regulation inside bitcoins seoul

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?

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From the startup & user perspective: what is Bitcoin?

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Open source

protocol

Distributed P2P

network

Math-based

currency

From the regulators‟ perspective: what (the f***) is Bitcoin

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Fiat currency backed

by a central authority

Regular commodity

(tangible resource)

Fairly positive/neutral stance towards Bitcoin

Source: Gatecoin market data, 03/12/2014

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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

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Bitcoin legal status around the world

Prohibited

product Commodity Currency

Specific

status Undefined

Still, some local authorities have taken nonsensical positions

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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

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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

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Ecosystem

Bitcoin becomes

informal (at best) Possible mainstream

adoption

Radical Moderate Cooperative legal

framework

~Balanced regulation

Why does Bitcoin need to be

regulated?

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Cooperation with regulators is the only way for greater adoption

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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

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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

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The merchant issue: unability to accept bitcoins (>1sec)

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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?

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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?

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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)

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1

2

Need to learn from the past failures

Crashed due to fraud-

related activities and low

user-base

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Although Bitcoin is very different, being in line with compliant standards

is a key requirement

How to define a favorable

regulatory framework for Bitcoin?

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Are regulators ready?

Regulators usually deal with currencies backed by a central entity

Regulators are political institutions, usually not focused on complex IT solutions

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“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

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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)

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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

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Focus on the BitLicense

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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

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« The greatest deception men

suffer is from their own opinions. »

Leonardo Da Vinci.

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