Crack Euro banker team to probe whether virtual currencies should be regulated The European Banking Authority (EBA) will create a taskforce to advise it on whether virtual currencies should be regulated. The watchdog said that the taskforce will be created before July and have the objective of answering the question of whether virtual currencies "can and ought to be regulated". The taskforce will …
Well there's two answers to that.
1. Taxes are necessary. If you want government healthcare, education, pensions, unemployment and sickness benefits etc., you gotta have taxes.
2. Bitcoin needs some regulation if it's going to be any use. You can't have a free market without some regulation. Without enforcable contracts, you can't do business. And without some institutions that you can trust, Bitcoin will remain a ridiculous vehicle for speculation and criminality. I'm well aware that some people use it legitimate purposes too. But anyone who uses it on anything other than a tiny scale at present is a fool. Unless they've got loads of spare cash, that they can afford to loose, and want to have something massively speculative in their investment portfolio. With the possibility of 100% gains in one month, comes the equal possibility of 100% losses.
This one: " Without enforcable contracts, you can't do business." is a strange one to include under "regulation is needed because of this". Contract law doesn't specify currency or methods of exchange, if I agree to sell you a phone for a sack of potatoes that contract should still be enforceable. Bitcoin will automatically fall under this.
What needs to be 'regulated' (but I think 'audited' is a better word for this) is that payment is effectively made, and that if payment is not made for goods/services delivered (or payment is made for goods/services not delivered), that the defaultee can be identified.
Government healthcare - like Mid Staffs, Fleetwood, Lunedale, Morecambe, lots of deaths, no one responsible, worst cancer outcomes in Europe? You know, the ones no-one is responsible for (to repeat myself, a bit like the repeated state failures)?
Government education - you mean like being overtaken by Vietnam, now we are 23rd in the world and going downhill rapidly?
Pensions? I suppose you must mean pensions for public sector workers, because the private sector pension industry was destroyed to pay for it.
Unemployment and sickness benefits - it is hard to imagine a competitive private sector industry could not do it much better, much cheaper and much, much more effectively.
The government should be responsible for national defence, the provision of a legal system and local government can look after births, bogs, burials and keeping the peace locally. Not 60-80% of the GDP.
Taxes are money taken from people who have earned it by their labour by means of force and threat. They are increasingly used to bribe a class kept in ignorance by lousy education and who think that they can only survive by receiving hand outs.
Still I fully expect that those wise people who brought you the euro, the appalling, useless but extremely heavyweight regulation of financial markets and big successes like Afghanistan, Iraq and now the Crimea will come up with some way of doing exactly the wrong thing. As usual, with as much expenditure as possible.
Anonymous Coward,
That's all great. But totally beside the point. It would be great if government did less, taxes were lower and the economy worked better. Though only an idiot would pretend that there wouldn't be losers as well as winners in that scenario.
But we live in a democracy. And that's not what the voters currently want. So in the meanwhile, you don't get to opt out of taxes, just becasue you don't like what the government does with them. Tough shit. If you can't persuade people to vote to change the system your way, then deal with it, or vote with your feet and leave.
Oddly the rest of Northern Europe are pretty much all more socialist than us, and yet have better healthcare because it's semi-privatised. Though heavily government regulated and controlled. But if government gets out of healthcare totally, then there'll be no healthcare for anyone who's poor. Which would be immoral as well as having massively bad effects on the economy. Unless you want people starving on the streets, government can't get totally out of welfare either.
You need to address the real world as it is. Not some libertarian's dream. A mixed economy is what works best. It's just a question of arguing about how much government should do, what it shuld regulate, and where it should leave well alone.
However the private sector hasn't been covering itself in glory recenlty either. There's a notable lack of accountability and consequences there too. Which makes it pretty hard for an economic conservative like me to argue for moving to something more like the Belgian/Dutch model for the NHS - which means a mix of public and private hospitals, along with a mix of public and private health insurance.
By the way, do some research. Government spending isn't 80% of GDP anywhere (except maybe North Korea). It hit more than 50% of GDP in the UK after the crash, and part of that was due to borrowing/QE of £170-odd billion. But for the last 30 years it's been hovering around the lower end of 40-45% of GDP.
"And without some institutions that you can trust, Bitcoin will remain a ridiculous vehicle for speculation and criminality. "
Well of course. And as the article notes, "the risk of money-laundering activity through the trading of virtual currencies may arise because "the anonymous nature of virtual currencies is conducive to this type of activity".
