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Digital Currency regulation heats up in EU as law seeks to identify Bitcoin Users and End anonymity

European Union has been an ardent supporter of cryptocurrencies and has even proclaimed that they would be interested in formulating cryptocurrency of their own. The move was a preemptive measure to catch up with the developments in the fintech sector and also bank on the advantages of cryptocurrencies in modern Financial services domain. However, EU has decided to take some harsh steps to combat terrorism which includes banning of transactions greater a particular value that is subjective to the country. This way they would be able to ensure that terrorism funding is put on hold as they would be able to track online transactions.

This has eventually led us to the point where EU has started considering possible ways to regulate Bitcoin transactions. The plot thickens as this would mean identifying Bitcoin users, tracking transactions and doing away with anonymity. Let’s look into the details of how EU is planning to pursue the project:

The twist in the story:

The European Commission published the directive to monitor transactions and promote cashless transactions last July. The proposal has come up for review and the parliament had two options:

  1. To accept and approve the proposal
  2. To push for amendments that would fit the case better

In an interesting turn of events, the parliament went for an amendment to include Bitcoin and cryptocurrency wallets in the purview of the directive.

Regulating Digital Currency Businesses:


This move would mean the focus would shift on Bitcoin and cryptocurrency wallet companies and would essentially require the commission to monitor the transactions at the expense of anonymity. This was evident from the parliament’s quote about their decision:

“Terrorist groups are thus able to transfer money into the Union’s financial system or within virtual currency networks by concealing transfers or by benefiting from a certain degree of anonymity on those platforms”

However the positive aspect of the entire exchange was that the parliament is cognizant how regulations would affect the cryptocurrencies and are prepared to take a balanced approach towards the digital asset class.

Ending anonymity:


After the Paris attacks in 2015 and incidents where the assailant demanded the ransom in Bitcoin, EU government has become very proactive in monitoring illicit activities that are facilitated through Bitcoin. Following the survellaince,  Europol released a report in which it explicitly stated that there was no evidence found linking terrorist activities to Bitcoin financing. Nonetheless, EU is clearly bent on tracking assets through cryptocurrency and end the privilege of anonymity that the currencies offer. Growing acts of terrorism have been given as a prime reason for the decision.

ECB to launch its own digital currency, might eat into Bitcoin’s market share

Disruptive technologies have the potentiality to transform existing technologies in inconceivable ways. Bitcoin and Blockchain Technology represent the kind of technologies that can change the phase of how we know things forever. Blockchain has already picked up applications in numerous fields like financial services, medical services, administration and many other fields that require replacement of conventional databases.

European Central Bank has found another application for cryptocurrencies but this time more aligned to the terms of Fiat currencies. ECB is planning to launch their own Digital Base Money (DBM) is a digital equivalent of banknotes, representing a claim at the central bank. Let’s dive deep into how this currency would work and what this would mean to Bitcoin:

The models for this digital currency system:

Member of the Executive Board of the European Central Bank, Yves Mersch revealed that the they might go ahead with two models for the digital currency: account-based and value-based, both supported by blockchain. For an account-based system, central bank would be directly involved in money transfers between accounts. This wouldn’t require an electronic wallet and the bank could see the whole transaction history.


The value-based DBM design is closer to Bitcoin and is modeled after cash. In this case, the non-banks would have their electronic wallets and the central bank wouldn’t be involved directly. Funds are debited and credited from the electronic wallets creating a traceable transaction history.

What would this move mean to cash:

The reason or motive behind this move was explained as an increasing indirect public demand for a central bank’s digital currency. Mersch stated that as such commercial banks offer various electronic payment methods like credit cards, debit cards, net banking etc. In such cases People may prefer to hold claims on the central bank to avoid the risk that the commercial bank defaults. With the introduction of Blockchain, bringing in this transparency would be far more simpler than anticipated.

As far as cash is concerned, Mersch said that it would co-exist along with the DBM as switching completely to electronic transfers would be difficult.

How would Bitcoin be impacted:

Introduction of ECB’s DBM might have a negative impact on Bitcoin and other cryptocurrencies. Eurozone has been under constant turmoil from last couple of years owing to Greek crisis and lingering after effects of 2008 crisis. Recently Italy added to the pressure by voting bank bail outs. In cases of this Geo-economic crisis, Bitcoin profited with significant fund flows from European commodities. With the introduction of DBM, there is a strong possibility that ECB is shielding their currency from any market impacts. This fund flow would in turn be directed into DBM and Bitcoin might lose out on its share.


However there is another possibility that if Eurozone is losing credibility for investing,people might not even choose DBM for investing and would look for alternatives. How this would exactly pan out, only time will tell.


