'Scrutiny needed' in Bitcoin market
Published 03/07/2014 | 14:42
Companies promoting the crypto-currency Bitcoin have been advised to avoid playing cat and mouse with regulators.
As fears subside about the use of digital cash in the black market, money laundering and hacking, a senior official at the Central Bank of Ireland urged big players in the payments world to open it to scrutiny.
The call was made at a major conference in Dublin where the future of the currency was debated.
Gareth Murphy, director of markets supervision with the regulator, said bespoke rules will have to be developed for digital money.
"Unlike the previous financial crisis when a culture of indifference by parts of the financial services industry towards regulation prevailed, I would urge this industry to work actively to address the concerns of financial authorities rather than 'playing cat and mouse' and eventually, and inevitably, being drawn into the regulatory net," Mr Murphy said.
Bitcoin has been much-maligned for its association with the online drugs market, most notably the now defunct Silk Road, and fears that hackers will be able to target holders of the currency.
It is also volatile, with its value 18 months ago just 10 euro and increasing to more than £811 euro late last year. It now trades at 442 euro.
But now it is gaining credence as a viable alternative for the costly wire transfers of an estimated 440 billion euro in remittances to families in the developing world.
Mr Murphy said financial regulators are mindful of the risks that consumers may rely on products or technologies that they do not fully understand.
"But consumers expect currencies to be a predictable and stable store of value - free from surprises, if you wish," he said.
"When consumers lose confidence in currencies, the related uncertainty leads to a drop in economic activity."
Mr Murphy is understood to be the first policymaker from a central bank to address a conference on bitcoin.
The regulator also talked about digital currencies leading to a loss of tax and threatening economies, and testing the adequacy of anti-money laundering laws.
Supporters of the crypto-currency argue that the virtual money can be abused in just the same way as cash and credit card payments.
Mr Murphy also said the issue of sovereignty was at stake with the introduction of digital currency.
"Clearly rivals to the national legal tender pose challenges to central banks in terms of how to influence the price of credit for the whole economy. The implications for fiscal authorities are similar," he said.
And he warned of the need for regulation to keep speed with technology.
"We should not presume that current regulations are future-proof. It is possible that further innovations will mean that these regulations may no longer apply. This suggests that new regulations may ultimately be needed which are based on new legal concepts with a clear scope which must stand the test of time," he said.
The origin of Bitcoin is shrouded in mystery. The creator, using the pseudonym Satoshi Nakamoto, launched the protocol in 2009, and ceased all communication in 2011.
The concept was to provide open source software to create a trusted peer-to-peer currency not under the authority of a country, government or central bank.
Stephen McNamara, co-founder of Bitnet Technologies and an experienced software developer in the payments sector, said the industry has spent years trying to make credit cards work for the internet.
"Bitcoin changes payments for merchants particularly but also for consumers where we don't have to share our personal financial information," he said.
"If I want a pair of socks from a website why do I have to give them all that personal information about myself or my finances? Bitcoin solves, and really elegantly solves that problem."
Nicolas Cary, founder of the world's most popular bitcoin wallet, blockchain.info, and whose salary is paid in the crypto-currency, rejects assertions that it opens even more doors to criminals for money laundering.
"Just like any type of system, like a hammer that has a purpose for hitting nails into a wall it can also be abused by someone who is a bad person," he said.
"There is a dark and light side to all inventions. But bitcoin is not going to be a good solution for people that have nefarious intentions. All the transactions that are paid on the bitcoin network are in public."
Bitcoin today has been compared it to the internet in 1993 when it was usable only by a select group of techies. It took the development of easy-to-use web browsers to make the internet accessible to everyone.
Opponents, however, remain fearful that a digital currency that has no regulator or central bank is ripe for abuse by hackers and money launderers.
Defunct Tokyo-based bitcoin exchange Mt Gox, is an example as it went bust after it lost about 850,000 bitcoins while the Silk Road, an internet black-market bazaar that accepted bitcoin has been shut down and operators' profits seized.
Bitcoin's status is as divisive at government level. The US classes It as property not currency and therefore taxable. China and Russia have remained hostile to the currency.
Elsewhere, Canada has recognised it as money and will regulate it while the Isle of Man is introducing controls on its use, effectively recognising it.