So presumably they'll be proposing to regulate cash transactions, which have for many centuries been the vehicle of choice for crims transferring wealth? Laughably the Europeans printed €500 notes specifically to serve the criminal market, so it would seem that their own rationale for investigating bitcoin regulation is rather flawed.
> risk of money-laundering activity through the trading of virtual currencies may arise
So what we really need is a (covertly) government backed virtual currency that is somehow made attractive to crims. Have them deposit all their ill-gotten gains in the virtual currency and then do a "MtGox" (how long until to gox becomes a word?) on it.
The result is that you've grabbed their loot and, assuming they are dim enough, you could set up a relief fund that they can apply to, for refunds. When they do - you can grab them, too.
Double-Double under hand Double Deal - or the crims set up and operate cyber currencies betwixt themselves (aren't they doing that already - not really sure?) and appear to pay into the gubermint backed digi-dollar system, but are in fact only leaving empty deposits that just look like they contain said ill gotten gained cyber-cents. Meanwhile laundering funds into the real world and providing a boost to economies.
Oh Feckit! - there's enough criminality already wrapped up in the guise of 'legitimate' financial goings on to suggest we just go back to bartering our skills, products and services. None of it is worth the cloth/paper it's printed on any way. Just look at the crap we are prepared to spend it on! and then, when we are done with it, we throw it away in holes in the ground!
And how exactly do you buy your Bitcoins? Via banks perhaps? i.e. with real money.
Admittedly I do seem to recall there was a Finnish programmer who was getting paid in Bitcoins a few months back. I wonder if he still is? He'll have made a nice litle profit on his December salary. Shame about the 20% salary cut in one day in February though... And that's not the worst massive drop in the market that's happened in even the last 6 months.
The Bitcoin exchanges aren't banks. So they shouldn't be regulated like them. But they should probably be regulated like brokers. So if they're holding money (or Bitcoins) on behalf of their clients, they should be protected in a special account - that's separated from the trading funds, and the rest of the company. So they don't disappear if the company goes titsup.
Governments may be annoying, and tax people. But taxes pay for nice things, like healthcare too. And money laundering rules may also be annoying, but then money launderers are sometimes murdering bastards. And while it would be better if drugs were legal, they currently aren't. While that holds true, the people who trade in them tend to kill people.
"Via banks perhaps? i.e. with real money."
Ah, the old questionof what is "real" money! Actually since the US$ was taken off the gold standard (1971?), "money" is actually an IOU from the government. The "solidity" or "realness" of a currency is down to how much you trust the issuing government not to go broke. However what's really important is that enough people collectively believe that the currency has value, then they will be willing to use that currency to trade, making the currency widely accepted.
Since governments don't "have" any money, they can keep their promise by doing one of 2 things - raise money through taxes, or print some more. Since governments are mostly spending more than they collect in taxes, they make up the difference by reducing the value of everyone else's money (by printing money or digital equivalent which causes inflation).
So yes, the US$, GB£, € etc can be said to be "real" money in that they are widely accepted and backed, but they also lose real value over time. There is nothing stopping Bitcoin from being widely accepted as a means of exchange except trust, and bacause the 'issuing rate' is strictly controlled, inflation will not eat away at it's value.
"The Bitcoin exchanges aren't banks. So they shouldn't be regulated like them. But they should probably be regulated like brokers."
Correct... although as I gather, many people are using exchanges as a safe store for their BC, so de facto acting as banks. What is interesting is, if a BC exchange is regulated like a bank, BC should fall under deposit insurance mechanisms... but because BC does not have an issuing 'central bank' this is not possible. Basically it works more like cash in a deposit box... if it gets broken into, you're screwed, if the depositary burns down, you're screwed.
Since governments don't "have" any money, they can keep their promise by doing one of 2 things - raise money through taxes, or print some more.
You missed one. Borrowing. Which is what most of them have been doing. Printing is unusual. Also QE isn't quite printing. At least not yet. I'm sure the Central banks will quietly delete the government debt they've paid for with printed QE cash, in a few years time. But they'll probably unwind some of the QE first, for form's sake if nothing else. Also it will be another way of mopping up excess liquidity in the markets without raising interest rates.
Anyway, except the crisis, no major world economy has been printing. Apart from a few half-hearted bursts of mini-QE from the Japanese Central Bank during their 20 years of stagnation/deflation. If governments had been printing for such a long time, rather than borrowing, we'd have had hyper-inflation. The reason I used the phrase 'real money' - is that I don't think Bitcoin qualifies, or should be taken seriously yet.
As for the Bitcoin fans who keep banging on about inflation, Bitcoin has built-in deflation, which is worse. That certainly means it can never be a fully-fledged currency, as it makes proper banking pretty much impossible.