Bitcoin News Bites

  • An investment bank, Needham & Company, has just released a report which states bitcoin’s value is understated by 58% of its current value. Bitcoin’s ostensible value is $412, but should really have a value of $655, according to the report.
  • You can now get bitcoin from an ATM at 17th and Mission Streets in San Francisco. This is now the third bitcoin ATM in the Mission.
  • Bitcoin technology is stirring controversy on Wall Street. Early in March, 2016, the company CVR3 announced the successful completion of a trial in which over 40 of its member banks put blockchain technology to a test. Each member issued, traded and redeemed a fixed-income product.  Although the test results threaten to make current Wall Street trading technology obsolete, Wall Street spokespeople promise they’ll now use the test results to refashion their old technology for better trading performance.
  • After claiming it would no longer accept bitcoin on its Windows Store, Microsoft announced a complete reversal in policy.  The IT giant has offered no explanation as to why it had initially rejected bitcoin as a payment option.
  • The noted email service, FastMail, that offers paid email accounts, has been accepting bitcoin payments through BitPay for customers who choose to upgrade to its premium option.  FastMail’s work in this area has been completely unannounced and has remained under the radar.  The service is used internationally by over 100,000 individuals and organizations.
  • The first Arab bitcoin community has recently formed.  Until now, there has been little discussion in the Arab world about bitcoin.  The primary purpose of the Arab bitcoin community is to understand the idea behind bitcoin and promote discussions about it.  The group will be pushing for adoption of bitcoin throughout the Middle East and North Africa in the coming years.
  • Bovada Sportsbook, the online sports betting platform, now accepts bitcoin.  This action is welcomed by frequent Bovada since it cuts down on transaction fees incurred through depositing or withdrawing funds. Also, the option to be able to pay with bitcoin represents a boon to privacy, a big concern among sports bettors.
  • According to the Financial Times, in the next two weeks, Australian Craig Steven Wright will announce he is Satoshi Nakamoto, the creator of bitcoin. What’s more, Stevens claims he will prove his identity cryptographically.  Wired Magazine had claimed it received information through a link that Nakamoto is actually Stevens.  Apparently, in about two weeks, we’ll find out the truth from Stevens (Nakamoto?) himself.
  • Coinbase CEO Brian Armstrong reports his company is looking into the creating of “killer apps” for widespread bitcoin usage.  Armstrong envisions, among other things, a world in which large populations with cell phones but no access to banking would be able to fill an immense financial gap through bitcoin transactions.
  • In March, 2016, WireX announced the very first two-way bitcoin debit card.  The card also has a function with which a user can buy bitcoin. Users will be able to fund bitcoin accounts from any location by means of a traditional bank transfer and alternative payment methods. This is apparently the first “hybrid” banking operation that links blockchain technology to the traditional banking system.

The New Bitcoin Portfolio Diversification Strategy

Successful investing, like many endeavors, is often discussed simplistically, as though it were an either/or activity.   Either you store your nest egg in an FDI-insured bank account and let it gradually accumulate a return at a paltry rate of interest.  Or you do something highly speculative with your cash — like play the futures market or slap money down on momentum stocks – with an eye towards a quick and luxurious return on your investment.

There’s something to be said for both extremes.  It certainly makes sense to keep cash on hand in case of an emergency.  Having enough cash available to cover six months’ worth of your basic expenses is a good rule of thumb.  But keeping the bulk of your portfolio in cash, especially at current reduced rates of interest, is foolhardy.  A portfolio consisting solely of cash in the bank can never grow enough to fund you in your retirement years.

Still, highly aggressive investments in vehicles like momentum stocks or the futures markets can wipe out an unseasoned investor in months or even weeks.  But a diverse portfolio that allows for ample protection as well as a bit of rapid growth is a good way to go.

Towards this end, a portfolio consisting principally of gold – physical gold – and a moderate quantity of bitcoin can work very well for a lay investor.   Here’s why. Gold has been around for thousands of years.  As former U.S. Mint Director, Ed Moy, has observed, “Gold is the undisputed king of longevity for being in use since the dawn of civilization.”

What’s more, gold is a tangible asset that routinely serves as a safe haven for investors fleeing the negative effects of equities markets and a declining dollar.  Central banks store physical gold to hedge their inventory of world-reserve currency (dollars) and the devaluation of their home currencies.  Because of gold’s limited above-ground supplies, investors can feel reasonably confident their own stash of physical gold will hold its value and stabilize their portfolios.

If gold represents a balanced portfolio’s stabilizer, bitcoin can serve as its primary growth additive.  The new electronic currency, bitcoin, has ranged in value (in dollars) from zero to $1,230.00 and is currently around $416.00.   Target, Subway, Paypal, Amazon, Victoria’s Secret and Zappos are just a few of the many businesses that now accept bitcoin.  The cryptocurrency stands only to grow in value as its circulation base expands.  As such, it represents a splendid opportunity for robust growth in a balanced portfolio.

The question remains why invest in bitcoin, and why not invest in momentum stocks or even value stocks for rapid growth?  There are several reasons – mainly having to do with the current challenges of publicly owned stocks.

