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Why we need (balanced) regulation
Presented by
William PIQUARD December, 13th 2014
Summary
Dec. 13 2014 Inside Bitcoins Seoul 2
What is the Bitcoin regulatory issue? 1
Why does Bitcoin need to be regulated? 2
How to define a favorable regulatory framework for Bitcoin? 3
1/ What is the Bitcoin
regulatory issue?
Dec. 13 2014 Inside Bitcoins Seoul 3
From the startup & user perspective: what is Bitcoin?
Dec. 13 2014 Inside Bitcoins Seoul 4
Open source
protocol
Distributed P2P
network
Math-based
currency
From the regulators‟ perspective: what (the f***) is Bitcoin
Dec. 13 2014 Inside Bitcoins Seoul 5
Fiat currency backed
by a central authority
Regular commodity
(tangible resource)
Fairly positive/neutral stance towards Bitcoin
Source: Gatecoin market data, 03/12/2014
Dec. 13 2014 Inside Bitcoins Seoul 6
Undefined
Contentious
Permissive
Hostile
Regulatory environment overview
The Bitcoin legal status raises crucial issues such as Taxation, AML-KYC measures, accounting standards,…
This can explain why regulators are taking their time before defining a legal framework
Dec. 13 2014 Inside Bitcoins Seoul 7
Bitcoin legal status around the world
Prohibited
product Commodity Currency
Specific
status Undefined
Still, some local authorities have taken nonsensical positions
Dec. 13 2014 Inside Bitcoins Seoul 8
Undefined
Commodity
Specific status
Prohibited
10/08/2014: fines for digital currency
users
09/17/2014: « Bitcoin is not a legal
tender of any country. Any transaction
through bitcoin or any other
cryptocurrency is a punishable offense »
07/29/2013: illegal because of… a lack
of existing laws (!!!)
Source: Gatecoin market data, 03/12/2014
Different objectives and vocabulary
Dec. 13 2014 Inside Bitcoins Seoul 9
Bitcoiners
Protect confidentiality
Facilitate value transfers
Release the „Money with
wings‟
Regulators
Fight against Money
Laundering
Monitor and tax transfers
Protect from frauds
So what‟s next?
No legal framework
No regulation
No cooperation with any authority
Dec. 13 2014 Inside Bitcoins Seoul 10
Ecosystem
Bitcoin becomes
informal (at best) Possible mainstream
adoption
Radical Moderate Cooperative legal
framework
~Balanced regulation
Why does Bitcoin need to be
regulated?
Dec. 13 2014 Inside Bitcoins Seoul 11
Cooperation with regulators is the only way for greater adoption
Dec. 13 2014 Inside Bitcoins Seoul 12
What they want:
Pay less
Secure their money
Easier processes
What they do not want:
Use their money for buying
illegal, “said-to-be illegal”,
“in-the-grey-area”
products/services
Cooperation with regulators is the only way for greater adoption
What they want:
Pay less
Secure their money
Easier processes
What they do not want:
Use their money for buying
illegal, “said-to-be illegal”,
“in-the-grey-area”
products/services
Dec. 13 2014 Inside Bitcoins Seoul 13
Mainstream people will never even think of using a solution that has not a clear
approval from legal authorities
The Bitcoin value transfer protocol must be mainstream
Bitcoin is a potential improvement factor for many
Bitcoin startup ecosystem is designed for the Bitcoin tech to go
mainstream
Dec. 13 2014 Inside Bitcoins Seoul 14
The merchant issue: unability to accept bitcoins (>1sec)
Dec. 13 2014 Inside Bitcoins Seoul 15
Volatility
Storing bitcoins = having
risky assets to declare in the
account statement Tax
Taxation uncertainty
around Bitcoin (taxed at
what value? How usual
taxes apply? E.g VAT in EU)
Billing
Bitcoin transactions lack
proper billing solutions
For the merchants to hold bitcoins and accept full-Bitcoin transactions,
accounting, billing, and tax issues must be cleared-up by regulators
The user issue: how to switch from fiat to digital without troubles?
Dec. 13 2014 Inside Bitcoins Seoul 16
Understanding
Bitcoin is disruptive, but
Bitcoin “comes from Mars”
No comparison points
(except ~ Internet)
Primary reaction = defiance
Securing funds
What about the value of
the funds if Bitcoin is proved
to be illegal?
Paying taxes
How do I declare BTC
transactions and
revenues?
For the users the holding and transaction process with bitcoins must be cleared-
up by regulators
What are the implications?
Dec. 13 2014 Inside Bitcoins Seoul 17
Efficient regulatory
framework
Compliant conversion interfaces
Only the bitcoin startups
using Bitcoin as a currency
needs to be regulated by
the Monetary Authorities
Conclusion
Bitcoin must adapt to the living standards (before
changing them)
Bitcoin must adapt to the business standards (before
changing them)
Dec. 13 2014 Inside Bitcoins Seoul 18
1
2
Need to learn from the past failures
Crashed due to fraud-
related activities and low
user-base
Dec. 13 2014 Inside Bitcoins Seoul 19
Although Bitcoin is very different, being in line with compliant standards
is a key requirement
How to define a favorable
regulatory framework for Bitcoin?
Dec. 13 2014 Inside Bitcoins Seoul 20
Are regulators ready?
Regulators usually deal with currencies backed by a central entity
Regulators are political institutions, usually not focused on complex IT solutions
Dec. 13 2014 Inside Bitcoins Seoul 21
“The challenge that virtual currency schemes might eventually pose for the conduct of monetary
policy, in the event that these schemes manage to substantially diminish the use of central bank
sponsored currencies” EUROPEAN CENTRAL BANK, October 2012
What are they?
Why do they mistrust Bitcoin?
Regulators only will never be able(/willing?) to define a clear and
efficient regulatory framework
Policy-makers
Regulators
Law-enforcers
Institutional lobbying
Creating Commissions, audience with authorities Ex: NYFDS audience in 2014
Creating lobby groups
Ex: Lobbyist in the US Senate
Bitcoin Associations
Dec. 13 2014 Inside Bitcoins Seoul 22
Bitcoiners must help regulators to understand Bitcoin potential
Examples of relevant initiatives:
Self-regulation – Certifications and norms - Labels
Protect the customer (user-side)
Gain credibility (institutions-side)
Dec. 13 2014 Inside Bitcoins Seoul 23
Dual - objective
Nothing official made in this field, informal certification (Reddit, Bitcointalk,…)
Situation so far
Dozens of local bitcoin associations
More than 120 companies and thousands of individuals are members of the Bitcoin Foundation
No certification system, just informal labeling (Reddit, Bitcointalk, forums…)
Pending regulation (NYFDS Bitlicense) at best
Dec. 13 2014 Inside Bitcoins Seoul 24
Focus on the BitLicense
Dec. 13 2014 Inside Bitcoins Seoul 25
Communication with the main US Bitcoin actors:
E.g audience (released online), 1st draft and open letters, participation in
meetings,…
Step-by-step approach
Willingness to preserve the fragile Bitcoin ecosystem
BitLicense can be the model of a smart regulation…
…If the scope is more clearly defined
One last word
Dec. 13 2014 Inside Bitcoins Seoul 26
« The greatest deception men
suffer is from their own opinions. »
Leonardo Da Vinci.
Dec. 13 2014 Inside Bitcoins Seoul 27
@Gatecoin Gatecoin
Limited
Gatecoin Gatecoin
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