The other big problem I see for Bitcoin is that it's international by design. Which is great for making international payments. But then what law regulates Bitcoin? And who regulates its institutions - i.e. the exchanges and design. What happens if some miners get onto the Bitcoin foundation board, and vote through changes that allow them to mint more Bitcoins? Who's to stop them?
When it comes to it, QE is nothing more than marketing speak for "create more money out of thin air". It's dressed up in various ways but this is all it is, there are no tangible assets behind it which just leaves promises to honour it.
As for the Bitcoin fans who keep banging on about inflation, Bitcoin has built-in deflation, which is worse. That certainly means it can never be a fully-fledged currency, as it makes proper banking pretty much impossible.
Bitcoins have no more "deflation", or perhaps more accurately "de-valuation" than any other currency and it probably has less and is also more open about it. In order to maintain the financial illusion that an economy is growing new money must be continually created - it used to be gold mines providing the scarce raw materials for the coinage but we no longer operate on a gold based economy. Think about it... if new money was not continually created then after a while the money would start to pool in the possession of the "rich" and there would be a scarcity of it at the "poor" end which doesn't really benefit anyone in the end as those with little money still need money to continue their "low value" transactions between each other. Taxation is one mechanism to force money back into circulation through the taxing organisation taking the money and redistributing it by spending it - which, incidentally, is where the theory of central government spending its way out of a recession comes into play as it stimulates the economy through the distribution of money to those who don't have so much of it. Importantly this tactic fails utterly when it's a case of distributing the money in such a way where it's impact to the wider populace is very low... such as the money leaving the country (this is why some countries historically had a prohibition on the export of money).
Nick Ryan,
There's no tangible asset behind any government debt. QE is just governent debt, which hasn't been sold to anyone yet. You unwind it, by selling that debt into the market.
QE was also used to buy corporate debt, but I think that was mostly in the US, and in short term bonds, so will get paid back quite quickly, as the Fed stops QE. That was basically identical to a central bank being a lender of last resort, but to other companies as well as banks. So it's reversible money printing, by design. In time, some of the government debt will probably get cancelled, but I'd imagine some will get sold to reduce market liquidity.
You need to remember that money isn't backed by assets either.
Bitcoins have no more "deflation", or perhaps more accurately "de-valuation" than any other currency
I'm not sure what you mean here. Bitcoin is deflationary, because there are a fixed number of coins. Thus as time goes by Bitcoins will buy more goods. That's the opposite to de-valuation, so it has less 'devaluation' than any other currency, not more, by design. This makes banking impossible. Because it costs more to repay a loan than the original loan was worth - as the value of each Bitcoin increases over time. Interest on loans is designed to protect the bank from inflation, plus to give them a profit. Without loans, you can't have investment. So you can't have a successful Bitcoin only economy.
In order to maintain the financial illusion that an economy is growing new money must be continually created
This is the wrong way round, mostly (I'm not a monetarist). Most money isn't notes and coins - which get printed. The money supply goes up when the economy is growing. Because the economy is growing. Money doesn't pool with the rich, because money keeps on circulating. Sure, some people hold on to physical notes and coins, but only a limited amount. Most people shove it in the bank, or invest on the stock market. The banks lend that money out, and the people who borrow it, spend it, and the people they spend it with bung it in the bank (or pay other people who do), and the banks then lend to different people. And the more people who are willing to borrow, the higher the money supply - but the banks aren't printing money, the money's just moving round. Because each time they lend, they have to have the money to lend with, which means someone's lent it to them.
Economics is weird. Money isn't what most people think it is. The job of banks is to recycle it into the economy. We're not on the gold standard anymore, so money doesn't just build up in rich peoples' safes.
Yep, I see your point with the finite number of bitcoins, eventually they will start to be worth more and more. Particularly as time goes by, more will go out of circulation either through being lost or hoarded.
I didn't mean that money being created required actual money to be printed or minted, it's that in order to have growth the extra money must come from somewhere. The daft modern fixation with perpetual economic growth is impossible without the new money that this growth "creates" coming from somewhere otherwise there is in reality no growth as existing money is just be recirculated and through attrition gradually lost, in a very similar manner to the finite number of bitcoins. While the banks like to create money through loaning money that they don't actually have (yet), there is only one final result with this scheme and that is an economic collapse, one of which we have recently experienced when banks were lending each other the promise of money in a self-perpetuating circle and it caught up with them.
