Bitcoin is allowed to thrive, this will force banks to enable transactions faster than 1 hour across Europe.
- It is an open-source alternative to the opaque global banking system. Instead of complicated PCI compliance you just need Bitcoin best practices - and you never need to store your customers payment data.
- no more over-leverage because it is debt-free. there is no systemic risk from bitcoin companies
- therefore more stability
NERDY MONEY: BITCOIN, THE PRIVATE DIGITAL CURRENCY, AND THE CASE AGAINST ITS REGULATION