A currency exchange that specialises in virtual cash has won the right to operate as a bank.
Bitcoin-Central got the go-ahead thanks to a deal with French financial firms Aqoba and Credit Mutuel.
The exchange is one of many that swaps bitcoins, computer generated cash, for real world currencies.
The change in status makes it easier to use bitcoins and bestows national protections on balances held at the exchange.
Bitcoins, and the global network of computers that supports them, first appeared in 2009 and since then it has become a very widely used alternative payments system. Many people “mine” the coins by participating in that network and a growing number of web stores and online firms accept bitcoins as payment. One bitcoin is currently worth about £8 ($13).
Under European laws, the deal means Bitcoin-Central becomes a Payment Services Provider (PSP) that has an International Bank ID number. This puts it on an equal footing with other payment networks such as PayPal and WorldPay. As a PSP it will be able to issue debit cards, carry out real-time transfers to other banks and accept transfers into its own coffers.
The deal was a “significant” step towards legitimacy for Bitcoin, said Vitalik Buterin, technical editor of Bitcoin magazine.
Before now, he told the BBC, it had been hard for novices to get started with bitcoins. The links that Bitcoin-Central, and other exchanges who have also applied to be PSPs, will have to the global banking system will make that much easier as it will become possible to transact with a bitcoin account just like any other bank account.
It also means, he said, that deposits held at Bitcoin-Central would be backed by the same compensation laws and schemes that apply to cash held in other bank accounts. However, he said, this protection only applied to balances held in euros rather than bitcoins.
The move could convince many organisations and businesses to start accepting bitcoins as payment, he said.
“The more we see governments and banks being willing to deal with Bitcoin, the more comfortable a lot of organisations are going to be making the step forward themselves,” he said.
Bitcoin’s Greatness Not Realized By Succumbing To Regulation
Last Thursday’s news that French company Paymium and their exchange division, Bitcoin-Central, partnered with a licensed and regulated Payment Services Provider (PSP) ignited a heated debate within the bitcoin community. Eventually, Bitcoin-Centraltempered their overly-enthusiastic initialannouncement.
“It feels like these French dudes are bringing saltpeter to a rave,” declared Daniel Stuckey, a writer at Motherboard ridiculing the company for dismissing the founding concepts of bitcoin.
Not singling out the Paymium effort, there is a powerful undercurrent rejecting the notion that bitcoin exchange companies should seek approval to operate within the existing regulatory framework at all. That undercurrent has some validity. That is if larger forces at work don’tsettle the issue before then. However, it is the jurisdictions that they elect to operate within plus the specific exchange types that determine the level of required compliance. Legal counsel willing to challenge the status quo is sorely needed for the days ahead.
Floating-rate, rather than fixed-rate, exchanges are going to require the holding of customer funds in national currencies. Exchanges for actual delivery, rather than cash-settled futures exchanges quoted only in bitcoin, will also require holding customer funds in national currencies. Customers with large balances simply aren’t going to use exchanges that don’t identify their legal jurisdiction, delineate funds, and adhere to some type of recourse for insolvency and stolen funds. So, certain jurisdictions and their financial regulators tend to get involved. This is also the case with Mt.Gox being based in Japan.
Here’s the real issue — regulation in this context is only a bad thing if it leads to crony capitalism or if it suggests that “still-in-beta cryptographic play money” bitcoin requires regulation similar to a national political currency.
While an individual’s bitcoin transactions may still be semi-private, the auditable address links on the block chain and identity requirements for entering or exiting the exchange will remove any doubt as to how much bitcoin was spent or earned. Also, the case can be made that, despite bitcoin’s basis in mathematics and being devoid of ideology, graph theory analysis of the block chain can be significantly improved by having more ‘regulated’ data points thus cumulatively degrading the privacy of all bitcoin transactions. Bitcoin address logs for a bitcoin exchange are like IP logs for a VPN.
Yes, debit cards with a bitcoin logo are cool and they can facilitate easy movement of funds associated with bitcoin balances. But legacy debit cards are institutionalized vehicles of identity and they promote half-way measures. Any role for current financial institutions in the societal wealth transfer to cryptocurrency will come from embracing bitcoin on its terms. If banks want to participate in a meaningful way, they will have to adapt to Tor exit nodes, coin mixing services, escrow provisioning without identity, and underwriting private insurance on balances.
Bitcoin’s great promise lies in its potential ability for both income and consumption anonymity. It is this feature alone that allows users to maintain the same financial privacy as physical cash today and it is this feature that will also lead to liberating advancements such as a thriving and interconnected System D, unhampered and undiluted freedom of speech, and superior asset management that can truly be said to be off-the-grid.
Those who support the antithetical overlay of bitcoin on the current financial system ensure us that it will only be temporary and that we must build bridges. That would be nice but it’s a fairy tale. It reminds me of the Marxist theory of historical materialism and the Marx-Engels ideology that if we only tolerate the bourgeois state during the transitional advancement to a higher phase, we will see the complete “withering away of the state.”
True revolutionary transformations just don’t evolve that way. Linux didn’t first co-exist within the Microsoft DOS and Windows environment and then decide to spin-off into a competing operating system. File sharing under the BitTorrent protocol didn’t conduct a Hollywood outreach program and explain what the technology would mean for the film and recording studios.
One doesn’t request freedom, one claims freedom. As Bitcoin Forum memberbtcbug stated about bitcoin’s acquiescence to legality, “It’s kind of like a bunch of slaves breaking out and then running straight back because they were so brainwashed they didn’t even recognize freedom.” However, the sad reality is that most of the slaves don’t really want to be free which is exemplified by voting for ever-increasing State services that have to be funded through confiscatory levels of taxation and inevitably that means diminishing financial privacy.
Get real people! This is about more than just “agreeing to disagree” when it comes to stricter regulation being a good thing. Bitcoin without user-defined anonymous transactions is a neutered bitcoin. Paper cash comes with more financial privacy. In circular logic fashion, the pro-regulation adherents must then answer to their success, “what have we really accomplished?”