A bitcoin is worthless because it is backed by nothing, for a virtual currency to have value it must be backed by something, anything physical be it land, property, precious metals, or even the quantity of water in a fresh water reservoir, it MUST be backed by SOMETHING REAL! Else it is WORTHLESS! At least fiat currency is backed by tax payers. …. http://www.marketoracle.co.uk/Article44562.html
It is not certain and may be a great ponzi fabrication to believe, or have bankers and government backers conspire and collude to have you believe, that fiat currency is backed by tax payers. Methinks the very fact that a crack Euro banker team [European Banking Authority tax force] thinks to regulate and offer demand and control for command of virtual currency markets has them identified as equals in importance and substantive stature.
And El Reg, that headline should probably truly read … Euro banker team on crack to probe whether virtual currencies should be regulated ….. for who would be foolish enough to doubt it be norm phorm in the business.
A contrarian view of bitcoin is that it be actually priceless because of what it has shown us of the real value of fiat currency, which is just a very convenient remote and relatively anonymous and easily 3D printed means of civil unrest command and control, or it was until everyone started to realise its true corrupt and perverse purpose in head office and central banker systems abuse use. Then does it become a lethal liability as it marks out targets for individual attention of the masses.
And it would not be right to confuse anyone and pretend that be best offered to everyone or anyone as a question.
When it costs 5-10% to send a transfer overseas using Western Union, but a few pennies/cents to achieve the same thing using Bitcoin you can immediately see the real value, it exists in the opportunity cost of using another method.
I thought that was obvious.
" virtual currencies being used for criminal activities, such as the anonymous purchase of illegal goods, including drugs and weapons"
Asked my dealer if he accepted bitcoin, his answer, 'shutup s***face, stop a***ing me about and give us the cash" seems you just can't beat hard cash for anonymous tracactions.
A currency, virtual or not, only has value if people perceive it to have value. There are a lot of old currencies that no longer exist or have general value because of this lack of agreed value on the part of the receiver and the giver. You won't get far trying to pay for something in Italian Lira, East German Marks nor the Roman Denarius. Coinage of these defunct currencies has specialist value for collectors, but not a lot more with the exception of the value of the metals themselves.
A currency is nothing more than one-step away from bartering. Rather than me having to trade onions for socks, instead I simply exchange onions for an agreeable number of tokens, and later exchange a agreeable number of these tokens for. The important part is that all parties agree that these tokens have a value, in this instance it's the number of onions or socks they are worth. The next most important point is that while there is a level of trust implied, people will always game the system therefore the tokens must be hard to reproduce which is where scarcity comes in.
In some ways, bitcoins are closer to the origin of currency than the current money markets and banking system where "money" is moved around and between databases on the pretence that it actually exists despite the fact that "calling" all of the money will find an enormous, impossible to fulfill, deficit.
I'm no financial whizz (I'm not typing this from a luxury yacht moored in Monaco) but it's pretty obvious that Bitcoin and similar are more like intangible assets such as shares traded on a stock market than hard cash, but they have the aim of being as liquid as actual money. Money, I think, has to be backed by a bank with a tangible asset, which Bitcoin certainly isn't.
Of course I doubt that'll have any bearing on any prospective regulation, although the desire for regulation seems to stem from the fact that Bitcoin has served it's purpose too well (being an independent, open form of currency - or easily tradable asset if you will) and can be used for illicit trading, rather than because it caught on, bubbled, and burst, losing some people some money.
Gold is another one of those virtual currencies, Shonko Kid, which are not money but intangible assets, for whenever one purchases shiny bars, all one normally ever gets is a scrap of paper which is almost impossible to redeem for the physical item. One would almost think that there is no gold to deliver although one has to hand over the flash cash for it/the virtual paper receipt. All in all, quite a slick racket which makes traders a pretty packet with nothing of great value exchanged by anyone.
I been reading up on some of this stuff. Some very old articles on "triple entry accounting" suggest that it is better for companies to adopt their own internal currency than use double entry bookkeeping. The reasons are somewhat technical but the question remains: how do you separate bitcoins from, say, a small company that adopts its own currency (internal vouchers) for bookkeeping reasons?
I think that law makers are going to find that very difficult to do.
Personally I think it should stay unregulated, even if it means uncertainty to the value of a bitcoin. Those choosing to use or invest in it should be aware of the volatile nature of the currency by now and understand the risks involved, it's their own choice if they want to gamble with their money. Having something that the government can't touch or control has a certain appeal to it in this day and age.
It will become regulated at some point, probably because the bankers are getting involved with it now and will try to use it to avoid paying large amount of tax.
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