According to a recent poll by FactSet, analysts anticipate first-quarter earnings per share in the S&P 500 will decline by 8.7 %.   If they’re right, this will be the fourth consecutive quarter of a decline in earnings.  This decline would also mark the first such four-in-a-row series of declines since the 2008-2009 financial crisis.

Clearly, if S&P stocks are this vulnerable to decline, momentum stocks – smaller speculative stocks – will be even more vulnerable.

Also, many of the stock purchases we’re now seeing are originating from company stock buybacks. This kind of stock purchase, if handled in sufficient quantity, can reduce the number of outstanding shares and make a stock appear more attractive to outside investors.

If you happen to know someone in a company and have intimate knowledge of its markets, as an investor, you might have a leg up.   But lacking such knowledge, you’d best steer clear of a momentum – or so-called “hot stock” – in the current market environment.

For an alternative approach to a balanced portfolio, then, you might want to consider a mix of bitcoin and physical gold.  Bitcoin represents a new form of investment.  So be sure to use your own tolerance for risk and your available resources as guidelines to the respective percentages of gold vs. bitcoin you choose to invest.

Bitcoin – the Elegant New Alternative to Money

What is this strange new object called “bitcoin,” anyway? Many feel stymied, even intimidated, by the possibility of buying a thing or a service without reaching into their pockets for the familiar green and white printed paper buried in their wallets or stuffed into their handbags.  Others still are suspicious of initiating a click on their computers without the inevitable follow-up act of volunteering sensitive personal credit card information.

But once you come to appreciate how bitcoin enables you to bypass the banking system and any intermediary altogether, you’ll feel only too happy to embrace a commercial transaction without using traditional money or plastic.

The fundamental way all of us can become more comfortable with bitcoin is to rethink the idea of money and currency altogether. What is money and what is currency, after all?  In his positively reviewed 2013 book, Money,TheUnauthorized Biography — From Coinage to Cryptocurrencies, former World Bank official, Felix Martin, provides us with an alternative definition to the traditional definition of money we’ve come to accept without examination or question:

“Coins and currency … are useful tokens to record the underlying system of credit accounts and to implement the underlying process of clearing….But currency is not itself money.  Money is the system of credit accounts and their clearing that currency represents.

…The vast majority of our national money – around 90 per cent in the U.S., for example, and 97 per cent in the UK – has no physical existence at all.  It consists merely of our account balances at our banks.  The only tangible apparatus employed in most monetary payments today is a plastic card and a keypad.”

There you have it – money is not truly a physical object, per se, but rather “the system of credit accounts and their clearing.”

Once you read through the exhaustive history he cites, and give the matter some thought, you’ll realize Martin’s analysis is unassailable. You’ll realize too that former U.S. Mint Director, Ed Moy, nails the essence of bitcoin when he writes:

“…The physical form of money has evolved from commodities to precious metal, to coins and paper bills and to electronic representations. Digital currency is just the next step in the development arc of money”

And if we actually do rethink the definition of money, we canappreciate what Felix Martin means when he refers to money as “social technology,” and what writers about digital currency mean when they report how the bitcoin system works through “peer-to-peer technology.” They give a whole new meaning to the time-honored maxim “money talks.”  Indeed it does – but in a more universal language.

PayPal Exec Takes a Shot at the Financial Sector

PayPal CEO Dan Schulman is a big fan of digital currency.  Through two companies he owns, he’s solidly invested in bitcoin.  It’s not surprising, he stated in a recent presentation, that financial services is one of the least trusted business sectors:

“For two billion poor people, financial services are very expensive and incredibly time consuming – and costs them up to 10% of their disposable income. It’s ridiculous this still happens when we have modern technology – moving and managing money cheaply should be a right for all”

Courageous words – especially coming from the CEO who runs a business that helps ordinary people sidestep a great deal of check writing and, therefore, a great many banks! Some might accuse Schulman of being self-serving.  But one thing’s for sure.  He believes the way to move and manage money easily is through digital currency.

Schulman is garnering plenty of support in the financial community and government. Recently, the International Monetary Fund (IMF) has praised its benefits and suggested governments take a more “nuanced regulatory approach.”

So banks have jumped on board.  But so have governments.  According to a recent Bloomberg editorial, governments would find digital currency less expensive than printing paper money and minting coins.  They could be more precise with official indicators such as inflation and GDP.  And transactions that could be traced would help limit terrorist financing, fraud and money laundering.

Apparently when Dan Schulman (and just possibly the IMF) talk, governments listen.  Because The People’s Bank of China has announced it now intends to issue a digital currency.  And central banks in Ecuador, the Philippines, the UK and Canada are also entertaining the idea.

But you can be sure with banks, governments and digital currency investors all relentlessly standing behind digital currencies, bitcoin, the first among them, is here to stay – and prosper.